Retail Supplier Seeks Advisory Ruling From PUC Regarding Two-Part Fixed Term Contracts

Electricity Maine has petitioned the Maine PUC for an advisory ruling that the Commission would not classify a service contract for a fixed term composed of two identified segments, each with different pre-determined fixed rates ("two-segment fixed rate") as falling within the definitions of "Indexed Variable Rate or Charge" and "Non-indexed Variable Rate or Charge" pursuant to 65-407 C.M.R. ch. 305, § 1(B)(24)-(25).

Electricity Maine noted that the question will impact the applicable constraints on auto-renewals and disclosure requirements (§ 4(B)(1), 4(B)(6)).

The following examples illustrate the two-segment fixed rates for which Electricity Maine seeks guidance:

Example 1. The supplier offers a contract for a total fixed term of service of 12 months. The customer would pay Rate A during the first segment, for months 1 through 6 (6 months). The customer would pay Rate B during the second segment, for months 7 through 12 (6 months). Both Rate A and Rate B would be pre-determined by the supplier and disclosed to the customer in advance (i.e., before the total fixed term of service commences).

Example 2. The supplier offers a contract for a total fixed term of service of 9 months. The customer would pay Rate Y during the first segment, for months 1 through 4 (4 months). The customer would pay Rate Z during the second segment, for months 5 through 9 (5 months). Both Rate Y and Rate Z would be pre-determined by the supplier and disclosed to the customer in advance (i.e., before the total fixed term of service commences).

The language in Chapter 305, Section 1(B)(24) of the Commission’s rules defines Indexed Variable Rate or Charge as, "any rate or charge that varies over the duration of the term of service where the rate or charge is reasonably related to a public index or otherwise reasonably determined through a readily accessible formula." Section 1(B)(25) defines Non-indexed Variable Rate or Charge as, "any rate or charge that varies over the duration of the term of service other than an Indexed Variable Rate or Charge." Electricity Maine specifically distinguished that for a Non-indexed Variable Rate or Charge, the rate is defined as varying, "over the duration of the term of service."

"Confirming that the two-segment fixed rate is a fixed rate is consistent with the consumer protection purposes underlying the separate definitions and rules for variable rates," Electricity Maine said. "First, there is no continuous potential for variation and the consumer would be informed of all rates at the time the contract is signed. Moreover, a two-segment fixed rate would not allow a CEP [supplier] to unilaterally increase the rate mid-term, or change the rate to anything other than the fixed rate to which the consumer originally agreed. Likewise, a two-segment fixed rate does not present the market volatility risks posed by variable rates. Finally, clarifying that a two-segment fixed rate is not a variable rate is preferable to the permissible alternative of separately offering the first segment of the two-segment fixed rate, and then automatically renewing at the second rate for the second segment."

Case 2015-00335