New Hampshire Creates Alternative Default Service Rate Option, Dissent Says Rate May Stifle Competition

The New Hampshire PUC has conditionally accepted a non-unanimous stipulation to create an alternative default service rate option for customers at Public Service Company of New Hampshire, which Commissioner Michael Harrington said may, "stifle competition."

As previously reported, the alternative default energy service rate (Rate ADE) will be applicable to certain customers returning to PSNH for power supply after service with a competitive supplier

Specifically, Rate ADE will apply to customers returning to PSNH supply after at least 12 consecutive months on competitive supply. Initially, Rate ADE will apply to such returning customers taking delivery service under Primary General Service Rate GV, Large General Service Rate LG, or Backup Service Rate B. Within nine months of implementation for these rate classes, Rate ADE will apply to all rate classes, including residential customers.

Rate ADE will be calculated using PSNH's forecast of the marginal cost to provide full requirements service to the New Hampshire load zone, plus an adder that reflects the non-operating costs of the Merrimack Scrubber. The forecast of marginal costs shall include forward energy market prices, forward capacity market prices, forecasted ancillary service costs, forecasted ISO-NE market administration costs, and forecasted renewable portfolio standard compliance costs, all of which shall be determined in a manner consistent with that utilized in PSNH's filings for Rate DE (standard default service).

Rate ADE will be set annually effective January 1, with the potential for a 6-month adjustment.

Customers taking Rate ADE may only take the service for a maximum of 12 months, the PUC ruled, adjudicating one of the issues not covered by the partial settlement.

Rate ADE was approved as a "pilot" option in place for a period of 36 months, starting 30 days after settling parties agree to a condition imposed by the PUC noted further below.

While the PUC recognized concern about Rate ADE potentially sending the wrong price signal as customers look for alternatives in the competitive market, "we note that, as now proposed, the Rate ADE calculation results in a per kWh rate that is higher than the market cost of power, and presumably an informed customer would opt for the lowest cost energy supply."

"Further, by establishing Rate ADE as a pilot program pursuant to the Settlement and by closely monitoring the number of customers enrolled and other aspects of the program through annual reports and reviewing the benefits that are expected to be derived from the adder, the Commission will be able to determine if the rate is causing undue harm to the competitive market," the PUC said.

Commissioner Michael Harrington dissented from the PUC's approval, stating that, "[t]he ADE rate appears to violate a number of statutory provisions as well as policy principles."

"The proposed rate is designed primarily for the purpose of attracting customers away from competitive suppliers and back to PSNH to address the problem of customer migration and the consequent increased cost to existing PSNH default service customers. The real driving force behind the 'need' for an ADE rate is an ever-increasing DE rate that is generally higher than rates offered by competitive suppliers and the resulting tendency for customers to seek and stay with competitive suppliers. At the same time, the ADE rate could encourage more customers to leave default service and sign up with a competitive supplier, as this would be the only way they could ever be eligible for the lower ADE rate," Harrington said.

"Effectively, what the ADE rate offers customers is the ability to obtain rates from PSNH that are lower than DE rates. By approving the proposed ADE rate, we will be creating a mechanism to enable customers to jump back and forth from the competitive rate to the ADE rate, whichever is lower. Overall, such a result does not help anyone but the customers who have chosen the competitive supplier or ADE options, although a small percentage of revenue will flow from the 'adder' element of the proposed ADE rate to partially defray PSNH's costs and thereby slightly lower the costs charged to DE customers. The proposed ADE rate will establish a new, 'intermediate' rate that could encourage even more gaming of the system than the current situation permits," Harrington said.

"There are further concerns about the ADE rate that persuade me to dissent from the majority opinion in this case. Our statutes provide that the costs of administering default service should be borne by the customers of such service. RSA 374-F:3, V(c) ('The allocation of the costs of administering default service should be borne by the customers of default service in a manner approved by the commission.'). Here, however, it appears that the costs of administering the alternative rate, or ADE, will not be borne by ADE customers at all, but will ultimately be charged to PSNH's distribution customers, some of whom will be neither ADE nor DE customers – thus in direct conflict with the statute," Harrington said.

"The Commission should not be in the business of favoring one energy supplier over others by authorizing discriminatory pricing as a substitute for prudent business planning and management, especially where the cost will be borne by ratepayers. As noted above, the initial justification for developing an ADE rate was to address the increasing number of DE customers leaving PSNH for the competitive market. A rule that provides special treatment to one supplier -- in this case PSNH -- and attempts to minimize that supplier's loss of energy service customers to other suppliers is in direct conflict with the statute and contrary to the principles of restructuring. RSA 374-F:3, VII ('Choice for retail customers cannot exist without a range of viable suppliers. The rules that govern market activity should apply to all buyers and sellers in a fair and consistent manner in order to ensure a fully competitive market.')," Harrington said.

Harrington also noted that under the forecast mechanism used to calculate Rate ADE, when short-term market prices spike, as they did in January and February 2013, the proposed ADE rate could result in under-collection from existing ADE customers, in the event those spikes exceed the marginal cost on which the ADE rate is based.

As noted above, the PUC conditioned approval of Rate ADE on a modification to the partial settlement. Specifically, the PUC said that there may be some customers who through no action of their own find themselves returned to default service because their competitive supplier has defaulted. "For this group of customers we believe it would be appropriate for PSNH to enroll them on the lower of standard Rate DE or the alternative Rate ADE, once enrollment of residential customers on Rate ADE can be implemented," the PUC said, conditioning approval on the signatories' acceptance of this condition.