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N.H. PUC Denies Nonbypassable Generation Charge at PSNH, Order Investigation of POR

July 28, 2011
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The New Hampshire PUC denied Public Service Company of New Hampshire's request for a nonbypassable surcharge to recover certain fixed costs of default service, but did not require the use of a full requirements RFP to procure supplemental power needs or address the question of the divestiture of PSNH's retained generation. The PUC also directed that a generic proceeding address Purchase of Receivables and other retail market enhancements (10-160).

As only reported in Matters (3/1), PSNH had sought a nonbypassable surcharge for certain costs of default service due to increased migration of customers to competitive supply, particularly large customers. PSNH argued that this unfairly left remaining default service customers, mostly small volume customers, paying higher rates as there is a smaller base over which to spread the fixed costs of PSNH's generation.

The PUC, however, said that the migration of large customers to competitive supply does not result in impermissible "cost-shifting," as suggested by PSNH. While the PUC is concerned with the lack of competitive offers to small volume customers, which leaves these customers paying higher default service rates, "[t]he cure, however, is not to impose a non-bypassable charge on those customers who have migrated from PSNH's default ES [energy service] supply to pay a portion of PSNH's fixed generation costs."

Such a nonbypassable charge, "would constitute unfair cost-shifting to customers that have taken advantage of competitive supply," the PUC said.

"Further, the creation of a non-bypassable charge for these purposes is contrary to principles of the restructuring statute, the most important of which is to reduce costs for all consumers of electricity by harnessing the power of competitive markets, RSA 374-F:1. In addition, imposition of such a charge is contrary to the principles of customer choice and minimization of customer confusion, RSA 374-F:3, II, and full and fair competition, RSA 374-F:3, VII," the PUC found.

"Finally, the implementation of a non-bypassable charge for the purpose of allowing PSNH to recover costs associated with generation from all customers, including those who take competitive electric service, would, in effect, re-bundle certain generation costs with distribution costs, contrary to RSA 374-F:3, III, which states that 'rates should be unbundled to provide customers clear price information on the cost components of generation services, transmission, distribution, and other ancillary charges,'" the PUC held.

The PUC also rejected proposals for a "stay-out provision," which would prevent customers from returning to default service for a set period of time, though the PUC believes that it has authority to adopt such a provision.

Instead, the PUC said that PSNH should develop alternative default service rates for customers returning to default service, reflecting the marginal cost to serve that load. "The proper design of a separate rate or rates will discourage the misuse or long-term use of default service and allow PSNH to recover the actual costs of providing that service consistent with RSA 369-B:3, IV(b)(1)(A)," the PUC said.

Such rates for customers returning to default service, "must be cost-based and non-discriminatory and should not have an adverse effect on competition," the PUC said.

PSNH may consider having one or more such alternative default service rates, and may consider having a separate tariff and default service rate for its largest classes of customers generally, the PUC directed.

For large customers returning to default service, "PSNH may want to charge that load a rate based on the actual hourly real time market rate, which would reflect the actual cost to serve such customers, with a minimum of reconciliation needed to true-up over- or under-collections. A day-ahead hourly pricing mechanism could be an option for predictable or assured load," the PUC said.

"These options might also be considered generally as part of default service rate design for the largest customers with interval metering," the PUC added

PSNH shall file proposals for alternative default service rates for returning customers in conjunction with its 2012 default service filing, expected by late September 2011.

The PUC also declined to order the use of full requirements RFPs to serve PSNH's load not met by retained generation, though the PUC found that it does have authority to order RFPs for supplemental power needs. "Monthly variations in the size of PSNH's default service open position and the fact that the open position may be relatively small or could go negative, raise the question as to whether requiring PSNH to use an RFP process for its supplemental energy purchases would be useful or beneficial, compared with managing its open position primarily through short term purchases, particularly the day-ahead and real-time wholesale markets, which have been clearing at relatively low marginal costs, and typically lower than hedged pricing products for variable and uncertain loads," the PUC said.

Furthermore, the PUC said that it would not resolve the question of whether it has authority to order the divestiture of PSNH's remaining generation in the instant order, citing legislative uncertainty. The PUC did note that, in any relevant proceeding and at any time, if the PUC determines that it is imprudent for PSNH under the circumstances to continue operation of any of its generation units, the PUC can deny recovery of the associated costs through rates pursuant to RSA 369-B:3, IV(b)(1)(A).

Retail suppliers had proposed Purchase of Receivables, a customer referral program, and an electronic interface to access customer information as measures to increase the availability of small volume choice.

"There does not appear to be a legal barrier to the adoption of these tools, but we would need to explore how a POR and the ancillary proposals of customer referral and electronic interface programs could be implemented in New Hampshire to promote competitive supply options for small commercial and residential customers in PSNH's and other utility service areas without unduly burdening PSNH or other distribution companies or their default service customers," the PUC said, in ordering that such issues be addressed in a generic proceeding.

"We also believe it is worth exploring whether these concepts could be adopted in the natural gas industry as well," the PUC said.

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