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N.H. OCA Suggests POR As Solution to Shifted Costs at PSNH; Most Parties Oppose Nonbypassable Surcharge
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March 1, 2011
The majority of parties to a proceeding concerning customer migration at Public Service of New Hampshire argued that a nonbypassable surcharge to recover certain costs related to default service is not permissible, while the Office of Consumer Advocate suggested that Purchase of Receivables could be one of several short-term strategies to address concerns that migration of large customers to competitive suppliers is leaving small volume customers paying higher default service costs.
As only noted in Matters (6/23), PSNH had petitioned the PUC to implement a nonbypassable surcharge to recover certain generation costs of default service, arguing that as large customers migrate away from PSNH, small volume customers are unfairly left to pay a larger share of fixed default service costs, particularly those related to PSNH's retained generation.
However, other than PSNH, no party filing briefs in the case supported the imposition of a nonbypassable surcharge, raising both legal and policy objections.
PUC Staff, for example, noted that PSNH did not cite any statutory authority for a nonbypassable surcharge, after having abandoned its original argument that the costs it is seeking to recover qualify as stranded costs. "In fact, the lack of such statutory authority is consistent with the restructuring principles of RSA 374-F which include, among other items, 1) customer choice and minimization of customer confusion (RSA 374-F:3, II); 2) market competition (RSA 374-F:1 and RSA 374-F:3, VII); 3) avoidance of cost-shifting among customers (RSA 374-F:3, IV); and 4) mitigation of stranded costs (RSA 374-F:3,XII). Simply stated, the imposition of a non-bypassable charge would dampen the attractiveness of low rates offered by competitive electric suppliers and deter PSNH customers from electing competitive supply and is inconsistent with the restricting [sic] principles. Staff, therefore, recommends that the Commission deny PSNH’s request for its proposed non-bypassable charge," Staff said.
OCA, the Conservation Law Foundation, TransCanada Power Marketing Ltd., and the New England Power Generators Association also filed briefs opposing the nonbypassable surcharge.
In order to address the costs borne by small volume customers due to migration, Staff suggested several short-term measures, such as a stay-out provision for migrating customers, separate default service pricing for customers returning to PSNH default service, reallocation of PSNH’s default service costs to the various classes of customers, or the issuance of RFPs for at least a portion of PSNH’s supplemental power purchases (in place of the managed portfolio).
Under a stay-out provision, customers who migrate to competitive supply and then return to PSNH for default service during the stay-out period would either pay a premium on the default service rate or have pricing that otherwise differs from those customers who have remained default service customers. Staff said that such a provision could avoid the statutory prohibition on exit fees, and properly allocate incremental costs of default service supply to cost causers, though Staff conceded that the measure will likely do little to address the cost shifting given the relatively small number of customers who have migrated and then return to default service.
Unlike other parties, Staff was not prepared to fully endorse several longer-term solutions, such as the use of full requirements RFPs for all of PSNH's supply, separate (perhaps hourly) default service pricing for large customers, or Purchase of Receivables, but Staff said that each merits further study. "Staff is not aware of any legal barriers to PSNH providing separate default service pricing based on real-time market prices for the largest customers who have hourly interval metering and who choose a competitive supplier. Further, Staff does not believe that there is any legal impediment to the implementation of a purchase of receivables program. However, both issues would require further examination," Staff said.
With respect to POR, "careful attention would need to be given to the shifting of risk of non-payment from competitive suppliers to distribution companies and the implications of such risk shifting," Staff added.
Staff also believes that the Commission should open a separate docket to fully explore the economic consequences of the potential divestiture of PSNH’s generation assets as well as the full range of implications if PSNH were to adopt a full requirements default service model. Much of PSNH's owned generation is currently above-market, which is exacerbating the cost shifting caused by migration.
The OCA, on the other hand, was more forceful in its recommendations, stating that, "[i]n light of the current status of energy markets, environmental regulations, the age of PSNH’s generation fleet, and its reliance on expensive fossil fuels, it is time to undertake the analysis necessary to determine whether it is now in PSNH’s default service customers’ economic interests to divest or retire one or more plants."
The OCA argued that the PUC retains authority to order PSNH to divest assets, as the temporary moratorium on divestiture under RSA 369-B:3-a expired in 2006. "The section did not change the underlying restructuring law, which requires divestiture," OCA said, further arguing that the statute did not transfer from the PUC to PSNH the decision on whether to pursue divestiture.
Recognizing that divestiture is a long-term solution, OCA suggested implementing a Purchase of Receivables program to increase migration among small volume customers, so they are not left to bear higher costs of default service.
"Such a program would promote competition for small customers, which is a major policy goal under RSA 374-F. The OCA encourages the Commission to require that PSNH begin to take proactive steps such as this to facilitate access to competitive markets for small customers," noting that POR programs are offered, or are to be offered, by PSNH affiliates in Connecticut and Massachusetts.
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