Pa. ALJ Cites "Polar Vortex" in Recommending Laddered Contracts for Default Service

Duquesne Light should maintain the use of laddered 12-month contracts to serve small C&I customers due to the potential for market shock such as the "Polar Vortex", a Pennsylvania ALJ said in a recommended decision on Duquesne Light's default service plan for the period beginning June 1, 2015.

The ALJ would adopt an uncontested settlement in the case that addresses several issues, including residential procurement and pricing changes, and Duquesne Light's Standard Offer and Time of Use programs. Click here for prior story for details of the settlement

Most of the litigated issues in the case revolved around procurement of non-residential default service.

For small C&I customers (under 25 kW), the ALJ would adopt Duquesne Light's proposal to serve these customers using the same procurement schedule and product types used to serve residential customers.

Specifically, the ALJ recommends that Duquesne Light serve small C&I customers through 12-month, laddered full requirements supply contracts from third party suppliers obtained through semi-annual competitive requests for proposals.

The table below shows the RFP Date, Procurement Amount, Contract Term and Delivery Period for each Small C&I procurement:

Date       Amount    Term       Delivery Period
Mar  2015   50%   12 Months   Jun 2016 - May 2016
Sept 2015   50%   12 Months   Dec 2015 - Nov 2016
Mar  2016   50%   12 Months   Jun 2016 - May 2017
Sept 2016   50%   12 Months   Dec 2016 - Nov 2017

The ALJ rejected recommendations from the Retail Energy Supply Association to use a mix of 3, 6, and 12-month contracts to serve small C&I customers, as the ALJ said that RESA's proposal included several "hard stops" in the supply portfolio.

"The DSP VII plan [recommended by the ALJ] avoids purchasing 100% of the supply at one point in time or even within a short, few-month period of time. The use of 'hard stops' in procurement exposes customers to unnecessary rate instability and risk because all of the default service load would be solicited at one time or within a short period of time. Customers would be fully exposed to the impacts of significant market disruptions, such as the recent 'Polar Vortex.' Market disruptions may include sudden and significant increases in default service rates, or the possibility that the solicitation is not subscribed, leaving the customers fully exposed to further market price changes," the ALJ said.

The recommended decision is unclear with respect to the procurements to be used for medium C&I customers (25 kW-300 kW), and whether Duquesne Light's original proposal of non-laddered quarterly full requirements contracts should be adopted, or whether the Office of Small Business Advocate's alternative of six-month non-laddered products should be adopted.

The ALJ offers the following:

"At the outset, it should be noted Duquesne Light has one of the lowest kilowatt demand thresholds for hourly priced default service in the country. Within the context of that fact, OSBA proposed to maintain six-month, non-laddered, full-requirements contracts for Medium C&I customers. In rebuttal testimony, the Company acknowledged this proposal had certain benefits, including longer term price stability and eliminating RFPs, which should produce cost savings. I agree with Duquesne Light and OSBA that OSBA's recommendation for Medium C&I customers is reasonable. The degree to which procurement periods should be shortened to make default service rates more market responsive needs to be balanced with the benefits of price stability and is a matter of subjectivity. However, there is a proper balance in this instance, where a large portion of Medium C&I customers have already switched to a competitive supplier."

Though the ALJ calls the OSBA six-month procurement design "reasonable," the following analysis seems to support the originally proposed move to quarterly contracts.

The ALJ is clear that the hourly pricing threshold should not be lowered below the current 300 kW cutoff. The ALJ said that RESA's proposal to lower the hourly pricing cutoff to 100 kW is inconsistent with the PUC's end-state market order (which preferred legislative changes), and the ALJ called the proposal "premature." Additionally, the ALJ noted concerns that if the medium C&I class were limited to customers 25-100 kW, the load may not be sufficiently large to attract enough bidders for a competitive RFP.

The ALJ recommends that Duquesne Light's current hourly pricing program continue for customers above 300 kW, rejecting a proposal from RESA to require Duquesne Light to bid out the hourly priced service to third parties.

Citing PUC precedent, the ALJ would deny proposals to make Network Integration Transmission Service (NITS), Regional Transmission Expansion (RTEP), Generation Deactivation Charges and Unaccounted for Energy (UFE) the responsibility of Duquesne Light for all distribution customers with recovery via nonbypassable surcharge.

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