Self-Proclaimed Competitive Markets Leader: Moving Away from Laddered Three-Year SOS Contracts May Not Improve Retail Competition!

Transitioning Maine Standard Offer service away from the current use of laddered three year contracts in favor of more market-reflective procurements, "may not improve retail competition," a self-proclaimed leader in opening competitive markets told the Maine PUC in an investigation of default service.

Exelon Generation Company, LLC noted that, "the [current] three year forward nature of the procurement has the potential for Standard Offer prices to become stale relative to the market."

However, "[t]his can have either a positive or negative effect on competitive retail activity, depending on whether market prices are rising or falling," Exelon said.

"Consequently, moving away from the current practice to shorter term, non-overlapping solicitations may or may not improve retail competition," Exelon said.

"Since wholesale prices have trended down over the past several years, Exelon does not see a compelling reason for the Commission to change the current practice, at this time. We recommend that the Commission instead continue to observe the development of the retail electricity market in Maine and revisit this issue if and when experience begins to indicate that the current standard offer solicitation practice has become a barrier to further progress," Exelon said.

The recommendation is consistent with Exelon's endorsement of a three-year laddered SOS portfolio in the District of Columbia (see related story).

In contrast, retail supplier Electricity Maine, LLC said, "[t]he Commission cannot simultaneously encourage the development of a competitive market for smaller customers while also fully insulating such customers from the effects of rate volatility. A staggered Standard Offer term that is designed to smooth cost changes over an extended time period significantly impedes the development of a competitive market and results in large migration of customers in and out of Standard Offer service and CEP service due to differences in market timing. With greatly increased CEP competition for the residential and small commercial load, the leveling of Standard Offer rates is no longer necessary and hinders competition."

"For retail competition, including competitive demand response, energy efficiency, and renewable offerings, to continue to develop, Standard Offer rates must reflect market price signals," the Retail Energy Supply Association added. "Accurate price signals provide customers with the information they need to understand the value of competitive, retail electric market offerings and to encourage load shifting, conservation, and energy efficiency. In contrast, creating a disconnect between retail prices and the wholesale market sends inaccurate pricing signals with regard to the value of competitive, retail offerings and the cost-effectiveness of demand-side management strategies," RESA said.

Likewise, North American Power and Gas, LLC supported an approach that would lead to a market-based price adjustment at least every six months to avoid potential "boom and bust" situations that could lock retail suppliers out of the Maine market for a year or more.

Docket #2013-00200