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Pennsylvania PUC Removes Preference for Short Term and Spot Purchases in Default Service Policy Statement
September 22, 2011
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The Pennsylvania PUC has removed from its default service policy statement a preference for shorter term, full requirements contracts and spot purchases.
The policy statement, as well as associated default service regulations, were being reviewed for compliance with Act 129.
However, the PUC did not originally propose striking the preference for short term, full requirements contracts in proposing changes to the policy statement (apparently finding them to be consistent with the prudent mix requirement of Act 129), and Act 129 does not specifically compel such changes.
Rather, the PUC has now concluded that the stated preference for short term, full requirements contracts is inconsistent with the Act 129 requirement that default service consist of a prudent mix of contracts to obtain least cost on a long-term, short-term and spot market basis.
In a statement, PUC Vice Chairman John Coleman noted that the PUC's separate retail markets investigation, which is examining default service among other things, remains pending, and said that the PUC's adopted policy statement and rules should not be construed to anticipate a particular outcome of that proceeding.
However, the new default regulations and policy statement reflect the PUC's view of what is required under Act 129. Accordingly, to the extent anything coming out of the retail markets investigation is inconsistent with the PUC's instant findings, statutory changes would be required (or the PUC would need to reinterpret its own orders on existing statute).
In any event, major changes to the PUC's default service policy statement under its final order include:
- Removing from the statement language providing that, for residential and small commercial customers, "Consideration should be given to procuring most fixed term supply through full requirements or block contracts of 1 to 3 years in duration."
- Removing from the statement language providing that, for residential and small commercial customers, the use of "shorter duration full requirements contracts and spot market purchases should be gradually increased."
- Removing from the statement language providing that, for commercial customers 25-500 kW, "[f]ixed-term contracts should be 1 year in length."
- Removing from the statement language providing that, for commercial customers 25-500 kW, "shorter duration purchases and spot market purchases should gradually be increased."
- Removing from the statement language providing that, "Long-term contracts should only be used when necessary and required for DSP [default service provider] compliance with alternative energy requirements, and should be restricted to covering a relatively small portion of the default service load. An over-reliance on long-term contracts would mute demand response, create the potential for future default service customers to bear future above market costs and limit operational flexibility for DSPs to manage their default service supply."
The PUC said that deletion of the preference for procuring fixed supply contracts of 1-3 years is appropriate, "as the Commission believes EDCs are best suited to design their portfolios of energy supply including fixed term purchases under contracts of varied duration."
The final policy statement does include language that, "long-term contracts of greater than 4 years in length but not greater than 20 years should not constitute more than 25% of the default service provider's projected load unless the commission determines that a greater portion of load is necessary to achieve least cost procurement."
The policy statement also clarifies that a short term contract is one with a duration of four years or shorter. Although the PUC said that its proposed policy statement had been ambiguous on this point, the proposal had defined short term contracts as those lasting three years or shorter.
The final policy statement defines a long-term contract as one with a duration greater than four years but not greater than 20 years.
Both the Office of Consumer Advocate and Office of Small Business Advocate had asked that the regulations provide for the release of winning bid default service information and the posting of this information on the Commission's website.
The PUC said that this suggested change represents a potentially useful modification which increases transparency for customers in making retail supply choices, but does not believe it is appropriate to institute this change in the policy statement, as the PUC is not fully aware of the proprietary concerns of the EDCs associated with release of this information.
"However, we believe this is an appropriate topic for consideration in either our current Investigation into the Operation of Retail Electric Markets or each individual EDC's default service plan proceeding. Interested parties should provide input where appropriate on this proposal," the PUC said.
A prior Secretarial Letter had previously established certain parameters for release of default service winning bids, but improvements can still be made.
The policy statement was addressed in Docket M-2009-2140580.
In a separate but related proceeding, L-2009-2095604, the PUC addressed additional changes to default service regulations due to Act 129. A final order in this proceeding was not immediately available.
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