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Calif. Draft Would Make Electric Supplier Bond Cover All Incremental Costs from Involuntary Mass Transition
August 24, 2011
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A draft California PUC decision would conclude that the security posted by electric service providers must include all of the investor-owned utilities' (IOUs) incremental costs to serve customers involuntarily returned to the utility, and would adopt, with modifications, a formula proposed by Southern California Edison in testimony to determine the resulting amount for the security (R. 07-05-025).
The proposed decision also addresses calculation of the Power Charge Indifference Amount (PCIA) and minimum stays.
The draft would conclude that Pub. Util. Code Sec. 394.25(e) requires an electric service provider (ESP) to be financially responsible for all re-entry fees of customers involuntarily dropped to utility supply, "defined as all incremental costs resulting from a mass involuntary return of its DA [direct access] customers to the IOU."
"[A]ll relevant costs, including administrative, procurement, and any other relevant miscellaneous costs must be included as re-entry fees. These re-entry fees include administrative costs associated with transferring the involuntarily returned customers to IOU procurement service plus the incremental procurement costs involved," the proposed decision states.
For administrative costs of the mass return, the draft would set the administrative fees to cover involuntarily returned direct access (DA) customers at the IOU's authorized service fee rate for voluntarily returning Community Choice Aggregation accounts. The per-customer fee would be multiplied by the relevant number of ESP customers. The currently applicable administrative fees would be: for PG&E, $3.94; for SCE, $1.49; and for SDG&E, $1.12.
For purposes of measuring the applicable incremental procurement costs relating to an involuntary return of DA customers to IOU procurement service, the cost shall be determined using the formulas set forth in the proposed decision under Appendix A (p. 113) and under Appendix B (p. 116), which are based principally on the SCE/PG&E bond proposal.
DA customers involuntarily returned to the utility shall be placed on the bundled portfolio service (BPS), or the standard rate, rather than the market-based transitional rate. Such "involuntarily" returned DA customers only include customers returning due to a supplier default, or similar event (license revocation, etc.), and would not include customers returned due to non-payment or the expiration of a contract which the ESP does not wish to extend.
The draft would find that placing involuntarily returned customers on a transitional market rate would require such customers to absorb the costs of an ESP default, contrary to statute.
The draft would adopt the PG&E and SCE proposal that the amount of an ESP's bond shall be calculated twice annually: once in early November and again in early May. Bonds shall be posted by December 31 and June 30, respectively.
An ESP would be permitted to satisfy the re-entry fee security requirements, "by posting a bond or demonstrating insurance sufficient to pay cover [sic] re-entry fees of the ESP, through comparable financial instruments that provide equivalent coverage."
"Acceptable instruments include surety bonds, letters of credit, cash deposits or third party guarantees with a credit worthy entity ... An agreement with a creditworthy third party who will guarantee the ESP's financial obligation in the event the ESP cannot do so (a guarantee agreement) would also meet Sec. 394.25(e) requirements," the draft states.
The proposed order notes that third party guarantors may pose counter-party risk to the IOU, but that these may be mitigated through collateral arrangements with the third party. "Third party guarantors should at least have AA investment grade credit," the draft says.
The draft would also allow as a form of security a, "cash equivalent financial instrument or security, or such other instrument reasonably acceptable to the IOU."
An ESP would not be permitted to meet the security obligation simply through use of self-insurance or by showing that it has an investment grade credit rating.
If an involuntarily returned DA customer seeks to resume DA service with a new ESP, the customer could do so upon giving six months' advance notice to the IOU.
Minimum Stay, Indifference Charges
The draft would adopt a minimum stay period of 18 months for customers voluntarily returning to bundled utility service, commencing when the customer starts paying the standard bundled rate (and not any transitional market rate if the customer did not satisfy minimum notice requirements before their return).
The proposed decision concludes that a shorter minimum stay period (versus the current three years) is appropriate given the cap on DA load, but that a minimum stay of only 12 months, as proposed by DA parties, does not sufficiently protect against stranded costs.
Additionally, the draft would maintain the six-month notice requirement for customers seeking to return from DA to bundled service, or to leave utility service for DA.
The proposed order also maintains the current safe harbor rules (a 60 allowance for DA customers to take market-based utility supply while changing ESPs without triggering the minimum bundled service stay), and declines to modify, for customers not timely switching out of the safe harbor to an ESP, the current provision that the six-month notice period for DA service starts at the conclusion of the safe harbor, rather than coincident to the start of the safe harbor as sought by DA parties.
The draft would also make a series of changes in the calculation of the Power Charge Indifference Amount (PCIA), including the methodology for the market price benchmark used for the nonbypassable charge meant to keep bundled service customers indifferent to customer migration.
The proposed decision concludes that, "[t]he total portfolio methodology used to determine bundled ratepayer indifference [and resulting nonbypassable charge] should be calculated in a manner that subtracts the total portfolio from a market price benchmark that includes recognition of the market value of RPS and RA [resource adequacy] resources applicable to all load-serving entities."
Notably, the proposed decision would establish a proxy to serve as a RPS value for the market price benchmark based upon a weighting of different data sources. The RPS proxy would be weighted such that 68% reflects IOU costs for RPS based on the methodology from several joint DA parties, with the remaining 32% of the RPS adder reflecting data from non-IOU LSEs, based on U.S. Dept. of Energy data.
Regarding capacity in the market benchmark, the draft would agree that the capacity value should be updated periodically, but found there to be an insufficient record to adopt a revised capacity adder at this time based on the California ISO Capacity Procurement Mechanism. Accordingly, the draft would not change the current capacity adder at this time.
Under the draft, all load-driven California ISO costs would be excluded from the total portfolio cost used in the indifference calculation, including congestion costs, since DA customers already pay such costs through their ESP.
The draft further concludes that the market price benchmark should be weighted based on the historical IOU generation profile. The draft would not require a separate calculation of load shape for each vintage year.
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