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PPL Seeks New Nonbypassable Rider to Recover All Default Service Deferrals Through May 2012
August 29, 2011
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PPL Electric Utilities has amended its proposal to implement a migration rider on customers, and is now seeking authority to also implement a fully nonbypassable Competitive Transition Rider (CTR) on all customers for all generation and transmission reconciliations accruing from January 1, 2010 through May 31, 2012.
"By creating a non-bypassable Section 1307(e) reconcilable rider, PPL Electric will recover the costs from all customers, which will result in much lower [default service] rates to customers," PPL said.
As first reported by Matters, PPL originally sought approval for a reconciliation, or migration, rider to charge or refund to customers any default service reconciliations for their past service under default supply, regardless of the customer's current supplier (see 8/10). While this rider would be nonbypassable for certain customers (customers newly leaving default service would have to pay/receive the rider for a period equal to the number of consecutive months, not to exceed 12 months, that the customer took default service immediately prior to becoming a shopping customer), customers that had already migrated to competitive supply would not have been impacted.
Now, however, PPL is seeking to implement a fully nonbypassable Competitive Transition Rider, which would be applicable to all customers. PPL said that the fully nonbypassable rider is necessary because the migration rider might not fully recover the existing deferred balance which needs to be reconciled.
PPL described the proposed CTR as a temporary nonbypassable Section 1307(e) reconcilable rider that, "provides a method to refund or recoup historic over or under collections related to transmission service and generation supply service that were incurred prior to the effective date of the Reconciliation Rider."
While PPL describes the deferrals to be recovered under the nonbypassable CTR as "historic," they would actually include accrued deferrals for the entire period from the end of the rate caps (January 1, 2010) through May 31, 2012 -- almost two and one-half years.
In other words, PPL would collect on a nonbypassable basis costs related to bypassable default service from 2.5 years ago.
PPL said that the use of a nonbypassable rider to recover these costs, "better reflects the customer base that created the historic over and under collections as opposed to its existing default service customer base, which has many less customers.
However, it is important to note that the vast majority of PPL migration took place in the first three months of 2010.
As of April 3, 2010 (including pending switches), migrated accounts at PPL were 27% of residential customers, 37% of commercial customers, and 78% of industrial customers (with all of the growth coming since late 2009). Current accounts migrated at PPL are 41% of residential customers, 49% of commercial customers, and 65% of industrial customers.
While migration has generally continued to grow, the pace has been much slower, and of those customers currently migrated, the majority have been off of default service since early 2010, as opposed to recently migrated (and thus having more responsibility for any default service deferrals).
It is also important to note, as the PP&L Industrial Customer Alliance did, that much of the deferred balance may relate to January 2010, when, due to prorated bills split between December 2009 capped rates and January 2010 market rates, PPL experienced a significant under-collection. At that time, PPL said that it expected this under-collection to generally balance out over a 12-month period, since much of it related to the bill timing issue rather than migration, and thus asked to (and received approval to) not commence the otherwise required quarterly reconciliations until late 2010. Some of the 2010 deferrals also related to what PPL then called "a number of billing errors in January, resulting in bills that were inaccurate or not rendered." (see 3/15/10).
It's not apparent from PPL's instant petition how much of the deferral for which is its seeking the fully nonbypassable rider relates to these 2010 deferrals (such detailed information may be contained in reconciliation reports filed under separate dockets). However, if the portion relating to the 2010 under-collection is substantial, the equity of making such costs nonbypassable, when PPL itself made the decision to defer such costs (rather than immediately raise the bypassable default service rates to recover the costs under the originally contemplated quarterly reconciliations for 2010), must be questioned.
Back to PPL's instant petition, PPL proposed to make the nonbypassable CTR effective June 1, 2012, to remain in effect for a twelve-month period, subject to a final reconciliation.
The nonbypassable CTR, which PPL insists is "competitively neutral," would be a Section 1307(e) reconcilable rider, separately calculated and applied to various groups of customer classes.
PPL said that if it were to attempt to recover the significant under-collections from a small subset of customers under a bypassable rate, "rates would increase so significantly that all customers would shop and there would be no customers left to pay the outstanding under collection."
Though PPL describes the currently remaining default service customers as "small," non-shopping customers account for more than 50% of residential and commercial accounts, as of the last publicly posted data.
In any event, PPL said that a bypassable reconciliation charge for the historic deferrals, "could create the classic 'death spiral' whereby rates would increase so significantly that customers would leave just to avoid paying any under collection and there would be no customers left to pay the under collection."
PPL gave no specific example of what the default service rate adders would be if the deferrals were recovered on a fully bypassable basis. PPL did cite a prior reconciliation which increased large commercial rates by 2.6 cents per kWh, but gave no projection of how large the adders would be for the future (which would be especially noteworthy for the small customer classes where, as noted, half of the customer base is still on default service, constituting a relatively large base over which to spread the reconciliations).
Indeed, given that residential migration at PPL actually decreased in the most recent week (e.g. customers were moving back to default service, see 8/25), and that PPL's residential Price to Compare will actually fall for the period starting September 1, PPL's prediction of a "death spiral" if reconciliations were applied on a bypassable basis as required under PPL's default service plan is questionable absent specific projections of rate impacts (such as a 3 cents per kWh adder, for example).
PPL's case may be stronger for the hourly class, where there are few distribution customers to begin with and very few on default service; however, PPL is not targeting its relief solely to this class where PPL has cited the most massive rate swings due to reconciliations.
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