On December 15, 2011 the PUC issued two orders designed to make Pennsylvania’s retail electricity market fully competitive. Both orders are a product of the PUC’s ongoing Investigation of Pennsylvania’s Retail Electricity Market (“RMI”), Docket No. I-2011-2237952. The first order (“RMI Final Order”) addresses the desired features of soon-to-be-filed electric utility default service plans and programs that will be implemented as part of those plans. The second order (“RMI Work Plan Order”) provides granular detail on specific components, including consumer education, accelerating of switching time frames, customer referral programs, and retail opt-in auctions.

The RMI Final Order sifts through the comments of over 25 parties and establishes suggested guidelines (as opposed to rigid requirements) for the default service plans (“DSPs”) to be filed during the next several months by most of Pennsylvania’s electric distribution companies (“EDC’s”).( the FirstEnergy Companies, already filed their DSPs). The PUC recommended that DSPs be 2 years in duration and that contracts entered into as part of such plans be structured with that duration in mind, so that they are either co-terminus with the DSP or assignable to suppliers after the 2 year period.

The Commission also suggested that the DSPs include retail opt-in auctions, concluding that the implementation of special programs designed to create an incentive for default service customers to shop appears to be warranted. The Commission reached a similar conclusion with regard to referral programs anticipating that referral programs will help many customers enter the competitive marketplace. The RMI Final Order also addressed the implementation of Time of Use rates, recommending that EDCs bid out those programs to the competitive marketplace rather than provide such programs themselves under structured, non-market based rates as is done currently.

The Commission also addressed the default service rate adjustment mechanisms, otherwise known as reconciliation clauses, and in a departure from the current quarterly reconciliation requirement, said that it would also consider semi-annual reconciliations of over/under collections for default service rates. However, in an apparent response to recent cases in which EDCs have amassed significant over/under collection balances that have persisted over time, the Commission is requiring each EDC to explain as part of its next DSP filing the exact methodology used to projects prices and reconcile costs. The PUC’s goal appears to be to reform the reconciliation process to reduce the potential for accumulation of significant over/under collection balances, because such balances have a tendency to distort the market.

Finally, the Commission rescinded its prior recommendation that EDCs consider lowering the threshold for participation in hourly-priced default service to include medium-sized commercial and industrial customers. The Commission responded to comments by a number of parties who pointed out the need for additional hourly metering equipment before such programs are possible. The Commission recognized that lowering the threshold would be a futile effort and withdrew its recommendation until the metering equipment is deployed in the future.

The RMI Work Plan Order addresses a number of subjects that have been discussed at length throughout a series of en banc and technical conference meetings that have been held by the Commission since August 2011, and seeks further comments from interested parties. The topics addressed include consumer education, accelerating of switching time frames, customer referral programs, and retail opt-in auctions.

With regard to customer education, the Commission discussed the actions that have been approved to date and its future plans including mailing post cards and flyers to remind customers that that they should consider shopping and pointing them to the PaPowerSwitch.com website. EDCs will be required to send a letter endorsing competition and including offers from participating suppliers, a feature borrowed from a recent FirstEnergy DSP settlement.

With regard to accelerated switching, the Commission noted that it has launched a separate tentative order process to discuss the potential to accelerate the switching time frames for customers switching from default service to service from competitive suppliers and switching between competitive suppliers by potentially eliminating the ten (10) day waiting period and making other modifications.

On referral programs, which the Commission discussed at length, it noted that there are two (2) favored types of programs that it will consider: a new/moving customer program and standard offer program. Under a new/moving customer program, customers that contact the EDC to initiate service or to change their service from one service address to another (or possibly under other contact scenarios), would be provided with information regarding choice, and a list of participating suppliers. The PUC noted that it would like such programs to include a “hot transfer” option that would allow a customer who expresses an interest to be transferred either directly to a supplier or to a specialized call center to assist them further. The second type of program endorsed by the PUC is a standard offer program, that would similarly be activated when customers contact the utility. Customers would be provided with a standard offer opportunity, provided by participating suppliers that would be a percent -off discount relative to the default service price, with no termination fee. This standard offer would be the same for all participating EGSs in that particular EDC’s service territory.

Finally, the Commission set out its thoughts on what retail opt-in auctions should look like, including its notion that these should be limited to residential customers and should be voluntary for EGSs. The Commission also suggested that pilot programs are not necessary because they would cause substantial upfront work that would then be duplicated. The Commission believes that the initial term of such opt-in auctions should be six (6) months to a year and that these programs should be set to commence on June 1, 2013.

The Commission also proposed to cap the number of customers able to participate in these types of programs, to fifty percent (50%) of default service customers. The Commission also proposed to cap supplier participation at fifty percent (50%) of available customers per any single supplier. These cap levels are substantially higher than those proposed by most EGSs.

The Commission expressed its belief that two different types of products would be appropriate for these types of programs, one being a fixed rate program that could be either at the default service rate (at the time offered) or below, with the proviso that the rate provide a bonus for customers enrolling in the program. The second program would be a percent-off discount (a fixed discount off of the default service rate) with no bonus for customers signing up. Under either scenario, however, the Commission believes that at the end of the initial term, the customer should be treated no differently than other shopping customers and should receive the mandated two notices from their EGS proposing the new terms.

Finally, the Commission stated that the “price to compare” should be displayed on customer bills, notwithstanding the potential for customer confusion that the “price to compare” applies to a longer term fixed rate when in fact it is a quarterly variable rate.

Comments to the Tentative Order are due to be filed January 16, 2012.

The Orders are available at the following links

Final Order

Tentative Order

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