Update #2: Texas PUC Approves Rule Which Defaults To Not Allowing Ancillary Service Pass-Throughs On Small Customer Fixed Rate Contracts

--- PUC Adopts Rule Language Allowing PUC To, In Future, Potentially Designate New A/S Costs As Eligible For Pass-Through

--- PUC Chair: Commission's Job Is Not To Provide "Comfort" To REPs

Update #1: Texas Commissioners Working On Language To Limit Prohibition On Mass Market Fixed Rate A/S Pass-Throughs To "Existing" Ancillary Services

(Earlier): Texas PUC Staff File Proposed Final Rule To Ban Index Products For Residential & Small Commercial Customers

Draft Rule Would Eliminate Any Opportunity For Ancillary Service Pass-Through To Mass Market Customers (Including New Fixed Rate Definition)

Caps For POLR Rates Proposed In Draft Final Rule

December 16, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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Update #2: 2:10 p.m. ET, Dec. 16

The Public Utility Commission of Texas adopted Staff's proposal for adoption regarding changes to the retail electric market customer protection rules as filed by Staff, except for one modification related to the definition of a fixed rate, applicable to residential and small commercial customers

The PUC modified Staff's proposed definition for a fixed rate product (for residential and small commercial customers) such that the "default" posture under the rule will be that REPs may not pass-through ancillary service (A/S) costs under a small customer fixed rate, but the PUC will have discretion, in the future, to potentially designate certain A/S costs as eligible for pass-through under small customer fixed rate products

Specifically, the PUC adopted the following definition for a residential and small commercial fixed rate product:

Fixed rate product -- A retail electric product with a term of at least three months for which the price (including all recurring charges and ancillary service charges) for each billing period of the contract term is the same throughout the contract term, except that the price may vary from the disclosed amount solely to reflect actual changes in TDU charges, changes to the Electric Reliability Council of Texas (ERCOT) or Texas Regional Entity, Inc. administrative fees charged to loads or changes resulting from federal, state or local laws that impose new or modified fees or costs on a REP that are beyond the REP’s control. The price may not vary from the disclosed amount to reflect changes in ancillary service charges, unless the Commission expressly designates a specific type of ancillary service product as incurring charges beyond the REP's control for a customer's existing contract.

The intent is to afford the PUC discretion to allow pass-throughs in cases of extraordinary or unexpected new, or modified, A/S costs, when in the opinion of the PUC, such pass-throughs would be appropriate. The pass-through would be addressed at the time the PUC approves any new A/S, and REPs would need to present their case before the PUC. The pass-through could be limited or conditional as deemed appropriate by the PUC, in addition to potentially being a complete pass-through

While agreeing with the modification, PUC Chairman Peter Lake stressed that the default posture of prohibiting pass-throughs under mass market fixed rates is appropriate because REPs are better positioned than small customers to manage risks associated with A/S

The PUC's job is not to provide "comfort" to REPs, but rather to create a level playing field, Lake said

Further, Lake said that the Commission's job is not to provide a cushion to protect REP profits just so the REP can sell its book to a gentailer

Aside from this change (and conforming edits to the preamble), the PUC adopted Staff's proposal for adoption as filed and as discussed below without modification. Aside from the fixed rate definition, the discussion of the draft provisions in our earlier story below reflect the rule as adopted as final.

Update #1: 11:10 a.m. ET, Dec. 16

Texas PUC Commissioners are working to limit the proposed prohibition on mass market ancillary service pass-throughs for fixed rate products to "existing" ancillary services.

Commissioners in general agree with a proposal from Commissioner Will McAdams to add language limiting the prohibition on A/S pass-throughs to small customers to existing ancillary services; however, Chairman Peter Lake wanted to ensure that any change to the draft proposal for adoption does not create a back door that would allow REPs to pass-through known costs.

Commissioners tabled the item to allow Staff to further draft language in response to the Commissioners' discussion. Commissioners will take up the item again later in the meeting

Based on discussion thus far, the change would not allow any pass-through for a change in the quantity of an existing A/S

McAdams warned that a complete prohibition on fixed rate A/S pass-throughs, without accommodation for new A/S that are created after the retail contract is executed, would result in REPs declining to offer customers fixed rates of a year or longer, especially given the likelihood that the PUC will soon adopt a wealth of new ancillary services

Earlier:

Note: The Texas PUC is scheduled to consider the proposal for adoption discussed below at its meeting this morning. Check back and refresh this page for updates on disposition

In a nearly 200 page filing made this morning and to be considered at today's Texas PUC open meeting, PUC Staff have recommended that all indexed products be prohibited for all residential and small commercial customers

EnergyChoiceMatters.com was first to report that Commissioners issued guidance to Staff such that the Commission was prepared to take such action banning mass market index plans

Staff this morning filed a draft proposal for adoption concerning various changes to the retail electric market customer protection rules

"The commission finds that having 'indexed products' as a separate category of products is unnecessary and confusing for residential and small commercial customers and prohibits the offering of indexed products to these customer classes," Staff proposes in a draft preamble

"The commission finds that indexed products -- the price of which on any future date is unknown at the start of each billing period, can fluctuate unpredictably, and are indexed to metrics that are not available to the customer as part of the enrollment process -- do not provide sufficient information for a residential or small commercial customer to make an informed choice of service provider. Furthermore, the apparent stability of indexed rate plans can be misleading, because these plans have the potential to increase drastically without notice and such increases are not within the reasonable expectations for residential and small commercial customers," Staff proposes in a draft preamble

"Innovative fixed or variable price products can be designed to include elements such as time-of-use, seasonal, nights and weekends, tiered rates, flat rates, credits, and others, while providing customers with the appropriately tailored protections that those product types provide, such as the price certainty of fixed rate products or the lack of early termination fees or long-term commitments of variable price products. The commission encourages REPs to continue to bring new products to market to further enrich the competitive landscape of Texas’ deregulated energy market," the draft preamble states

The draft ban on offering indexed products to residential and small commercial customers would be effective on February 1, 2022.

The draft ban on mass market index plans is specifically with respect to the "offering" of such plans and would not impact existing plans (though renewals would be impacted). The draft rule states, "A REP, aggregator, or broker is prohibited from offering ... an indexed product to a residential or small commercial customer on or after February 1, 2022."

Under the proposed changes, for residential customers, all variable price products are month-to-month, and non-fixed rate term products are no longer permitted consistent with the proposed decision to eliminate indexed products for residential and small commercial customers. Small commercial variable products may have a term length longer than one month

For residential and small commercial customers, Staff recommends the following definition for fixed rate product, under which the fixed rate must include ancillary services.

Fixed rate product -- A retail electric product with a term of at least three months for which the price (including all recurring charges and ancillary service charges) for each billing period of the contract term is the same throughout the contract term, except that the price may vary from the disclosed amount solely to reflect actual changes in TDU charges, changes to the Electric Reliability Council of Texas (ERCOT) or Texas Regional Entity, Inc. administrative fees charged to loads or changes resulting from federal, state or local laws that impose new or modified fees or costs on a REP that are beyond the REP’s control. The price may not vary from the disclosed amount to reflect changes in ancillary service charges.

"The price of a fixed rate product is not permitted to vary based on any changes in ancillary service charges, whether they are presented in a bundled or unbundled manner," Staff proposes

"The commission disagrees with CCR’s depiction of ancillary service charges as part of an ERCOT administrative fee that can be passed through to customers ... The commission agrees with TEAM, ARM, and OPUC that ancillary service charges should be treated as recurring charges that are fixed in the context of a fixed rate product, " Staff proposes

Furthermore, as indicated by the above definition for fixed rate, Staff recommends that no carve-out or exception be made for ancillary service costs that a REP can and cannot reasonably control or for new or modified ancillary service charges

"Such distinctions would not effectuate the commission’s customer protection goal of insulating customers from hazardous price increases as whatever portion of ancillary service charges that may not be known is the portion most subject to volatility due to outlier events," Staff said

The definition of the term price now also includes the cost of ancillary services, as "price" is defined as, "The cost for a retail electric product that includes all recurring charges, including the cost of ancillary services, excluding state and local sales taxes, and reimbursement for the state miscellaneous gross receipts tax."

Staff's draft preamble broadly notes the, "decisions to prohibit the offering of indexed products to residential and small commercial customers and prohibit the pass through of ancillary service charges to these customers."

While not explicitly addressed by rule change (other than arguably the definition of "price" noted above), this language suggests that variable rate plans in the mass market may not "pass-through" ancillary service costs. As previously noted, REPs must make the variable rate for an upcoming month available to the customer in advance. The ability to change the variable rate on a month to month basis largely precludes the need for an A/S pass-through, though there could be situations in which the REP would otherwise wish to impose one for the recently completed billing month (the known loss of a customer going forward, for instance). Staff's draft preamble suggests any such variable rate plan A/S pass through would not be permitted

"Ancillary service charges are a necessary cost that is required to maintain the safety and reliability of the electric grid, and while the commission recognizes that these costs may be challenging for REPs to predict with accuracy, REPs are in a significantly better position to do so than residential or small commercial customers and have access to a much wider array of financial tools to manage those risks," the draft preamble states

Staff recommends rejecting a proposal from Octopus Energy that REPs be required to provide customers, who default to a default renewal rate, specific notice of such rate before the rate goes into effect.

As summarized by Staff in the draft, "Octopus recommended clarifying proposed §25.475(e)(3)(A) [sic] to require REPs to provide 12 monthly notice of the price applicable to a default renewal product before that product goes into effect. To do this, Octopus recommended changing proposed §25.475(e)(3)(A) to require REPs to provide notice of the price a customer will pay if they default to the renewal prices no later than 24 to 72 hours before the rate is applicable unless the customer is on a daily or hourly index. In addition, Octopus suggested making this price notice a requirement for 'any variable price product sold to residential and small commercial customers, as well as customers who rolled onto such a product prior to the effective date of HB 16.'"

Staff's draft states "The commission declines to adopt Octopus Energy’s recommendations for §25.475(e)(2)(A) [sic] as it is beyond the scope of this rulemaking and agrees with Joint REPs regarding the same."

Staff recommends applying to small commercial customers rule changes related to contract expiration renewal notices that are similar to those being adopted for residential customers (the residential changes are largely driven by statute and were not mandated to apply to small commercial customers). Staff proposed an April 1, 2022 effective date for the small commercial changes (statute imposed a September 1, 2021 effective date for the residential changes)

The proposed rules implement a new acknowledgement of risk for the offering of wholesale indexed products as well as products containing separate assessment of ancillary services costs to a customer other than a residential or small commercial customer.

The proposed rules state that the AOR must be "signed" by the customer but in the draft preamble Staff notes that the AOR need not be physically signed, consistent with any applicable law which may allow for electronic or other forms of a signature

The proposed rules include new non-volunteer POLR (LSP) pricing as follows:

Residential:

• LSP rate (in $ per kWh) = (Non-bypassable charges + LSP customer charge + LSP energy charge) / kWh used

• LSP customer charge must be $0.06 per kWh.

• LSP energy charge must be the average of the actual Real-Time Settlement Point Prices (RTSPPs) for the applicable load zone for the previous 12-month period ending September 1 of the preceding year (the historical average RTSPP) multiplied by the number of kWhs the customer used during that billing period and further multiplied by 120%. In no instance may the LSP energy charge exceed 120% of the previous year’s LSP energy charge. The applicable load zone will be the load zone located partially or wholly in the customer’s TDU service territory with the highest average under the historical average RTSPP calculation.

Small and medium non-residential customers

• LSP rate (in $ per kWh) = (Non-bypassable charges + LSP customer charge + LSP demand charge + LSP energy charge) / kWh used

• LSP customer charge must be $0.025 per kWh.

• LSP demand charge must be $2.00 per kW, per month, for customers that have a demand meter, and $50.00 per month for customers that do not have a demand meter.

• LSP energy charge must be the average of the actual RTSPPs for the applicable load zone for the previous 12-month period ending September 1 of the preceding year multiplied by the number of kWhs the customer used during that billing period and further multiplied by 125%. In no instance may the LSP energy charge exceed 125% of the previous year’s LSP energy charge. The applicable load zone will be the load zone located partially or wholly in the customer’s TDU service territory with the highest average under the historical average RTSPP calculation.

Staff's preamble would reject concerns about unrecovered costs to REPs from the use of an annual average of wholesale prices in setting POLR rates

"The commission also disagrees with TEAM’s contention that the commission needs to include a cost recovery mechanism to ensure that REPs can recover their costs of serving POLR customers. This decision is consistent with the commission’s other determinations in this rulemaking that market entities, not customers, should bear the risk of unpredictable price fluctuations beyond reasonable market expectations for electric service. The commission also notes that a POLR cost recovery mechanism has not been adequately noticed or developed to include in this rulemaking. However, if TEAM believes this proposal merits further consideration, the commission recommends that TEAM file comments in Project No. 52757, Review of Chapter 25 – Rules Applicable to Electric Service Providers," Staff said.

Staff's draft would reject recommendations from consumer advocates for a standard product or standard offer retail product

Project 51830

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