Pennsylvania Adopts Order on Use of Migration Riders (Non-bypassable Reconciliations of Generation Costs)

The Pennsylvania PUC has issued an order regarding an investigation of various issues related to reconciliations of various components of the bypassable electric Price to Compare (PTC), including whether the use of migration riders is appropriate.

Migration riders, which are used in the Pennsylvania retail natural gas market, make customers responsible for any reconciliation of default service costs covering the period during which the customer took default service, even if the customer subsequently switches to a competitive retail supplier. In other words, reconciliations (be they charges or credits) "follow" the customer, and a customer leaving default service would still have to pay (or receive) the reconciliation for the period they were on default service (typically limited to the past 12 months)

Regarding migration riders in the electric market, the PUC concluded, "We do not have a record before us upon which to address generically the use of migration riders in conjunction with reconciliations."

"In the May 19, 2011 order, the Commission asked the parties to address the use of migration riders. PPL advocates in favor of a migration rider that would follow customers who leave the DSP [default service provider] for an EGS. PPL was the only company to advocate for a migration rider," the PUC noted.

"A migration rider, in general, causes some concern about the effect on competition. The Commission strives to ensure that the PTC properly reflects current market conditions. A migration rider has the potential to artificially inflate or depress price signals. Accordingly, evidence of the need for a migration rider should be clear," the PUC said.

In the PUC's order, it adopted various policies meant to make existing reconciliations more efficient (as discussed further below). "We anticipate that, by moving to a reconciliation of actual costs with actual revenues, the need or desire for a migration rider will diminish. Therefore, we decline the use of a migration rider at this time," the PUC said.

"If experience demonstrates that the reconciliation of actual experience does not address the migration issue, we can revisit this issue," the PUC said.

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The PSC's investigation related specifically to reconciliations of the Transmission Service Charge (TSC) applicable to default service customers (a component of the bypassable PTC).

The PUC concluded that Section 1307(e) requires electric distribution companies (EDCs) to reconcile actual TSC revenues with actual transmission costs incurred, and not with historical estimates of transmission demand, for the reconciliation period.

"Going forward, for reconciliation purposes, and to the extent that they are not already doing so, EDCs must reconcile actual revenues based on tariff rates to the actual demand and actual costs incurred for the period being reconciled. EDCs must use actual transmission costs per customer class for reconciliation and must present the Section 1307(e) data on a monthly basis, regardless of the period chosen for reconciliation," the PUC said.

As discussed further below, EDCs may use either annual or quarterly rate changes.

The use of actual TSC revenues and actual transmission costs in reconciliation is a departure from current practice at some EDCs, where historical estimates of demand have been used during reconciliation.

The PUC further explained that, "the TSC reconciliation process should be just a comparison between actual revenues resulting from tariffed rates and actual costs incurred. This approach is consistent with both the language of Section 1307(e) and the fundamental requirement that rates be just and reasonable. The Section 1307(e) reconciliation process is not intended to smooth utility budgeting efforts or to make actual revenue streams match forecasts."

"There is no basis ... to support the argument that reconciliation of TSC requires imputing DSP class-specific demand usage percentage estimates from the prior year into the reconciliation period. While historical demand is useful to predict what future demand might be, it does not 'create' actual demand," the PUC said.

EDCs are required to reconcile the TSC at least on an annual basis, and may elect to conduct more frequent reconciliations. The PUC will not require TSC reconciliations more frequently than annually, however.

"Upon consideration of the comments, the issue with frequency of reconciliation is that some customers who paid the revenues and caused the costs being reconciled will have moved out of the EDC's DSP customer classes and others may have moved into the classes prior to the reconciliation. The longer the interval between reconciliations, the more likely the customer configuration within a class will change. We do not, however, see an across-the-board problem with yearly reconciliations. At least some of the EDCs appear to have sufficient mechanisms in place to address anomalies as they arise between annual reconciliations. Further, we find no support for mandated uniform timing or procedures for quarterly or monthly reconciliations for transmission costs and, thus, do not see a need to pursue such a mandate further at this time," the PUC said.

"We anticipate that the process of reconciling actual revenue to actual costs could alleviate some of the concerns that prompted us to ask for comments on the frequency of transmission reconciliations in this proceeding. While we chose not to specify a frequency of reconciliation, we instruct the industry that the longer the reconciliation interval, the more likely that there may be mismatches between costs and cost causers because of a reconciliation. We shall review the potential for such mismatches in the context of reconciliation proceedings. If the EDCs are unable to minimize the mismatches resulting from fluctuations in class sizes, we will revisit this frequency issue," the PUC said.

The PUC also declined to mandate volumetric pricing of the TSC for large C&I customers at this time.

Docket M-2011-2239714