Some Costs of PECO Opt-In Aggregation Program May Be Collected Through POR Discount, PUC Rules

The Pennsylvania PUC yesterday issued an order regarding various retail electric market enhancement programs at PECO which allows the recovery of implementation costs from retail suppliers through an adjustment to the POR discount rate under certain circumstances.

The retail market enhancement programs include the opt-in aggregation program and the standard offer customer referral program.

Other than certain discrete issues, such as cost recovery, inclusion of small commercial customers, and marketing materials, the PUC approved PECO's revised proposal for the retail market enhancement programs as filed.

In brief, that means that for the opt-in aggregation program, all residential and small commercial (under 25 kW) default service customers will be sent a letter from PECO to opt-into a retail supply program. Pricing under the opt-in program shall be a uniform 5% discount off the PECO June 1, 2013 Price to Compare, followed by an eight-month fixed price term, with such pricing determined by the individual supplier (but whose terms are subject to PUC review). A $50 customer bonus payment must also be provided by the supplier

Default service customers will be randomly assigned to receive an opt-in offer from a specific supplier. A retail supplier may designate a maximum number of customers (by class) it wishes to receive its offer, but otherwise customers shall be allocated on a random and equal basis. PECO will mail, at the opt-in supplier's expense, a standardized offer letter and prepaid return envelope to the allocated eligible customers for each opt-in supplier.

The opt-in program shall cap customer participation at 50% of eligible customers in a particular rate class. This cap shall be implemented by limiting each opt-in supplier to enrolling a number of customers up to 50% of the number of customers allocated to the opt-in supplier in a particular rate class under the program.

See prior story for more details on PECO opt-in aggregation program.

One of the few issues adjudicated by the PUC related to cost recovery.

With respect to the opt-in aggregation program, the PUC ruled that participating retail suppliers shall first pay costs equal to the lesser of $1 per assigned customer or actual program costs.

"Any remaining costs should be recovered in either one of two ways – through a non-bypassable surcharge, as proposed by RESA, or shared with 50% from the POR discount and 50% from residential and small commercial default service customers," the PUC said.

Although not explicit, presumably, the choice of using a non-bypassable surcharge or allocation to POR/default service for any under-recovered costs would be made by PECO.

What is also not explicit, but implied, is that any costs not recovered directly from participating retail suppliers due to the cost cap shall be applied, if using the POR/default service recovery method, from all retail suppliers, regardless of participation in the program. The PUC makes reference to its belief that, "participant costs must be capped," implying any POR discount would not be limited to participating suppliers. Additionally, while PECO's proposal first called for a POR discount to be applied to only a participating supplier that has not paid its allocation, PECO's proposal did also provide for the possibility of including any still remaining unrecovered costs through the POR discount applied to all suppliers. Moreover, with the PUC extending cost recovery to default service customers in this instance, it would not appear consistent that the PUC is only applying the POR discount charge to participating retail suppliers but charging all default service customers for the costs.

While the intent of the PUC to recover these costs from both the POR discount and default service on a 50/50 basis appears to be that such allocation would not distort the market, distortion still results.

First, the allocation of opt-in aggregation costs to non-participating retail suppliers, if that is indeed what will happen, results in the subsidization of a competitor's customer acquisition.

Second, it is unclear if a 50/50 allocation to POR versus default service will result in a competitively neutral allocation of unrecovered costs, particularly if default service sales exceed retail supply sales (e.g. the same amount of costs would be applied over a larger portion of default supply kWh, decreasing the per kWh charge versus the cost assigned to retail supply sales). It's also unclear how costs would be recovered through the POR discount, such as whether an adder to the percentage discount applied to receivables would be used, or whether a flat fee per supplier would be used. Although an adder to the receivables discount percentage could be developed and equally applied to each supplier, because each supplier has a different amount of receivables, each supplier's "effective" discount rate would differ, raising issue of equity, particularly for those suppliers not participating in the program.

Regarding costs for the standard offer customer referral program, "we agree with RESA that a fee of the lesser of $30/customer or actual costs per referred customer is appropriate. Any remaining costs should be recovered in either one of two ways – through a non-by-passable surcharge, as proposed by RESA, or shared with 50% from the POR discount and 50% from residential and small commercial default service customers," the PUC said. The same issues discussed above with respect to mechanics of the opt-in program cost recovery would apply here as well.

The PUC also clarified that small commercial customers under 25 kW shall be permitted to participate in the standard offer customer referral program and New/Moving customer referral program, just as they may participate in the opt-in aggregation program.

"Given the delay in the disposition of the issue regarding the inclusion of small business customers in the Standard Offer Program, it would not be reasonable to expect PECO to include small business customers in the Program by June 1, 2013, the current start date for the residential Standard Offer Program," the PUC said.

"While we do not want to delay the start date for the residential Standard Offer Program, we do not believe that it would be reasonable to expect PECO to amend the Program to include small business customers by June 1, 2013. Accordingly, we will provide that the start date for expanding the Standard Offer Program to include small business customers shall be no later than six months following the issuance this Opinion and Order ... [which] will provide some flexibility to PECO to select a start date on the first day of a month that best makes sense from an operational perspective," the PUC said.

Additionally, the PUC eased certain proposed restrictions on marketing that had been sought by PECO. PECO had sought approval of all marketing materials related to the retail market enhancement programs to the extent they referenced PECO, but the PUC ruled that retail suppliers are not required to seek PECO approval for marketing materials so long as any references to PECO are factual and do not infer endorsement by or affiliation with PECO.

P-2012-2283641