Shock: Largest Retail Supplier Endorses Laddered Three-Year SOS Contracts

The nation's largest retail supplier has endorsed continuation of a three-year laddered portfolio of SOS contracts in the District of Columbia.

In comments on the D.C. PSC's investigation of SOS, Exelon Generation Company, LLC and Constellation NewEnergy, Inc. said that: "Pepco should continue to act as the SOS provider. The Commission has successfully been able to promote a competitive market through use of the competitive request for proposals (RFP) process for full-requirements wholesale electric supply."

"The SOS RFPs have resulted in prices that are generally reflective of the market, but insulate customers from the volatility of any given procurement period through a structure which bids out only a portion of Pepco's load for three-year periods (and one-year periods for large C&I supply) at each procurement cycle," Constellation NewEnergy said [emphasis added].

"[P]otential bidders are interested in the well-defined three-year and one-year SOS supply products and are comfortable with pricing such products through the RFP process. Therefore, Pepco's SOS RFP process is able to bring competitively priced products directly to customers that take SOS. For these reasons, at this time, Constellation believes that the current SOS structure, including Pepco's position as SOS provider, will best serve to continue to meet the needs of the Pepco's consumers and promote the continued development of competitive wholesale and retail markets in the District," Constellation NewEnergy said.

"The Commission should refrain from making changes to the terms of the SOS supply contracts awarded to winning SOS suppliers. As explained above, robust participation in the RFP process each year is related directly to the well-designed, stable and non-discriminatory process that the Commission has established. Potential bidders are comfortable with the well-defined three-year and one-year SOS supply products and are able to efficiently and competitively price these products through the RFP process. For these reasons, Constellation believes that the current SOS structure can continue to effectively meet the needs of the Pepco's consumers and promote the continued development of competitive wholesale and retail markets in the District," Constellation NewEnergy said.

In contrast, the Retail Energy Supply Association noted that the three-year laddered portfolio can be significantly higher or lower than current market prices for extended periods of time. "This procurement strategy serves as a barrier to robust, sustainable retail competition, as it results in 'boom/bust' cycles," RESA said.

"In short, if SOS rates diverge from current market prices for an extended period of time (either up or down), retail suppliers are likely to view that market as presenting only intermittent opportunities to attract customers. [A] structure that allows for 'boom-bust' cycles deters electric suppliers from making the large, up-front investment to enter the D.C. market. With fewer (or no) electric suppliers in the market, customers are denied access to a diversity of value-added products and services that meet their individual needs, including costs savings, fixed prices, the ability to fix or float various proportions of their energy and/or certain cost components of the supply and over various terms, as well as electricity from renewable energy sources or other attributes of value," RESA said.

To the extent Pepco remains the SOS provider, RESA proposed quarterly SOS contracts for customers under 100 kW.

However, RESA said that the retention of Pepco, the incumbent EDC, as the provider of SOS, "presents structural barriers that impede competitive market development, to varying degrees based on customer class, ultimately preventing customers from achieving the benefits of a fully workable and competitive market."

"To address this, RESA proposes that the Commission implement a process by which retail electricity suppliers would be transitioned into the SOS role in the near term."