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Significant Pennsylvania Migration Shows Few Barriers from Default Service, Consumer Advocates Say
June 6, 2011
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The significant customer migration to competitive suppliers at several Pennsylvania electric distribution companies (EDCs) in just a short period since the expiration of rate caps should counsel the PUC against any significant changes to the default service model at this time, several consumer groups told the PUC (I-2011-2237952).
Residential migration is 38% of accounts at PPL, and 17% of accounts at PECO, which saw rates caps expire only 17 and 5 months ago, respectively. Duquesne Light (28%) and Penn Power (19%) have also see significant residential migration, although over a much longer period since the expiration of rate caps.
Despite frequent comparisons to Texas migration rates, it should be noted that residential migration at PPL (38%) is not materially different than the 54% migration rate away from the native, former affiliated REP in ERCOT (especially given the different lengths of time customers in each have been exposed to market-based pricing).
AARP noted that over 30 residential products are offered in several service areas, ranging from variable rates to fixed rates of 6 months to multiple years, along with a variety of renewable energy products and other contract terms. "Based on these figures it cannot be said that the competition rules and default service policies currently in effect in Pennsylvania are not working," AARP said.
"Only five months after the last of the rate caps ended, allowing for more robust retail competition, Pennsylvania's restructuring law and its approach to retail competition is off to a sound start," the Office of Consumer Advocate added.
"While the number and percentage of customers that have selected an alternative supplier remains low in the service territories of Met-Ed, Penelec and West Penn Power, there is nothing inherently wrong with that as a matter of law or policy," OCA said.
OCA recommended that the Commission should review how the market develops over the remaining time left on the current default service plans (which generally run through May 2013) to ascertain any best practices which may be employed, before revising the default service structure.
Duquesne Light similarly cited the "significant level of competition" in its service territory as supporting a path of continued improvement with the EDC continuing as the default service provider for the foreseeable future, rather than significant change.
"With the other major EDCs coming off of their rate caps, competition and customer choice should be given a chance to develop under the current framework before assessing statewide changes to the model or rules," Duquesne Light said.
Additionally, OCA said that, "[t]he Pennsylvania restructuring law never intended to force every single customer to switch to an EGS [electric generation supplier]. The Pennsylvania statute sought to provide every customer access to a competitive generation market and that is what has occurred here ... Default service customers continue to receive the benefit of wholesale generation markets through the competitive least cost procurement process of Act 129," OCA said.
Exelon said that having the EDCs serve as default service providers, "makes sense at this stage of the market's development."
"Through broad participation by wholesale suppliers in the [default service plan] competitive procurement process, retail customers currently enjoy the benefits of highly competitive wholesale markets," Exelon said, though Exelon does support procurements that are more reflective of shorter-term market prices.
AARP argued that default service should be "stable, predictable, and affordable, based on a long-term planning horizon that includes a diverse portfolio of contract terms and cost-effective energy-demand management services to smooth out short-term wholesale market trends where possible," with providers, "actively manag[ing]" the portfolio.
AARP, "specifically opposes the linking of default service to very short-term or spot wholesale market prices or other volatile pricing strategies. This approach turns the default service model on its head, attempting to drive customers to the competitive market by making default service an intentionally unattractive choice. That is poor public policy and does not reflect what customers want. On the contrary, there is a growing move by several states, to consider including some longer term contracts in the default supply portfolio, particularly where wholesale market capacity prices are high and there is insufficient investment in new generation to assure reasonably priced electric service" [emphasis added].
"[I]t is difficult to envision any generic cost benefit from replacing the EDC as default service provider with another entity, and in particular, with an entity that must seek to earn a profit from the default service role," OCA added.
See related story today: Direct Energy Says Pa. Market Not Workably Competitive
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