RESA Chides Exelon for Support of Three-Year Laddered Default Service

"[I]t cannot be said that three-year SOS supply contracts promote the development of competitive retail markets, as Exelon [Generation Company LLC] argues," the Retail Energy Supply Association said in comments to the District of Columbia PSC.

As first reported by Matters, Exelon Generation Company, LLC and Constellation NewEnergy, Inc. (collectively, Exelon) said in initial comments regarding an investigation into SOS in the District of Columbia that: (1) Pepco should continue to act as the SOS provider, (2) D.C. has successfully been able to promote a competitive market through use of the current laddered competitive request for proposals (RFP) process for full-requirements wholesale electric supply, and (3) the Commission should refrain from making changes to the three-year terms of the SOS supply contracts awarded to winning SOS suppliers.

RESA noted that Exelon stated that it has been supplying Pepco, the SOS provider, with electric power in the District for most of the years since the inception of the District's current competitive process for meeting SOS supply needs with full requirements contracts.

"As RESA would expect of any wholesale SOS supplier that has successfully bid to provide SOS load, Exelon seeks to retain the current SOS procurement structure," RESA said.

However, RESA noted that an SOS rate that is the weighted average of three, three-year contracts, "can and does diverge from market prices."

"A review of the past few years in the District shows that the SOS rate remained higher than market because while the market prices decreased, much of the SOS power was locked in to higher-priced, three-year contracts," RESA noted.

"In jurisdictions that utilize three-year procurements such as the District, Delaware, and New Jersey, competition for mass market customers has been slow to materialize based in large part on the reliance on longer-term procurements," RESA noted. "In general, retail suppliers will not make a significant investment to attract mass market customers in jurisdictions that rely on longer-term products which facilitate boom-bust cycles," RESA said.

"[I]t cannot be said that three-year SOS supply contracts promote the development of competitive retail markets, as Exelon argues. As explained above, longer-term contracts discourage retail suppliers from entering a market because of the likelihood of boom/bust competitive cycles. Generally, retail suppliers do not aggressively invest in markets where only intermittent opportunities exist to make offers to consumers. Retail suppliers will simply invest in other jurisdictions with more favorable market rules and structures. Moreover, customers are denied access to the innovative products and services that they would otherwise enjoy in a robust sustainable retail market," RESA said.

"[N]ot only will the continuation of three-year SOS supply contracts thwart the development of the District's competitive retail market by discouraging retail suppliers from entering or expanding in the District, but the existence of longer-term SOS supply contracts can harm customers. As an example, even if a long-term SOS supply contract procures a small amount of Pepco's SOS load, and market prices decline, SOS rates will be higher than prices that could otherwise be obtained in the market or provided by a competitive supplier. That small amount of SOS wholesale supply would be priced too high in current market conditions and would skew the SOS rate. As a result, SOS customers would pay more than they should for electricity. This is what has happened in the District for the past several years, as Pepco's three-year contracts have been higher than market, and SOS customers have paid the price for this flawed market design," RESA said.

"RESA believes Exelon's position fails to address the District's statutory and public policy objective of creating and sustaining a robust competitive retail electricity market that can yield direct benefits and savings for electricity consumers, especially for the residential and small commercial customer segments," RESA said.