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RESA Urges Mass. DPU to Use Uncollectibles from All Distribution Customers in POR Reconciliation

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October 7, 2010

The Retail Energy Supply Association has urged the Massachusetts DPU to reject the electric distribution companies' proposed calculation of the Past Period Reconciliation Percentage to be contained in the Purchase of Receivables discount rate, with RESA arguing that the reconciliation component should be based on uncollectibles across all distribution customers (Docket 10-53).

As only reported in Matters (9/21/10), the electric distribution companies have proposed that the Past Period Reconciliation Percentage (PPRP) be based on the difference between actual uncollectibles for customers purchasing supply from competitive suppliers under the POR program and the amounts collected to recover uncollectibles through the discount rate.

RESA argued that limiting the reconciliation factor to supplier uncollectibles, "is unsupported by precedent, potentially harmful to customers and contrary to common sense, and should be rejected."

RESA said that, to its knowledge, all existing POR programs across the country base their payment formulas on the uncollectible expense of all distribution customers, rather than limiting the formula to competitive supply customers.

The electric distribution companies have proposed using only supplier uncollectibles to mitigate any potential for gaming, or cherry-picking of good credit customers.  However, RESA noted that there is no evidence that the use of the uncollectibles factor of all distribution customers in other jurisdictions has led to gaming or has otherwise disadvantaged the distribution companies.  "The absence of such evidence suggests that the EDC concerns supporting their proposed revision to the PPRP are, at best, overstated," RESA said, suggesting that if gaming becomes a problem, the distribution companies may seek relief from the DPU.

RESA noted that the distribution companies' proposal would re-introduce credit risk into serving customers under POR, theoretically creating incentives for retail suppliers to concentrate marketing efforts on customers with above-average credit.  "A POR program that creates financial incentives for retail suppliers to bypass certain customer segments should not be considered to be in the public interest," RESA said.

RESA also asked the DPU to set firm implementation dates for POR at each distribution company, with dates dependent on each company's experience with POR in other states.  RESA noted that National Grid and Western Massachusetts Electric Company have affiliates using POR in other states, and recommended that POR for these utilities shall take effect within three months after DPU approval.  For Nstar and Unitil, which have no POR experience, RESA suggested that POR take effect six months after approval, noting that the mandate for utilities to offer POR has been in place since 2008 legislation.

"Experience in other markets has shown that absent a firm implementation date, POR programs tend to be 'de-prioritized' and can take more than two years to implement from the time an order, without specific implementation dates, is made," RESA said.

RESA also asked the DPU to set several milestones regarding POR implementation, including that distribution companies shall designate their customer class groupings for the purpose of POR no later than 30 days after issuance of an order approving POR.  The proposed model POR terms and conditions would grant the distribution companies discretion in grouping customer classes for purposes of developing unique discount rates.

Furthermore, RESA said that drafts of amended supplier service agreements to be developed by the distribution companies should be submitted to suppliers within 30 days of an order on POR, with discussions with suppliers occurring over the following 30 days.  Within 60 days of an order on POR, RESA said that the distribution companies should report on the status of the revised supplier agreements, including the submission of a finalized agreement if consensus is reached.

Estimated administrative costs should also be submitted within 60 days of an order approving POR, RESA said.

   
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