Two Retail Suppliers Propose Market Share-Based Allocation of Non-Shopping Customers if Columbia Exits Merchant Function

If Ohio regulators approve Columbia Gas' exit from the merchant function, non-shopping customers should be allocated to competitive suppliers on a proportional basis, based on each supplier's market share, two retail suppliers independently said in separately filed testimony before PUCO.

As previously reported, a non-unanimous stipulation is pending before PUCO that would remove Columbia from the merchant function for commercial customers if certain migration thresholds are met, and would trigger an application before PUCO for Columbia to be removed from the merchant function for residential customers if certain migration thresholds are met.

See prior story for details on the proposed merchant function exit

The stipulation, though addressing the pricing of any remaining non-shopping customers after any merchant function exit, did not address the allocation of non-shopping customers to a competitive supplier, leaving that issue to be addressed by parties in testimony during the case.

Direct Energy Services, LLC and Direct Energy Business, LLC (in joint testimony), and Interstate Gas Supply, Inc., have presented separate testimony in which each proposes that the allocation of non-shopping customers to retail suppliers should occur on a proportional basis, based on market share.

"A proportional allocation methodology would apportion customers to various Suppliers depending on their share of the Columbia market at the time the customer is eligible to be assigned to a Supplier. Each Supplier's market share would be calculated based on their total number of choice eligible customers served inclusive of those enrolled organically on a bi-lateral contract as well as customers in community aggregation programs with a Supplier," Direct Energy said.

"Market share would not include a Supplier's share of customers won through the SCO [Standard Choice Offer] auction process," Direct Energy proposed.

"Service provided to customers by an SCO auction winner is governed by Columbia's tariff, not a bi-lateral contract between a Supplier and the customer, and the SCO auction winner has no right to keep that customer after the end of that current auction period. SCO customers by definition are not shopping customers and therefore should not be counted as part of a company's market share," Direct Energy said.

Interstate Gas Supply similarly proposed that the market share used in the proportional allocation be "organic." Though Interstate Gas Supply defined organic as meaning, "market share based on customers that affirmatively elect to receive service from a Choice supplier," Interstate Gas Supply was not explicit as to whether this included opt-out aggregation customers.

The Direct Energy proposed proportional allocation methodology would be used for both an initial allocation of non-shopping customers, and any necessary subsequent allocations.

"A proportional allocation methodology encourages suppliers to increase market share to receive assigned customers, allows a Supplier to keep its earned place in the Columbia market, and ensures small suppliers who may not have the structure to take on an immediate assignment of a large chunk of load from a rotating assignment will receive assignment in proportion to their business," Direct Energy said.

Since suppliers with greater market share are rewarded under the proportional allocation, it, "incentivize[s] Choice suppliers to offer a more diverse range of products that are tailored to satisfy consumer preference," Interstate Gas Supply said.

Direct Energy provided an illustrative example of the proposed proportional allocation methodology: assume Supplier A has 40% market share, Supplier B has 30% market share, Supplier C has 20% market share, and Supplier D has 10% market share. If there are 100 customers to allocate, then Supplier A would be assigned 40 of those customers, Supplier B would be assigned 30 of those customers, Supplier C would be assigned 20 of those customers, and Supplier D would be assigned 10 of those customers.

Both Direct Energy and Interstate Gas Supply voiced concerns with a rotational allocation, in which each supplier in the market would receive customers based on a rotating list.

"[T]here is the obvious question of whether or not all suppliers have the capital and credit to take on a sudden influx of new load," Direct Energy said of the rotational allocation.

Testimony from Interstate Gas Supply, Inc. indicated that there are currently twenty-four Choice suppliers certified in the Columbia territory that serve less than 500 customers. "Moreover, it is possible that certain of these suppliers serve only one class of customers, that being only commercial or only residential customers. A sudden allocation of significantly greater customers, many of whom from a different customer class requiring discretely different skill sets to serve, may in my opinion seriously stress the operational capability of suppliers who are ill-equipped to accommodate such an increase in customer base," Interstate Gas Supply said.