Pa. PUC Chair Decries "Monday Morning QBing" of Retail Market Investigation, Touts Referral Program

Pennsylvania PUC Chairman Robert Powelson, speaking at the National Energy Marketers Association fall leadership roundtable, touted the record of the PUC's adopted retail market enhancements, citing, in particular, the experience with the standard offer customer referral program.

"There were a lot of naysayers, [we] had a lot of Monday morning quarterbacks," who were saying that the standard offer program wasn't going to work, Powelson said.

Powelson said that the robust customer participation in the referral program has vindicated the PUC.

Commissioner Pamela Witmer specifically reported that, "so far," 48,000 customers have been referred under the program, and said that about 85% of customers being referred to an EGS sign up to take supply from an EGS (about 41,000 customers). Witmer did not say specifically what date the 48,000 total was as of, but the referral programs have been in place since mid-August.

To put this in context, while the standard offer programs have provided a much-needed shot in the arm to residential migration, they have only returned the state to the migration growth seen late last year, before a precipitous slowdown starting in 2013 which truly accelerated during the summer (some weeks seeing a decline in residential shopping). See comparison of weekly residential migration growth since August 2012

While Matters is not arrogant enough to believe that the Chairman was directing his comments at this publication, as Matters did question the standard offer referral program as being the only notable policy to come out of the much-heralded retail market investigation, we feel compelled to make several observations.

To continue with the Chairman's football analogy, we think the PUC is moving the goalposts here. Matters readily admits that participation under the standard offer program has been better than we had expected, but at no time did we, nor do we think other serious critics (aside from those opposing any retail enhancements), seriously questioned whether the standard offer program would be beneficial, in and of itself, in helping migrate customers to competitive supply.

Our concern was that the standard offer program, particularly if it was the only reform adopted, was not a reliable tool to achieve what was proffered as the goal of the retail market investigation, which during Phase I had, "conclusively establish[ed] that the current default service model stands as a substantial impediment to a robust competitive retail market in Pennsylvania." With due respect to the benefits of the standard offer programs, they do not address the heart of this problem created by the current "model" of default service.

Powelson himself outlined the stakes at the June 2011 en banc hearing when he called the status quo default service model and retail market design, "unacceptable." Powelson reiterated that, "status quo is not an option," in a July 2011 statement.

Continuing our football analogy, the PUC's retail market investigation seems to us a bit like the 2011 Philadelphia Eagles -- the self-proclaimed "dream team" whose own measuring stick was Superbowl or bust, but who ultimately went 8-8.

While we stress that we are not saying that the PUC's final RMI order was as disappointing as that season, our point is that the PUC and its commissioners themselves established lofty, perhaps unrealistic, goals for the RMI investigation, with grand proclamations of creating, "the most competitive electricity market in the country," and those goals are what the final result must be judged upon. Notably, despite the recognition that the current default service model is a barrier to retail choice, the PUC's final RMI order took no action regarding default service, other than expressing a high-level policy preference which the order did not move to implement, not wishing to get in front of lawmakers.

While adoption of the standard offer program should be lauded and its success celebrated, it is not a viable solution to the barriers identified in the RMI investigation. With due respect to the package of beneficial measures that were adopted during RMI, none of them fundamentally changed the "status quo" in a substantive manner, and we believe the Commission recognizes this, by warning that the retail market is still facing challenges in 2015 unless changes are made.

Describing the risk to the retail market from a potential rise in wholesale prices which are not reflected in default service rates, Powelson said, "We're deeply concerned that as power market dynamics change, we're going to hit a trap here, where the market is going to tank, and people are going to come to us and say in 2015, 'what happened?'"

If this trap is experienced, it would mean that the PUC would have to re-kickstart the market for a third time, "and I don't know if the appetite is going to be there," for that, Powelson said.

This statement recognizes that as successful as the standard offer programs are, they are not substantively removing the risk of a backslide in the retail market, which exists as long as the current default service model exists. Call it Monday morning quarterbacking, but it appears that the RMI investigation was undertaken specifically to avoid the "trap" Powelson remains concerned about. Obviously, the adopted reforms such as the standard offer programs did not fully achieve this goal.