Connecticut "Ready" for Retail Auction of Default Service Customers, Lawmakers Told

Connecticut, with nearly 50% of residential customers on competitive supply, is "ready" to move to a retail auction to transition remaining standard service customers to competitive supply, Chris Kallaher, senior director of government and regulatory affairs for Direct Energy, told lawmakers in testimony on SB 843, the governor's budget bill which includes a retail auction of standard service customers as previously proposed by the Department of Energy and Environmental Protection (click here for prior story).

About 800,000 customers remain on standard service. Outside of Texas, Connecticut has the highest migration rate to competitive supply as a percent of accounts, ahead of even the much-hyped Pennsylvania market.

Kallaher noted that there are other means of moving customers to competitive supply (assignment by random process or market share), but said that the retail auction as proposed by the governor is the only one that unlocks the value of the customer assignment, through the fee bid by suppliers for the right to serve customers. Such funds are proposed to be used to supplement Connecticut's budget.

As proposed in SB 843, residential customers and small commercial customers who, as of June 1, 2013, are receiving the standard offer and have not contracted with a participating electric supplier, shall be aggregated by the state for the purpose of auctioning the right to provide competitively-priced electric generation service to such customers by electric suppliers.

The procurement manager of the Public Utilities Regulatory Authority would issue a request for proposals to all electric suppliers licensed in the state for a bid to provide a full service contract to blocks of residential customers and small commercial customers on the standard offer at a price that is not less than five per cent below the standard offer rate for such customer class as of April 1, 2013, for a period of not less than one year from the date such service commences.

The responses to the request for proposal shall include the price per customer such electric supplier will offer for the right to supply electricity to customer blocks of not less than one hundred thousand, and the price per customer for each additional increment of not less than ten thousand additional customers.

Per SB 843, "[t]he procurement manager shall establish the criteria for selection of the successful proposers for competitive electric supplier."

Exelon noted that, as written, SB 843, "leaves the bidders and the procurement manager without a clear metric on which to award the winning bids," as bids could be evaluated on retail pricing (although a price ceiling is established, the bill does not call for uniform pricing), or the auction fee offered by each supplier.

Exelon recommended a fixed auction fee of $100 per customer, which would be in line with the $80 million revenue target for the auction. Customers would then be assigned to suppliers based on the lowest pricing.

Although the supplier must only offer a 5% discount to the then-existing standard service rate for a period of 12 months, customers would be assigned to winning suppliers for a term of not less than three years. Consumer advocates raised concerns about pricing after the initial 12 month period.

SB 843 provides that, "Nothing in this section shall prohibit a residential customer or small business customer who has been aggregated and auctioned to an electric supplier from choosing to obtain service from any other licensed electric supplier at any time."

Consumer advocates have cautioned that, despite this language, the bill does not contain an explicit prohibition on the application of early termination fees to customers won through the auction.

Exelon, however, interpreted the bill as not granting the suppliers the ability to apply an early termination fee, and said that this, "may have a chilling effect on auction participation." Exelon proposed allowing suppliers to impose a $100 early termination fee for customers who leave during the 12-month fixed price term.

SB 843 provides that the procurement manager shall issue a request for proposals on or before July 1, 2013, and at subsequent intervals of not less than three years or when the number of new residential customers and small commercial customers on the standard offer and not served by a competitive electric supplier reaches a threshold of ten thousand customers.

Under the bill, an electric distribution company shall continue to provide service to (1) any residential customer or small commercial customer not transferred to a competitive electric supplier as a result of the auction process, or (2) any new residential customer or small commercial customer that does not select a competitive electric supplier. Consumer advocates have raised concern that standard service will no longer be a viable benchmark if only residual load is served on standard service.