State Proposes to End Default Service Cost "Recalculation" (Bill Adjustment) Required When Customers Shop

As part of a wide-ranging proceeding to update a host of retail electric market provisions, the Massachusetts DPU is proposing to eliminate, for residential and small C&I customers, the basic service cost recalculation applicable to customers who leave basic service for competitive supply.

Under the basic service cost recalculation, customers who had been on fixed price basic service have their past costs for the current basic service six-month (or three month) pricing period recalculated as if they had been on the monthly priced basic service option. Customers must then pay an additional charge resulting from the recalculation if the recalculation results in a higher cost.

The DPU proposes to retain the basic service bill recalculation requirement for medium and large C&I customers but eliminate the requirement for residential and small C&I customers.

"The Department considers it appropriate to continue to apply the bill recalculation requirement to medium and large C&I customers for two reasons. First, as discussed above, medium and large C&I customers taking basic service are, by default, placed on the variable-price option but may request the fixed-price option. Maintaining the bill recalculation provision for these customers ensures that the decision to change their basic service pricing option is not motivated by the desire to game the system by taking inappropriate advantage of price differentials between fixed basic service rates and prices available in the competitive market. Second, as a general rule, competitive suppliers typically market to these large-use customers on an individual basis, and may discuss with their customers how to 'game the system' by taking advantage of the relationship between wholesale market prices and basic service rates," the DPU said.

"We note that neither of these rationales applies to residential and small C&I customers," the DPU said.

"First, these customers are automatically placed on the fixed-price option and must affirmatively request the variable-price option. In fact, because the supply prices that customers historically have seen on their electric bills have remained constant for periods of six months (or greater), it may be reasonable to assume that a large majority of residential and small C&I customers are unaware of the variable pricing option. Second, competitive suppliers typically market to customers with low-usage levels (i.e., residential and small C&I customers) using a 'mass-marketing' strategy (i.e., a general marketing campaign with standardized products, as opposed to marketing products tailored for individual customers). Accordingly, it is unlikely that suppliers discuss with customers the potential benefits of 'gaming the system' by strategically switching between competitive supply offerings and basic service to reduce their electric supply costs."

"As such, the Department sees minimal, if any, benefits in continuing to apply the basic service bill recalculation provision to residential and small C&I customers. We are, however, concerned that continuing the bill recalculation practice may be a barrier to residential and small C&I customer participation in the competitive supply market. In particular, we are concerned that this practice could result in customer confusion and dissatisfaction because customers may perceive the bill recalculation charge, appearing on their electric bills, to be a penalty for leaving basic service and switching to a competitive supplier. On balance, the Department expects that the advantages of not applying the bill recalculation provision to residential and small C&I customers are outweighed by any disadvantages of continuing to doing so. As such, the Department proposes to eliminate the application of the bill recalculation provision to residential and small C&I customers," the DPU said.

D.P.U. 14-140

See Today's Related Stories on Massachusetts Retail Electric Market Changes:

State May Require Retail Suppliers to Provide Pricing "Benchmarks" Under New Disclosure Label Rules

Regulator Proposes to Require Background Checks for Door-to-Door Agents; Suppliers Must File Door-to-Door Marketing Plans, Weekly Complaint Reports

State Proposes New Rules Governing Assignment of Customers to Another Retail Supplier, Prohibition on Termination Fees

State to Launch Retail Electric Shopping Price Website