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Regulator Adopts Policy For Failed Default Service Procurements, Addresses Utility Discretion, SOS Price Changes
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The Massachusetts DPU has adopted several policies to govern instances in which an electricity basic service (default service) procurement fails to procure the required supply to serve load, including failures due to what is deemed excessive pricing from wholesale suppliers
Failed procurements include those
in which (1) a distribution company did not receive any bids from wholesale suppliers for
one or more supply blocks included in the solicitation, or (2) the prices that were bid for
one or more supply blocks significantly exceeded the expected bid price calculated by the
distribution company.
In a proceeding, the DPU had proposed to establish a uniform method by which the electric distribution companies would (1) calculate
their expected bid prices, and (2) determine that a bid significantly exceeds the expected bid
price.
However, after reviewing stakeholder comments, the DPU will not establish a uniform method for EDCs to calculate expected bid prices or to determine whether a supply bid significantly exceeds the expected bid
price.
"[T]he
Department is persuaded by [] commenters that the development of a uniform expected
bid price would require a resource-intensive stakeholder process, especially as it relates to
quantifying risk premia," the DPU said
"The Department is further persuaded that, given the dynamic nature
of wholesale electric markets, and the varied and complex risks that basic service suppliers
face, such a process would not necessarily result in a method for determining expected bid
prices that would improve upon the methods used by the distribution companies during 2022," the DPU said
The DPU will leave to the EDCs' discretion the determination of whether a procurement failed, though the DPU directed EDCs to include in their tariffs the process that an EDC will follow in evaluating the success or failure of a procurement. The DPU also issued direction to the EDCs concerning what factors to consider in evaluating bids
"[T]he Department
concludes that the distribution companies are best positioned to take into account the specific
characteristics of their service territories, as well as prevailing market conditions, in determining the success or failure of a basic service procurement. The Department therefore concludes that
the distribution companies should continue to exercise their discretion when determining
whether a failed procurement has occurred," the DPU said
"Specifically, each distribution company shall continue to exercise its
discretion in: (1) calculating expected bid prices, based on its expectations of wholesale
market costs and risk factors over the applicable period; and (2) determining whether a failed
procurement has occurred, taking into account all factors that it deems appropriate. The
Department directs each distribution company to file a revised basic service tariff that sets forth
the process it will follow in evaluating the success or failure of a procurement. To increase the
transparency of the distribution companies’ bid evaluation processes, the Department sets
forth in Section III.F, below [noted below] additional information that the distribution companies must
provide in their basic service filings," the DPU said
"In its assessment of bids, the Department expects that each
distribution company will consider factors such as the number of bids received, the clustering
of bid prices, and its experiences in other jurisdictions where they operate," the DPU said
The DPU also adopted a process to procure unfilled basic service load if a procurement fails
Specifically, for residential and small C&I customers, in the event any supply block in
the initial 50 percent of the supply obligation results in a failed procurement, the distribution
company will attempt to procure supply for the block in its subsequent procurements prior to
the start date of the respective basic service rate period.
If a distribution company was
unsuccessful in procuring supply for a block that applies to the second 50 percent of supply
for the upcoming six-month pricing period, the distribution company will self-supply the load, the DPU said
"In the
instance of self-supply, the distribution company will be responsible for procuring all of the wholesale products and services (e.g., energy, capacity, and ancillary services) through
ISO-NE required to serve the basic service load included in the failed supply block(s)," the DPU said
"The Department concludes that, because of their experience and expertise, the
distribution companies are best equipped to determine the appropriate way to procure
wholesale energy directly from the ISO-NE markets. As such, rather than specifying the manner in which the distribution should self-supply, the Department will provide discretion to
each distribution company regarding the manner in which it will self-supply from the ISO-NE
markets," the DPU said
"The Department directs each distribution company to file a revised basic service tariff
that sets forth the process it will follow in self-supplying from the ISO-NE markets," the DPU said
Concerning pricing for self-supply basic service load, the distribution company will set the monthly wholesale prices for each supply
block it self-supplies equal to the distribution company’s expected monthly bid prices for the
block.
"The distribution companies will have discretion to determine the methods and data
sources for estimating the monthly expected bid prices," the DPU said
The Department directed each
distribution company to file a revised basic service tariff that sets forth the process it will follow
in setting basic service rates when self-supplying from the ISO-NE markets.
Monthly retail
basic service rates will continue to be calculated as the sum of: (1) the estimated wholesale
price for the month, and (2) adders for renewable energy, clean energy, and administrative
costs. Fixed rates will continue to be calculated as the load weighted average of the monthly
rates that comprise the pricing period.
The DPU did establish a price reset or interim adjustment mechanism for residential and small C&I
customers when a distribution company must self-supply.
Specifically, when self-supply is used, a distribution
company shall reset its fixed and monthly basic service rates when projected wholesale power
supply costs for the balance of the fixed-price period vary by more than 20 percent from
wholesale power supply costs projected over the same period at the time the retail rates were
set.
In such instances, a distribution company will be required to submit a filing for
approval of a new rate on the 15th day of the month preceding the month in which the new
rate would take effect.
The Department directed each distribution company to file a revised
basic service tariff that sets forth the process it will follow in determining whether or not to reset
its basic service rates during such a pricing period.
To
increase the transparency of the distribution companies’ decision-making processes regarding procurements, each
distribution company shall include in its basic service filing the following additional
information: (1) in its Excel spreadsheet, a data table that shows the calculation of the expected
bid price, identifying the price components (with data sources) and risk premia; and (2) in its bid
evaluation report, a detailed explanation of how the company determined the risk premia.
"In
instances in which the 'winning' bid(s) exceeds a distribution company’s expected bid price, the
distribution company shall include in its bid evaluation report a detailed explanation of its
rationale in selecting the bid(s) or deeming the procurement failed," the DPU said
D.P.U. 23-50-B
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February 26, 2024
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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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