Pennsylvania Retail Suppliers Suggest Allowing One-Time Adjustment To Fixed Rate Due To Spike In Capacity Costs; Note Utility Was Given Such Treatment For SOS

"Likely Outcome" From Retail Suppliers Not Being Able To Reflect Higher Capacity Costs In Fixed Rate Is Drop Of Customers To Default Service, RESA Says

September 24, 2024

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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Retail Energy Supply Association (RESA) urged the Pennsylvania PUC to "consider" the potential negative impacts to current and future shopping customers from "unplanned" interim adjustments to default service rates, which occur outside of the standard default service fixed pricing periods

RESA more specifically said that, had the PUC opened a proceeding to address a previously reported interim default service rate change at Duquesne Light, such proceeding could have served as a forum for retail suppliers to suggest policies that could, "reduce the disparity between EDCs and EGSs with regards to cost recovery options," including, RESA said, "a request that the Commission consider approving a one-time exception for EGSs of the Fixed Price Label Order requirements."

The Fixed Price Label Order, or generally the "fixed means fixed" order, applicable only to retail suppliers, prohibits retail suppliers from changing fixed rates under any circumstance, and does not allow a retail supplier product with any pass-through to be called a fixed rate

RESA's letter to the PUC was prompted by the previously reported interim increase in Duquesne Light mass market SOS rates, driven by operation of the capacity proxy price mechanism, wherein, due to a spike in PJM capacity prices, Duquesne Light's previously established default service rates are not fully recovering the costs that Duquesne Light is required to pay to wholesale SOS suppliers. See more details here

The PUC, via Secretarial letter, has ruled that Duquesne Light's interim default service rates, "are permitted to become effective as filed."

RESA said that, "The broader impacts of the interim rate change and/or potential long term consequences to the competitive market of default service rates appear to not have been considered," in the PUC's review of Duquesne Light's tariff to implement the interim SOS rate change

While RESA raised various policy concerns with an interim adjustment, Duquesne Light's tariff as approved by the PUC in the utility's most recent default service plan proceeding, as well as the Pa. Code, explicitly contemplate and allow for such interim adjustments in default service rates, subject to PUC approval (in other words, the interim adjustments are not a deviation from the current default service plan, but are rather a rarely used element of it)

EnergyChoiceMatters.com had noted in our August 27 story that Duquesne Light had stated that its tariff allows the utility to seek interim adjustment to the default service supply rate if a "material" undercollection would otherwise occur, to become effective 30 days from the date of filing, unless otherwise ordered by the PUC

More specifically, Duquesne Light's tariff governing the electric supply charge (Rider No. 8 – Default Service Supply) explicitly provides that an adopted supply charge, "shall remain in effect for the effective periods defined above [i.e. six months for the mass market], unless revised on an interim basis subject to the approval of the Commission."

Moreover, the approved tariff provides that, "Pursuant to 52 Pa. Code §69.1809(c), upon determination that the DSS [Default Service Supply rate], if left unchanged, would result in a material over or undercollection of supply-related costs incurred or expected to be incurred during the effective period, the Company may file with the Commission for an interim revision of the DSS to become effective thirty (30) days from the date of filing, unless otherwise ordered by the Commission."

This tariff was explicitly approved as part of Duquesne Light's currently effective default service plan, and an interim adjustment does not reflect a departure from such plan, though it may depart, generally, from the PUC's stated policy preference for 6-month fixed rates as a means of promoting rate stability for customers

As previously reported, Duquesne Light's second filing for an interim supply rate adjustment complied with the above-cited tariff provision, and specifically the 30-days notice requirement. Duquesne Light's original filing for an interim rate adjustment had been rejected by the PUC because it did not provide 30 days notice prior to the effective date, and the PUC did not grant Duquesne Light's sought waiver of the notice period

52 Pa. Code §69.1809(c) specifically provides that, "It may be in the public interest to reconcile default service costs more frequently than at each PTC [price to compare] adjustment interval," and provides a threshold at which default service providers (DSPs) are obligated to seek an interim rate adjustment, and a level at which DSPs have discretion to seek an adjustment

52 Pa. Code §69.1809(c) provides that, "The DSP should propose interim reconciliation prior to the next subsequent PTC adjustment interval when current monthly revenues have diverged from current monthly costs, plus any cumulative over/under recoveries, by greater than 4% since the last rate adjustment. When the divergence is less than 4%, the DSP has the discretion to propose interim reconciliation prior to the next PTC adjustment interval. Interim reconciliation proposals should result in a PTC adjustment that will resolve cumulative under or over recoveries by the time of the next PTC adjustment interval."

In its letter, RESA stated, "RESA questions the use of a tariff filing to effectuate a significant modification of an existing Commission approved default service plan which was carefully developed in a fully litigated proceeding wherein all interested parties were given the opportunity to be heard."

RESA further said that an interim SOS rate adjustment raises issues regarding the PUC's fixed price order which is applicable to retail suppliers, and, "the significant impacts of this flexibility [interim SOS price adjustments] provided to EDCs on the competitive market."

Retail suppliers, RESA noted, cannot seek from the PUC interim rate adjustments for their fixed rates in light of changed costs. Under the PUC's "fixed means fixed" order, a "fixed price" product must not change in price during the term of the agreement, under any circumstance. A fixed price product may not include a pass-through of any cost, per PUC order. Moreover, a retail supplier cannot viably rely on a "regulatory out" clause as a means of changing a fixed rate and retaining the customer, as the PUC requires that any new rate must receive affirmative customer consent in order to be effective. A regulatory out clause may be used to cancel a contract if the customer does not agree to the new rate

"[F]or mass market customers, the Fixed Price Label Order limits the ability of EGSs [retail suppliers] to make mid-contract adjustments to account for increased costs due to the capacity charges," RESA said

"The likely outcome then is for shopping customers to be returned to default service," RESA said

RESA stated, "RESA does urge the Commission to be clear that revisions to an existing default service plan cannot be approved through a technical tariff review process in the future. Rather, utilities should continue to be required to file Petitions for Revisions or Modification of their existing default service plan so that notice and an opportunity to be heard is provided to all interested stakeholders."

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