PUC Modifies Fixed Default Service Adder Under "Innovative" Design To Make RTEP Costs A Pass-Through, Make Bidding More Attractive to Retail Suppliers, Others

The Pennsylvania PUC has modified what has been called an "innovative" default service program at Citizens Electric Company and Wellsboro Electric Company which previously did not attract any bidders, and previously resulted in the companies continuing their stratified procurement approach to default service.

As previously reported by EnergyChoiceMatters.com, the PUC had approved a plan at Citizens and Wellsboro for the period June 1, 2015 to May 31, 2018 under which all non-hourly default service customers were to be awarded to a single winning supplier at each utility, with pricing based on a blended six-month fixed index of wholesale prices (set on various trigger dates), plus a fixed retail adder as determined through the RFP (click here for more specifics on product design).

While then-Commissioners James Cawley encouraged retail suppliers to bid on the "innovative" default service product, only two suppliers bid in the auction, resulting in the auction being deemed non-competitive, and default service being served under the contingency stratified procurement approach for a period of 12-months.

However, Citizens and Wellsboro are holding another RFP to select a supplier to serve the remaining 24 months of the default service term under the wholesale index-plus-adder approach.

To make the default service product more attractive to suppliers, the PUC approved a request from the utilities to remove PJM Regional Transmission Expansion Plan/Transmission Enhancement Cost Recovery (RTEP) from those costs to be recovered under the supplier adder, and to recover such costs on a pass-through basis instead.

The utilities noted that RTEP can be volatile and are outside the control of the default service suppliers.

The utilities are now conducting an RFP to select a single wholesale supplier under the wholesale index-plus-adder approach for the period June 1, 2016 to May 31, 2018

While no action was taken by the PUC on the requirement that the procurement receive at least three bidders, Vice Chairman Andrew Place encouraged parties to re-examine the issue, and whether pricing in the auction could be deemed competitive if there were only two bidders if the pricing is still just and reasonable

"I would also like to encourage the parties to consider examination of the minimum of three qualified bidders requirement. The Commission [in 2015] had previously considered a petition by the Companies to reduce this requirement to two qualified bids. However, this petition was filed at the last minute, and didn't provide adequate time for review, as noted in the Order which rejected this modification. Going forward, the parties may want to consider the more relevant issue -- that the bids are just and reasonable, as determined by the auction monitor, or by company issued pre and post bid reports that examine the fundamental cost elements of the procurement to determine if the bid results reflect the underlying cost of electricity supply and/or transmission. In summary, the number of bids may not be the best 'just and reasonable' litmus test. We could have three or four bids, but the underlying bids may not be reasonable relative to the fundamental cost elements. On the other hand, we may receive two very aggressive bids that are affirmed as just and reasonable based on pre and post bid cost analysis. Therefore, I encourage the parties to reexamine this DS Plan design element, in order to increase the efficiency and effectiveness of these procurements," Place said in a statement

Regarding the appeal of the Citizens and Wellsboro default service product to retail suppliers, in February 2015, Cawley had said, "The proposal offers an opportunity for Electric Generation Suppliers (EGSs) or wholesale suppliers to serve the entire default service load of either company -- in excess of 5,000 customers each -- through a competitive process that provides indexed energy prices that can provide a reasonable level of security and lower volatility, yet also is reasonably market price reflective. Suppliers are likely to be interested in such a product, given the [then] three-year duration and attractive tranche size."

Docket P-2014-2425024