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Retail Suppliers Seek Alternative Default Service in Pa. By June 2013
June 6, 2011
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"[A] properly functioning and workably competitive retail electric generation market does not exist in Pennsylvania," Direct Energy Services said in comments to the Pennsylvania PUC, arguing that the retail markets are progressing only as far as the current default service structure will allow (I-2011-2237952).
Direct Energy recommended that the PUC require that the default service function in each service area be transferred to one or more alternative default service providers by June 1, 2013.
While migration rates in several territories have been touted as successes, Direct noted that for small volume customers, the vast majority of these customers remain on default service, even in the most active territories, despite annual savings of $100-$150 from switching. Additionally, Direct cautioned that the migration rates may not be sustainable, given they were driven by anomalous market conditions (such as at PPL).
Direct Energy recommended: 1) the removal of the EDCs as default service providers with alternative default service providers selected via RFP or other method; 2) the transfer or assignment of customers form default service to a competitive supplier via opt-out auctions (with no exit fees for customers after being assigned to a supplier); and 3) the use of hourly pricing for the remaining back-stop default service.
Direct further recommended a series of incremental steps, prior to the switch to the alternative default service provider, with the goal of moving as many customers off of default service as possible prior to the transition.
Such steps include:
- Requiring new delivery service customers to select a competitive supplier, or affirmatively select default service
- Unbundling all costs of default service and including such costs in the price to compare
- The use of opt-in auctions in which customers could join an aggregation pool for a switching premium offered by the supplier or discounted rate
- Additional customer education
Should these steps produce significant customer migration prior to the transfer date to alternative default service (which Direct recommends be June 1, 2013), Direct recommended that any of the few remaining default service customers be transferred to the alternative default service provider, without the use of an opt-out auction to assign customers to competitive suppliers. If, however, a large amount of customers remain on default service at the time of the transition, then Direct recommends using the opt-out auction to assign customers to competitive suppliers, rather than placing this large amount of customers on hourly default service.
The Retail Energy Supply Association also suggested that the PUC establish a June 1, 2013 effective date for implementation of a new default service model. Effective June 1, 2013, RESA suggested that default service be restructured into two products:
- A new "transitional default service" product to be supplied at retail by multiple qualifying electric generation suppliers to those customers who have not selected a supplier
- A New Provider of Last Resort service structured as an emergency service provided in instances where a customer's supplier is unable to provide service that has been contracted for, due to financial stress or operational failures.
RESA is open to several mechanisms for transitional default service, and said that these could be structured to satisfy policymakers' desire for fixed pricing (six or 12 months) for small volume customers. Potential mechanisms include:
- Retail Auction (with a recommended market share cap of 10%)
- Index or Formula Based Price
- Discount to Price to Compare as of May 31, 2013
Hess Corporation opposed an opt-out auction or assignment of retail customers to an electric generation supplier as inappropriate for non-mass market customers and "fundamentally inconsistent with the core premise of retail competition -- customer choice." Hess instead suggested lowering the hourly pricing cutoff to 100 kW.
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