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SHOCK: Pennsylvania Utility Seeks Nonbypassable Charge to Recover Excessive Default Service Costs from January (Change from Quarterly to Annual Reconciliation Backfires)
Citizens' Electric Company of Lewisburg, PA has petitioned the Pennsylvania PUC to institute a nonbypassable charge to recover January default service costs which exceeded the revenues collected from retail rates.
Default service at Citizens' Electric Company consists of a mix of block and spot purchases, with default rates set on a quarterly basis based on projections of spot purchases.
Citizens' said January's extreme cold resulted in PJM spot prices and congestion charges, "far in excess of projections used to calculate the [default] GSSR rates approved by the December 23, 2013, Secretarial Letter, resulting in undercollections of approximately $762,000 through January 22, 2014."
"Severe abnormal weather conditions have persisted through the remainder of January 2014, causing further substantial spikes in PJM spot prices and congestion charges, and resulting in significant undercollections for the period subsequent to January 22, 2014. In addition, several categories of PJM ancillary service charges for the month of January were substantially higher than originally projected," Citizens' said.
After already making an interim adjustment to its bypassable default service rates, Citizens' net remaining projected undercollection of PJM spot, congestion and ancillary service costs for January 2014 is $817,000.
Citizens' noted that under the existing process for establishing and reconciling the GSSR, certain January PJM cost variances, including ancillaries, would not be reflected in the GSSR until July 1, 2014, due to the use of an annual reconciliation, which would result in a substantial E-Factor (reconciliation), "that would be added to the projection of the current 3rd Quarter default service generation costs."
It should be noted that the use of an annual reconciliation for ancillaries and other non-energy costs is a recent development at Citizens', starting with its default service plan starting June 1, 2013. Previously, the at-issue variances were reconciled quarterly. Ironically, the annul reconciliation was adopted to, "reduc[e] the volatility of default service rates"
In any case, Citizens' claimed that, "[t]his substantial E-Factor would distort the price signals provided to Citizens' ratepayers in the 3rd Quarter GSSR."
"In addition, Citizens' would carry the $817,000 that it has borrowed to pay for the extra costs on its line of credit through July 1, 2014, with no reduction, which would stretch the Company's borrowing capacity to its existing credit limits," Citizens' said.
"Citizens' is concerned that carrying forward such significant undercollections would send inaccurate price signals to customers and disrupt competitive markets in the service territory. Preserving market-reflective default service rates is particularly critical at present because a competitive electric supplier is ready to commence marketing activity in the service territory. In order to address these concerns, Citizens' proposes to implement a temporary, non-bypassable surcharge on all customers to become effective April 1, 2014. As set forth in Supplement No. 80, the proposed Interim Energy Cost Recovery Rider would be calculated on a per kilowatt-hour basis, and is designed to collect over the 2nd Quarter 2014 and 3rd Quarter 2014 the net incremental costs incurred for PJM January 2014 charges (in comparison to originally projected charges). At the end of the 3rd Quarter 2014, the IECR Rider will terminate, with any remaining over or undercollection reflected in the GSSR E-Factor for the 1st Quarter 2015," Citizens' proposed.
Despite the claimed "substantial" impact on default service rates if the nonbypassable rate were not used, the proposed nonbypassable Interim Energy Cost Recovery Rider is only 1.1 cents per kWh. Assuming that the rate would be the same if included as an adder to the default service rate, this would only be an increase of 11%, although to be fair, the current default service rate has already been increased on an interim basis (from 8¢ to 9.7¢) to reflect recovery of part of the earlier under-collection from January. Still, the current Citizens' residential Price to Compare is 9.7¢/kWh; given the Pennsylvania market's history, it's not clear how adding only 1¢ to that price will lead to customer migration substantial enough to give rise to further under-collection concerns.
Other Pennsylvania distribution companies -- those with dozens of electric generation suppliers competing for customers, not just one -- routinely see quarterly changes in default rates of about 1¢/kWh, without any substantial immediate impact on customer migration (due to the status quo bias which the Pennsylvania retail market has been struggling against).
Accordingly, Citizens' has not adequately justified any concern about collecting the under-recovered generation costs through default rates. The concern is even further mitigated considering the proposed short timeline for nonbypassable recovery (6 months) and the time it would take for customers to complete switches.
What seems more reasonable would be for Citizens' to petition for a waiver to allow it to reflect the under-recovered default service costs in the default service rates for the period starting April 1, 2014 (if not sooner, as noted above Citizens' has already increased its default service rates once on an interim basis). Even if Citizens' starts to see customer shopping starting in March, most customers will likely remain on default service for the six month period needed to recover the under-collection.
However, Citizens' believes that its proposed nonbypassable surcharge to address the January under-collection, "will support competitive markets by reflecting actual market conditions in the Company's default service rates and enabling customer to make well-informed choices."
"Additionally, the proposed surcharge will facilitate a just and reasonable reconciliation by recovering the undercollections from all of Citizens' customers. All customers within Citizens' service territory were taking default service in January, 2014, and are therefore responsible for the Company's actual incurred default service expenses under the Public Utility Code," Citizens' said
Citizens' is essentially proposing an electric "migration rider" -- a concept previously rejected by the PUC.
Citizens' continues: "[A] competitive electric supplier is poised to begin marketing in Citizens' service territory, and customers are likely to begin shopping for competitive electric service in the coming months. Accordingly, the Interim Energy Cost Recovery Rider is appropriately assessed as a non-bypassable charge to ensure that all customers, including those no longer receiving default electric service, share in the undercollection recovery."
R-2014-2406399
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February 24, 2014
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Reporting by Paul Ring • ring@energychoicematters.com
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