Pennsylvania PUC Proposal Seeks to "Regulate [Retail] Generation Supply Prices," Will Raise Customer Rates, Supplier Says

Pennsylvania's proposal to prohibit the use of pass-through clauses on fixed rate electric contracts, and only allow such pass-throughs in a new product category called Price With Pass-Through Clause, amounts to the regulation of retail supplier pricing, and will also raise customer rates, FirstEnergy Solutions said in comments to the PUC.

See prior story for background on PA PUC proposal on fixed rate and pass-though products

In comments opposing the PUC's proposal, FirstEnergy Solutions said, "by taking actions that preclude the offering of a popular type of product, to the benefit of other types of products, and requiring EGSs to raise their fixed prices to attempt to account for unhedgeable risks, the Policy Statement would effectively regulate the pricing of competitive generation, which even the Tentative Order recognizes as beyond the Commission's legal authority."

"The Policy Statement would also exceed the limits of the Commission's authority by prescribing specific labels for competitive generation products," FES said. While FES said that the PUC has the authority to require suppliers to provide customers with accurate information, "this authority to require adequate disclosure and explanation does not empower the Commission to prescribe the specific names EGSs use for their products, particularly in ways that influence which products are offered."

"Because generation is no longer regulated as a public utility function, 66 Pa. C.S. §§ 2802(14), 2806(a), the Commission must exercise even greater restraint in refraining from micromanaging EGSs. Notwithstanding this limitation on the Commission's authority, the proposed Policy Statement would engage in the management of competitive licensed EGSs by improperly regulating and interfering with the labeling and marketing of their products, and by effectively causing EGSs to discontinue the use of certain types of products," FES said.

"The unfortunate reality is that no one will buy an electricity product labeled 'Price With Pass-Through Clause,' or any of the other names considered in the Tentative Order," FES said. "Requiring such a label will significantly reduce the number of fixed price offers to Pennsylvania customers, and likely eliminate long-term fixed price offers in Pennsylvania," FES said.

"While an Electric Competition Dictionary with the most commonly used terms is a helpful resource, expanding and detailing it to the point of telling EGSs what to call their products, how to price their fixed price products, or how to market, runs counter to the Commission's overarching objective of encouraging more EGSs and competitive generation products to enter Pennsylvania's retail market and encouraging product innovation. The Commission's proposed changes will increase prices for many fixed price products, entirely eliminate other fixed price products, and stifle innovation and competition," FES said.

Eliminating retail suppliers' ability to use pass-through clauses with fixed rates will increase suppliers' uncertainty and risk in offering such products which, "will result in a definite increase in the fixed commodity price, whether or not a pass-through event actually occurs," FES said [emphasis added]

"The resulting increase in price eliminates valuable headroom below the regulated EDC' s price-to-compare for fixed price products, creating another barrier to supplier entry into Pennsylvania's retail electric market," FES said.

In contrast, support for the PUC's tentative order, in whole or part, came from PPL EnergyPlus and Dominion Retail, in separately filed comments.

Dominion Retail agreed that mass market customers are not in a position to understand the complex pass-throughs used by suppliers. Therefore, while agreeing with the proposed order that "fixed means fixed," Dominion Retail does not support a new category of products that would allow pass-throughs for residential customers. Rather, Dominion Retail said that fixed products should have all-inclusive fixed rates for the initial term of the contract, with no change, although Dominion Retail would allow the supplier to use a "regulatory out" clause that would not allow the supplier to change the rate, but would allow the supplier to cancel the fixed contract if a change in law or regulation warranted (the supplier could also, of course, propose rate changes, but any rate change would require customer consent).

Residential customers are not in a position to determine whether the prices reflected in the pass-through clauses are cost based and/or fair, Dominion Retail said.

"This last concern is exemplified by one of the more detrimental aspects of these clauses - most of the clauses we have seen are one-way ratchets. That is, the rates only increase, so even if the underlying costs were to recede during the life of the contract, the customer gets no prospective rate decrease," Dominion Retail said.

PPL EnergyPlus supported the restriction of pass-throughs in fixed price products, but suggested an alternate name for the Price With Pass-Through Clause products, suggesting that these products should be called "partial fixed price" products.

More notable, however, is that PPL EnergyPlus raised concern that the language proposed by the PUC for the new "fixed means fixed" product definition could still be used to implement a pass-through.

Specifically, the proposed fixed product definition is:

"An all-inclusive price that will remain the same, for a set period of time of at least three billing cycles."

PPL EnergyPlus raised concern that the use of "at least three billing cycles" here (though intended to mean fixed rates cannot be shorter than three months) could be read as stating that the "all-inclusive" part of the rate (e.g. the prohibition on pass-throughs) need only last for three months, but that the term of the "fixed" product could actually be longer.

"The problem with the Commission's proposed language is that the contact could be written for a one year fixed price and advertised as such, but could have a term which permitted flow through of pass through charges after only three billing periods," PPL EnergyPlus said.

PPL EnergyPlus proposes the following alternate language for fixed price:

"An all-inclusive price that will remain the same, for a set period of time equal to the period of time set forth in the offer."

However, by eliminating the three-month provision (and it does not appear PPL EnergyPlus proposes it be included elsewhere in the definition), it would now appear that a 1-month rate could be claimed as "fixed."

See Related Story Today: Pennsylvania Consumer Advocate: Variable Rate Contracts Without Specific Formula Violate Law