Written Order Suggests Deferred Default Service Costs Will Be Recovered From Non-Shopping Customers Only, PUC Also Directs Future Procurements to Mitigate Volatility

A written order published by the Rhode Island PUC concerning its deferral of a portion of significant default electric service rate hikes at National Grid, which took effect on January 1, contemplates that future default service customers alone will pay for such deferred costs.

As previously reported, for residential customers, 16.9% of National Grid's cost of providing SOS for the period January to June 2015 was deferred, with the written order stating that such costs shall be, "deferred and recovered in the period July to December 2015."

We would not want to hang our hat on such language indicating that the deferred costs will remain bypassable, since the requirement could be read as only speaking to timing, and agnostic as to recovery method.

However, the PUC is more clear in stating that, "If the projected balance of the estimated Residential SOS deferral at December 31, 2015 exceeds the updated estimate of Residential SOS costs by 5% or more, the Company shall file a revised base Residential SOS rate at the same time it files proposed SOS rates for the Commercial and Industrial Groups, for effect on July 1."

"The revised base Residential SOS rate should recover the remaining estimated Residential SOS costs such that the estimated deferral balance at the end of December 2015 is as close to zero as possible," the PUC said.

This language suggests that the intent is for deferred costs to be reflected in SOS rates, which under current market design are bypassable.

Additionally, the PUC said that it is, "mindful that such a deferral will likely eliminate the SOS rate decrease anticipated during the period July to December of 2015 due to the Company's collection of deferred costs during the summer months," further confirming that deferred costs shall be reflected in SOS rates, not another mechanism.

Regarding future SOS procurements, the PUC said that it will "expect" National Grid to, "provide assurances ... that its procurement practices have been designed to the fullest extent possible to mitigate winter price volatility and strive to achieve reasonable and stable standard offer service rates for all customer classes."

As to the PUC's authority to mitigate SOS rates, the PUC cited its authority pursuant to R.I. Gen. Laws §39-1-27.3(b) to establish a standard offer service rate that averages costs over periods of time. The Commission said that it is also authorized and obligated to ensure just and reasonable rates, citing R.I. Gen. Law §39-2-1

While the PUC acknowledged impacts on the retail market from deferred SOS rates, the PUC said that legislative policy in favor of promoting retail competition in the electricity industry does not mean that the legislature intended the retail market to be promoted, "by creating undue hardship on ratepayers or that the Commission should elevate retail competition above its obligation to ensure just and reasonable rates."

"On the contrary, the legislature has expressly recognized the limitation of retail competition and the importance of rate stability to a viable economy," the PUC said.

The PUC said that the residential SOS increase under the deferral, which is still 14.25%, "ought to be a sufficient price signal to trigger migration to competitive supply."

"If it is not a sufficient price signal, it is difficult to fathom what level of price signal would cause a customer to leave the standard offer and take electric service from a competitive supplier," the PUC said.