Claim: Competitive Supplier Says "Index Pricing Is of Limited Use In Promoting Customer Switching"

Maine should not extend LMP-based monthly variable default service pricing to the medium non-residential customer class because, "index pricing is of limited use in promoting customer switching," for smaller customers, Exelon Generation Company said in comments to the PUC.

As part of its ongoing review of default service structure, the PUC asked for supplemental comments on the potential for extending the LMP-based monthly index pricing currently used for large customers to the medium customer class.

Exelon opposed such a change.

"While index pricing can be very effective in encouraging large customers to leave default service and explore more stable pricing in the competitive retail market it tends to have the reverse effect with residential and other small business customers who are less willing to make a decision without an 'apples-to-apples' comparison of fixed prices. The medium class in Maine includes customers in both categories, large businesses who will be encouraged to migrate to third party supply but also small businesses who may be discouraged. This can be the case especially with small businesses that do not fully appreciate the ongoing price risk," Exelon said.

"Small businesses at the lower end of this range, however, tend to be less likely to appreciate the potential volatility of an index-based default supply. Thus, unless customers are made to fully understand and appreciate the change suggested by the Commission ahead of any increase in wholesale power costs they may have a negative experience that may be disruptive to their business. For this reason placing all medium class default customers on index pricing may lead to confusion and customer dissatisfaction," Exelon said.

The Retail Energy Supply Association said that monthly index-based pricing would, "actually make it more difficult for Medium Customers to benchmark their energy purchasing decisions and to take advantage of high value, competitive supply offerings." (emphasis added)

RESA did allow that, once the medium customer class is more familiar with competitive options, "as a next step, these customers can be transitioned to a market-indexed price or some other more market-reflective pricing option." RESA suggested the shortening of the current six-month non-laddered contracts for the medium class to quarterly non-laddered contracts as a means to further develop the market.