Shock: Separate Pennsylvania ALJs Each Propose Long-Term Fixed Rate for Default Service in PPL, Duquesne Light Draft Orders!

In the latest example that Pennsylvania's retail market design is a mess, and notions about an "end-state" are hollow, two Administrative Law Judges, in separate and distinct recommended decisions, have endorsed long-term, fixed prices for default service customers, at PPL and Duquesne Light.

Specifically, a recommended decision in PPL's default service case recommends a six-month fixed rate for residential (and small commercial) customers, and a recommended decision in Duquesne Light's default service case recommends a 12-month fixed rate for residential customers.

See related story today for details on Duquesne Light recommended default service.

See related story today for details PPL recommended default service.

It must be stressed that each of these recommended orders were authored by different Administrative Law Judges, so this does not reflect the application of a single individual's preferred interpretation of the current default service statute.

A long-term fixed rate stands in stark contrast to the Pennsylvania PUC's tentative order regarding an end-state retail market design, which favors quarterly price changes for residential default service. Although the tentative order is not yet final, and was issued only a day before the recommended decisions were issued, the fact that the ALJs have not given deference to the tentative order (whose policy had earlier been outlined in a September secretarial letter) illustrates the problems, previously noted by Matters, of harmonizing the PUC's end-state design (quarterly auctions for residential default service) with the "price stability" language contained in the preamble to Act 129, 2008 Pa. Laws 129.

Notably, this "price stability" language is only contained in the preamble, not the statute itself, and the PUC has already rejected elevating this price stability standard over the actual text of the statute, in its recent Pike County decision.

Nevertheless, the ALJs each rely upon the "price stability" standard to reject quarterly pricing of residential default service. Note that quarterly pricing would not necessarily mean quarterly procurements, but rather a quarterly price adjustment to reflect updates to a "prudent mix" of overlapping contracts which are already designed to ensure price stability, such as the case currently at PPL, and most of the other EDCs in the state.

Indeed, the recommended six-month fixed default service rate at PPL is a step backwards, as quarterly rate adjustments are already in place, and flies in the face of the PUC's tentative order on an end-state retail market design. In essence, if the recommended decision is adopted, and the tentative order is adopted as well, PPL will go from its current quarterly pricing of default service, to a six-month fixed rate for June 2013 to May 2015, back to quarterly pricing effective June 1, 2015.

The Duquesne Light recommended decision is particularly dangerous, as it essentially finds that not all residential customers wish to actively shop for power, and therefore a stable default service rate is necessary to protect such customers (see related story today for more details).

"[T]he typical consumer is not willing to spend precious time away from family, work and interests to repeatedly check on the lowest price to compare. Therefore, in order to maintain price stability and confidence in the retail market," the ALJ recommends a 12-month fixed rate at Duquesne Light.

While the PUC has shown its willingness to modify recommended decisions that over-emphasize price stability as a factor in adopting a default service procurement and price structure, the fact that two separate ALJs have reached conclusions entirely opposite to the PUC's tentative end-state retail market design shows that the end-state market design, absent statutory changes (and perhaps even with statutory changes), will be a fragile arrangement, easily broken over time through natural turnover at the PUC.

Believers in retail markets will not hold power on the Commission forever, and as has been seen elsewhere (New York, Maryland), new administrations can drastically alter the landscape. Even if outright skeptics or opponents of retail competition never gain seats on the PUC, if new Commissioners are merely uninterested in retail choice (with their attention devoted to some other favored policies, be it energy or other industries governed by the PUC), this could elevate the deference given to recommended orders, such as those favoring long-term fixed default rates at PPL and Duquesne Light, and could undo any prior order on the end-state market design.