After lengthy debate during its last meeting, the Committee on Energy Choice approved a proposal to refer issues to the PUC for the purpose of the PUC opening an investigatory docket on energy choice. The docket would allow for the receipt of public comments from diverse stakeholders, followed by hearings or workshops and culminating in an objective, fact-based PUC report. The issues that were referred to the PUC are: 1) timeline for implementation, 2) programs/statutes that need to be revised and how, 3) wholesale market structure, and 4) retail market structure. PUC Chairman Reynolds indicated that a review of those four issues would necessarily entail a review of the potential costs and benefits of energy choice as well. When a Notice initiating the investigatory docket is issued, it will be posted on the NEM Website.

Commission Staff filed testimony in the Track I proceeding on ESCO service to mass market customers arguing that ESCO customers have been subject to significant overcharges, that severe restrictions on ESCO operations are warranted, and that the market is not workably competitive. These arguments were made without substantively acknowledging or addressing the impacts of the retention of utilities in the merchant function coupled with the lack of utility rate unbundling on retail market development.

Staff specifically argued that, “the vast majority of residential customers and low-income customers that take commodity service from ESCOs, pay significantly higher prices for commodity than they would have if they had remained with and taken commodity service from their distribution utility. More specifically, the residential market collectively paid almost $1.2 billion more than they would have paid if they had stayed with their default utility. The low-income customers “overpaid” by almost $143 million, and small commercial customers “overpaid” $136 million, for the 36-month period January 2014 through December 2016.”

In response Staff recommended the following Commission actions:

"First, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to individual mass-market customers unless the commodity service product provided by the ESCO either (a) includes enforceable guarantees that the customer’s overall bill will be lower than it would be if the customer took delivery and commodity service from the distribution utility; or (b) is a value-added electric commodity renewable resource energy product where 100% of the electricity provided each calendar year was generated from renewable resources.

Second, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to aggregated mass-market customers unless the aggregation occurs using either (a) the Community Choice Aggregation (CCA) model including the utilization of a professional energy buyer independent of the ESCO acting in a fiduciary capacity to procure the energy for the community; or (b) the not-for-profit (NFP) model where the ESCO is a bona-fide not-for-profit corporation or municipal entity.

Third, the Commission should carefully monitor the performance of the CCA and NFP models to ensure going-forward that such models as applied are providing competitive prices.

Fourth, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to individual or aggregated mass-market customers unless each bill provided to such customers discloses on the bill a comparison in a manner acceptable to the Commission between the current bill charges and what charges the customer would have paid for the same billing period and usage if the customer took both delivery and commodity service from the distribution utility.

Fifth, the Commission should order the distribution utilities to no longer provide to ESCOs the purchase of receivables “without recourse” option pertaining to ESCO commodity service and bills to individual or aggregated mass-market customers, but the distribution utilities shall instead provide to ESCOs only the purchase of receivables “with recourse” option.

Sixth, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to individual or aggregated mass-market customers unless the ESCOs provide to the Commission written calendar year reports of basic information necessary for the Commission to monitor the retail access market.

Seventh, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to individual or aggregated mass-market customers unless the ESCO refrains from direct door-to-door, point of sale, telephonic sales, or similar marketing practices and instead limits its marketing practices to direct mail or electronic communications whereby the consumer must respond and initiate direct contact with the ESCO for a sale to be permissible.

Eighth, the Commission should order the distribution utilities to prohibit ESCOs from using the utility distribution systems to provide commodity service to individual or aggregated mass-market customers unless the ESCO is in compliance with the security and protections necessary to ensure customer confidentiality and cyber security including the security rules/non-disclosure provisions of UBP section 4 and consistent with the National Institute of Standards and Technology Cyber Security Framework (NTS&TCS) (as proposed in UBP, section 12), including but not by way of limitation to application where appropriate to CCAs.

Ninth, the Commission should amend the UBP to conform to our recommendations in this testimony.

Tenth, the Commission should provide for an orderly transition to implement our recommendations in this testimony and otherwise direct the parties to file proposals regarding the scope of the Phase II and the Commission can issue an Order on the scope (after SAPA, etc.).

Eleventh, the Commission should not allow itself to be distracted from implementing these recommendations by the prospect of potential value-added products that ESCOs could offer to mass market customers until the recommended transition has been implemented; the potential development of value-added products should occur later in a collaborative process in Track II of the ESCO proceeding after the detrimental aspects of the current products have been eliminated and customers can choose a-new whether they want ESCO products by making informed decisions that are not tainted by inappropriate marketing practices."

Staff further maintained that the retail market exhibited characteristics "counter" to a workably competitive market. "These characteristics include the ability of many ESCOs to charge significantly in excess of competitive price levels without losing market share, the lack of price transparency, high market concentration indices (HHIs), the limited degree of ESCOs exiting the market, and the lack of differentiating products and pricing strategies beyond what is currently available under utility default supply."

UIU and the AG's office filed joint testimony suggesting that the Commission prohibit ESCO service to mass market customers, effective immediately, pending the implementation of certain consumer protection measures. UIU/AG argued that ESCOs could be permitted to seek a waiver of the service prohibition if they offer guaranteed savings products or "guarantee a value added sufficient to offset the premium paid," and any ESCO price premium should be subject to a reasonable cap. UIU/AG recommended the UBP be modified: 1) to require ESCO filings of investigation and complaint data for themselves as well as subcontractors and marketing agents they utilize from other jurisdictions; 2) to require ESCO posting of performance bonds; 3) to require a standard ESCO contract for sales to mass market customers; 4) to require ESCO substantiation of product savings claims; 5) to require Staff review of ESCO third party vendors and marketing representatives as part of ESCO eligibility requirements; and 6) to explicitly state the Commission's ability to impose monetary fines for UBP violations. UIU/AG also endorsed a prohibition on door-to-door marketing and checks on outbound telemarketing, including recordings and audits. UIU/AG recommends the Power to Choose website be improved, modeling the format and information presented on the Texas website. UIU/AG also suggested that ESCOs be required to update their prices on Power to Choose each time they change their prices. UIU/AG recommended that a bill comparison tool be incorporated on ESCO customer bills so that customers can see what they would have paid as utility full service customers.

The full texts of the Staff Initial Testimony and UIU/AG Initial Testimony are available on the NEM Website.

Following up on the Commission's Natural Gas Retail Markets Investigation into competitive market improvements, it has issued an ANOPR on capacity release, transfer and assignment between utilities and competitive natural gas suppliers (NGSs). ANOPR proposals pertain to capacity payments, access to capacity assets, imbalance trading, and penalties.

The Commission proposes that all customers should pay for the average system cost of capacity, regardless of their shopping status, instead of having the NGS pay for released capacity assets. The Commission opined this would reduce risk for utilities and NGSs and provide NGSs with the improved ability to offer innovative or lower priced services. Additionally, "[s]ystem reliability and stability is ultimately the concern of all customers and therefore, such factors like peak day should be borne by all customers fairly and equitably with no regard to shopping or non-shopping status." The Commission proposes to add language reflecting this proposal as follows: "Capacity or Pennsylvania supply costs shall be charged to all customers as a non-bypassable charge based on the average contract rate for those services."

With regard to which assets are released to NGSs, the Commission proposes to require the use of virtual access to assets that the utility cannot otherwise offer due to reliability or other restrictions. While there is no requirement for the utilities to release a "slice of the pie" of assets to NGSs, they cannot release capacity in a manner that is discriminatory. Current regulations also require that, "capacity assets must follow the customers for which the NGDC has procured the capacity, subject only to the NGDC's valid system reliability and FERC constraints." The Commission proposes to add language to the regulations as follows: "When release must be restricted due to reliability or other constraints, an NGDC shall develop a mechanism that provides proxy or virtual access to the assets."

The Commission additionally proposes that daily imbalance trading between market participants at the utility level and between choice and transportation programs be implemented to provide NGSs with the improved ability to avoid penalties. The regulations are proposed to be revised to reflect this as follows:
"An NGDC shall provide the opportunity for imbalance trading on the day the imbalance occurred. Capacity may be traded between market participants provided that either:
1) The trade improves the position of both parties.
2) The trade improves the position of one party and is agreed to by the second party but does not negatively impact the second party's imbalance."

The Commission also proposed to standardize the penalty mechanism applicable during off-peak periods. Utilities would establish penalties based on local gas costs and incorporate a multiplier, expressed as, for example, a standard percentage or a market-based formula. The Commission proposes that utilities include language in their tariffs as to when penalties might be waived. In addition, the Commission seeks comment on whether NGSs that intentionally help the utility to correct an imbalance should be rewarded (market cost of gas plus or portion of the penalties levied) if a penalty was levied on a different entity that caused the imbalance. The Commission proposes the following language to reflect the proposals on penalties:
"Penalties during system off-peak periods must correspond to market conditions.
1) An NGDC shall use the system average cost of gas as the reference point for market based penalties. If an NGDC takes service from a local hub, it may use the local hub as a reference point for market based penalties.
2) The lowest penalty must be set at the market price."

Comments on the ANOPR are due October 31, 2017. NEM will send a notice convening a membership call on the ANOPR. The full text of the ANOPR is available on the NEM Website.