Pennsylvania ALJ: "Typical" Residential Customer Won't Devote Time to Shop, 12-Month Fixed Default Rate Needed at Duquesne Light

In a recommended decision with dangerous conclusions for the future of Pennsylvania's retail market, an ALJ has endorsed a 12-month fixed default service rate for residential customers at Duquesne Light because, "the typical consumer is not willing to spend precious time away from family, work and interests to repeatedly check on the lowest price to compare."

The recommended decision would adopt a default service plan at Duquesne Light covering the period June 2013 to May 2015.

As noted in a related story today, the recommended order's favoring of price stability is inconsistent with the PUC's tentative end-state retail market design

Specifically, for residential customers, the ALJ would adopt the use of non-laddered, 12-month full requirements, load following contracts procured through semi-annual competitive RFPs.

As a result, the residential default service rate would be fixed for 12 months.

While not laddered, 50% of the residential load for the period June 2014 to May 2015 would be procured over a year in advance of delivery, in April 2013.

A table showing the ALJ recommended procurement dates, procurement amounts (as a %), term lengths, and delivery periods for residential, small C&I and medium C&I default service contracts can be found here.

"Duquesne Light's plan mitigates the risk of procuring the entirety of its default supply at the peak of the market. This plan allows for more stability in the default service rate," the ALJ said.

"To use quarterly and annual contracts [as proposed by certain retail suppliers] will compromise price stability too far, resulting in customers who refuse to shop due to the lack of predictability beyond three months and the need for almost constant monitoring of retail market rates," the ALJ said.

"Consumers are interested in saving money but that interest is tempered by equally-competing interests to earn a living, raise children, tend to gardens and home needs. Consumers have not shown themselves as willing to engage in frequent and consistent 'market checks' to determine where to get the cheapest electricity, or the cheapest gasoline, or the cheapest loaf of bread," the ALJ said.

"Any one of those 'market checks' might be tolerated by the typical residential consumer. However, when that one market check is seen as part of the whole, with all of the massive variety of competing pulls on a residential customer's money, resources, assets and time, the 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, I recommend Duquesne Light's [12-month fixed rate] proposal be approved," the ALJ said.

For small commercial and industrial (C&I) customers (under 25 kW), the ALJ would adopt procurement of default service supply through laddered, six-month and twelve-month full requirements contracts, with default prices changing every six months.

For medium C&I customers (25 kW - 300 kW), the ALJ would adopt procurement of default service supply through six-month full requirements contracts with no laddering.

Reconciliation of default service costs would occur annually for the classes listed above.

For large C&I customers (over 300 kW), the ALJ recommends day-ahead hourly spot pricing, purchased directly from PJM, with true-ups made using purchases and sales in the real-time spot markets.

Retail Market Enhancements
The recommended decision would adopt a format for Duquesne Light's opt-in retail auction, although it should be noted that in every other auction proposed in a recommended decision to come before the PUC, the Commission has radically changed the program to be an opt-in "program" rather than auction, with revised term lengths and pricing.

As proposed by the ALJ, however, the opt-in auction would be for a 12-month term, with a rate at least 5% off the Price to Compare, and a $50 bonus payment to customers for enrollment.

For the Standard Offer referral program, the term length would be for 12 months, with a 7% discount off the Price to Compare for the entire term. The Standard Offer program would not start until June 1, 2014, the ALJ recommended.

The ALJ would allow small C&I customers to participate in the retail market enhancement programs; it was unclear how the discounts would work for such customers since their price to compare will change during the program term (PTC changes every 6 months).

Costs of the retail market programs would be recovered from retail suppliers.

Until a generic investigation addresses the issue, the ALJ would restrict Consumer Assistance Program customers from participating in the retail market enhancement programs.

Docket: P-2012-2301664