Draft Order Would Continue Use of 24-Month Contracts for Pennsylvania Default Service Through 2017

A recommended decision would continue the use of 24-month contracts for a significant portion of residential default service at Met-Ed, Penelec, Penn Power, and West Penn Power through May 31, 2017.

The draft order would adopt without modification a settlement to resolve issues related to the FirstEnergy Pennsylvania utilities' default service plan for the period June 1, 2015 through May 31, 2017.

In the utilities' original default service proposal, the utilities had proposed to procure for residential and commercial service (separately for each class) 95% of default service through fixed price, load following full requirements contracts with staggered 3, 12, 24 and 48-month terms, with the remaining 5% of default service procured on the spot market.

Some 23.75% of default service was proposed to be priced based on a 3-month purchase, 23.75% was proposed to be priced based on a 12-month purchase, 23.75% was proposed to be priced based on a 24-month purchase, and 23.75% was proposed to be priced based on a 48-month purchase. In other words, 47.5% of residential and commercial default service was proposed to be priced based on contracts lasting two years or longer in length

The settlement recommended for adoption by two ALJs would eliminate the use of 3-month and 48-month full requirements contracts for the 95% fixed price portion of the residential product. Instead, only 12 and 24-month contracts would be used, with 50% of the fixed price supply procured under each term length.

For the commercial class, the settlement recommended for adoption eliminates the spot component of pricing and the full requirements products will have staggered 3-month (28%), 12-month (36%) and 24-month (36%) terms.

The settlement recommended for adoption provides that the utilities will conduct descending clock auctions for the 24-month residential and commercial products in October 2014, January 2015 and April 2015. In addition, the utilities will procure 12-month contracts for the residential and commercial classes in three separate auctions in October, January and April of each year beginning in October 2014. Starting in April 2015, the utilities will hold four auctions per year for 3-month products (i.e., in April, June, October, and January) for the commercial customer class.

Currently, charges assessed by PJM Interconnection, for transmission services -- excluding Regional Transmission Expansion Plan (RTEP) charges and Expansion Cost Recovery charges (ECRC) - are embedded in the utilities' Price-to-Compare for default service, and retail suppliers are responsible for these costs for shopping customers.

The settlement recommended for adoption provides that in addition to RTEP charges and ECRCs, the utilities' nonbypassable default service support riders will recover for all distribution customers unaccounted for energy (UFE) costs as well as the following PJM charges billed to the utilities: (1) those attributable to reliability must run (RMR) generating unit declarations and deactivations of generating plants qualifying for such payments after the Commission's approval of the revised default service plan; and (2) historical out of market tie line, generation, and retail customer meter adjustments. Retail suppliers would be relieved from paying for such charges.

The lone litigated issue in the case is whether Network Integration Transmission Service should continue to be the responsibility of the customer's generation supplier, or whether it should be the responsibility of the utility for all distribution customers (similar to the other PJM charges described above). Retail suppliers generally favor making NITS the responsibility of the utility for all customers; this proposal is opposed by large customers.

The ALJs found that under existing Commission precedent, the proposal to include the NITS in the nonbypassable Default Service Support Rider should be denied.

However, if the Commission wishes to revisit this question, the ALJs found ample policy reasons to support making NITS the responsibility of the EDC for all distribution customers, and therefore nonbypassable

"NITS charges, like the RTEP component of NMB transmission charges approved for DSSR recovery in the Companies' DSP II Proceeding, are embedded, cost-of-service rates that are imposed on the basis of an electric distribution company's total native load, regardless of the source of the generation used to serve that load. In other words, the way NITS charges are imposed does not differentiate between EDC load served by default generation suppliers and load served by EGSs. FES/RESA, Exelon and the Companies have provided sufficient evidence to support a finding that NITS can reasonably be included in an EDC's DSSR, should the Commission wish to include them," the ALJs said.

"NITS cannot be financially hedged, resulting in inclusion of a risk premium in bid prices for default supply and retail service offers so their inclusion in the default supply auction product and retail supplier responsibility artificially drives up default service bids and competitive retail offers alike. As they are incurred for the benefit of all customers, it is appropriate that they be assessed on a competitively-neutral, non-bypassable basis through the Companies' DSSR," the ALJs said.

P-2013-2391368