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PUC To Open Additional Phase Of Default Service Review To Examine More Sophisticated Products
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The New Hampshire PUC anticipates opening in "winter 2025" a new phase of its ongoing review of default service procurement design to, among other things, consider the use of more sophisticated products for default service energy supply
The PUC indicated that it is likely to commence this new stage of its default service review in issuing orders establishing that 50% of mass market SOS will now be served under ISO New England market purchases at Granite State Electric (GSE or Liberty Utilities), with ISO-NE purchases used for 30% of small customer SOS at Unitil
The PUC had previously ordered each of these utilities to file a proposal for greater reliance on ISO-NE markets for small customer default service, with the PUC decreeing that such additional reliance on market purchases should represent at least 30% of SOS supplies, with the PUC explicitly advising the utilities that the PUC was not imposing any upper bound on utility proposals for greater ISO-NE market purchases
Various stakeholders recommended further change in the default service product types, in response to the utilities' filings to rely on additional ISO-NE purchases
In particular, the state's Office of the Consumer Advocate recommended that, rather than increasing the reliance on ISO-NE market purchases, the mass market default service portfolio should utilize the futures market to procure supply three years in advance, with the utilities, and not wholesale suppliers, procuring the futures contracts
An OCA witness proposed that the supply procured via the futures market would be priced at the price for delivery under the futures contract at the NYMEX ISO-NE Mass Hub plus congestion and
loss components in the ISO-NE real-time market at the relevant node in New Hampshire at the
time of delivery
OCA proposed that the futures market be used for whatever amount of the SOS portfolio that the PUC would otherwise procure based on ISO market purchases (e.g. 30-50% in these cases)
A witness for OCA said that utilities should not be permitted to recover stranded SOS supply costs under the futures procurements. To the extent default service load is less than the amount procured under the futures contracts, the utility would be responsible for settling the futures contracts on the open market, OCA's witness said
OCA's witness conceded that the utility would take on the risk under this design, but said that the utility is better equipped to handle this risk than residential customers
OCA's witness also testified that the PUC should "allow" the distribution utilities to try to "compete" with the state's opt-out municipal aggregations, in order to produce the best retail generation pricing
The state's Department of Energy raised various concerns about the default service supply portfolio, including the greater likelihood for over-/under-collections under a design that is not exclusively full requirements, with DOE suggesting the current reconciliation process (which occurs on an annual basis) will need to be reviewed
DOE also raised issues including:
• Mandating that customers returning to SOS be placed on a monthly variable rate until the next 6-month fixed price period begins (currently, this is required at Unitil but PSNH and GSE do not have such a mandate for a mass market customer to take the monthly SOS rate instead of the fixed rate)
• How to price a six-month fixed rate when a significant part of the supply portfolio is being purchased on a day-ahead or real-time basis
• The utilities' cash working capital needs under ISO-NE market purchases versus the prior 100% full requirements model
The PUC said that the issues raised by both OCA and DOE will be addressed in the forthcoming winter 2025 phase of the default service proceeding
The PUC specifically cited the following topics as appropriate for consideration:
• Hedging strategies
• Reconciliation frequency and recovery period
• Expansion of ISO-NE purchases for small customers, and for large customers (for EDCs where ISO-NE purchases are not currently 100% for LCIs)
• Future-based procurements, and other OCA market-construct concepts
• Comparison of use of real-time versus day-ahead market for ISO-NE market purchases
Although not cited by the PUC specifically, GSE, in making its filing to rely on 50% ISO-NE purchases for small customer SOS, said that the PUC should consider an "exit strategy" for "default service ratemaking".
GSE, among other things, suggested that such an "exit" strategy would include limits on customer switches to and/or from retail suppliers, "in order to stabilize the number of default supply customers."
Specifically, GSE cited potential, "changes to the rules or policies governing customer switching to and from competitive
supply (in order to stabilize the number of default supply customers)."
GSE also cited potential changes in SOS rate design, including seasonal and TOU rates, to better align customer rates with forecast supply portfolio prices.
GSE cited Illinois' treatment of non-residential customers as an example, though a large part of Illinois' approach has been to declare customers above a certain size threshold to be "competitive" and not eligible for traditional default service, other than an hourly market-price pass-through. In Illinois, this hourly pricing threshold is 100 kW at ComEd and 150 kW at Ameren, while GSE's cutoff for its "large" SOS customer group is 200 kW.
The PUC stressed that the "animating principle" for default service is to, "provide the best pricing and service outcomes for residential and C&I Default Service customers."
With respect to the utilities' individual changes in default service procurement, the utilities will use different ISO markets for their purchases
Under the PUC's order adopting GSE's proposal, GSE will procure 50% of small customer SOS from the day-ahead ISO-NE market, with the remaining 50% from 6-month full requirements contracts.
GSE will procure 100% of large customer SOS from the day-ahead ISO-NE market
For both customer groups, GSE will set the retail SOS rate by using a weighted average of the full requirements price and a proxy price for the ISO-NE purchases, developed and forecast by GSE in accordance with prior PUC direction on the inputs to be used
The changes at GSE are approved to be put in place for the February 1, 2025 to July 31, 2025 default service period
At Unitil, the 30% of the small customer SOS portfolio which is to now be procured from ISO-NE will be from the real-time markets (versus day-ahead at GSE). The remainder of the mass market portfolio will be from full requirements contracts of 6 months in length. Retail rate setting for SOS will be similar to the process described above for GSE
The change at Unitil is approved to be put in place for the February 1, 2025 to July 31, 2025 default service period
The PUC said that its approval of additional ISO-NE market purchases for small customer SOS is expected to result in price reductions for non-shopping customers
Dockets DE 24-065 (Unitil), DE 24-061 (GSE)
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October 7, 2024
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Reporting by Paul Ring • ring@energychoicematters.com
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