BEFORE THE PUBLIC SERVICE COMMISSION OF THE DISTRICT OF COLUMBIA

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1 BEFORE THE PUBLIC SERVICE COMMISSION OF THE DISTRICT OF COLUMBIA In the Matter of ) ) The Investigation of a Purchase of ) Receivables Program in the ) Formal Case No District of Columbia ) COMMENTS OF THE NATIONAL ENERGY MARKETERS ASSOCIATION The National Energy Marketers Association (NEM) 1 hereby submits comments pursuant to the Commission s Order No issued on April 26, 2012, on the Response of Potomac Electric Power Company to Commission Order No and Proposed District-Specific POR Program Plan, filed by Pepco on June 25, 2012 [hereinafter Pepco Filing ]. In Order No the Commission determined that, sufficient reason exists to further consider an electricity POR program for Pepco in the District, so long as it does not increase rates. (Order No at 9). It then directed Pepco to, develop a proposal for POR implementation in the District that should include, at a minimum: (1) a detailed District-specific POR program plan that is similar in design to the Maryland POR program; (2) an estimate of POR program costs for the District; (3) a report assessing Pepco's Maryland POR program performance and impact, if any, on Maryland ratepayers; (4) an assessment of the impact upon the ratepayer of a District POR program; and (5) any changes to rules necessary for Pepco's implementation of the POR. Where differences exist between the Maryland and District POR programs, Pepco should provide a detailed explanation for the difference. (Id.). 1 The National Energy Marketers Association (NEM) is a non-profit trade association representing both leading suppliers and major consumers of natural gas and electricity as well as energy-related products, services, information and advanced technologies throughout the United States, Canada and the European Union. NEM's membership includes independent power producers, suppliers of distributed generation, energy brokers, power traders, global commodity exchanges and clearing solutions, demand side and load management firms, direct marketing organizations, billing, back office, customer service and related information technology providers. NEM members also include inventors, patent holders, systems integrators, and developers of advanced metering, solar, fuel cell, lighting and power line technologies.

2 Pepco proposes that its DC POR program largely mirror the POR program it already has in place Maryland, subject to certain modifications some of which are significant and will be discussed in detail in these comments. With respect to the timeframe for implementation, Pepco requests that it be permitted to implement POR in As noted in our previously filed comments in this proceeding, NEM strongly supports the availability of a POR program in the District of Columbia and the efforts of the Commission and Pepco to expeditiously implement such a program. POR programs, particularly because they are used in conjunction with utility consolidated billing, rely on the utility s billing, remittance, and collection systems for which customers already pay through utility rates. Therefore, POR programs lower costs for customers, utilities and competitive suppliers by avoiding unnecessary duplication of assets for which all customers have already paid. Our comments set forth recommendations to ensure that Pepco implements a well-functioning program that supports supplier participation, and in turn, results in increased competitive energy offerings to D.C. consumers. NEM also requests clarification of certain details of Pepco s proposal. I. Pepco s Proposed POR Program Structure Pepco proposes to structure its program such that it will purchase current billed accounts receivable on each consolidated bill at program implementation. (Pepco Filing at 2). Non-current balances will be billed by Pepco for ninety days. (Id.). Pepco will make payments to suppliers in the POR program twice per week. (Pepco Filing at 3). Pepco s implementation of the POR program will include an auto cancel process pursuant to 2

3 which when it cancels a customer s usage and delivery charges for a given billing period, it will automatically cancel corresponding supplier charges. (Id.). The practice of purchasing outstanding receivables at program implementation, as proposed by Pepco, has been used in other jurisdictions where POR was implemented mid-stream in the choice program and allows for a smoother logistical transition of customers. Pepco followed this approach when it implemented POR in Maryland. This was also done by Niagara Mohawk 2 in New York and CL&P in Connecticut. By implementing the purchase outstanding receivables approach, it should allow marketers to begin participating in the market and serving Pepco consumers somewhat sooner than the POR program implementation date because suppliers will know that they will get paid for those receivables. While not specifically addressed in Pepco s filing, NEM recommends that the Commission encourage Pepco to allow non-generation service charges to be placed on the utility consolidated bills at the supplier s discretion, and to include such charges among those that would not be purchased by the utility. The latter charges could also include charges for supplier energy audits, demand response services, and energy efficiency services. In the alternative, Pepco should receive reasonable, cost-based fees for billing non-commodity services. Utility billing of such services could stimulate development of innovative products and services and thereby hasten the availability of such products to customers. 2 New York Public Service Commission Cases 05-M-0333, 99-G-0336, and 98-M-1343, Order Clarifying and Adopting Joint Proposal on Competitive Opportunities, dated April 20,

4 II. Pepco s Proposed Cost Recovery Mechanisms Discount Rate and Supplier Charge In general terms, Pepco proposes that the POR program discount rate will be computed as a function of uncollectible expense, program development and operation costs, and a risk component. (Pepco Filing at 4). After the first year of the program a reconciliation component will also be added to set the discount rate. (Pepco Filing at 4-5). However, in a departure from the Maryland program, late payment fees will not be credited to uncollectible expense in setting the discount rate. (Pepco Filing at 4). Pepco has also proposed an additional cost recovery mechanism apart from the discount rate whereby it would impose a charge on participating suppliers if the number of suppliers was insufficient to allow the utility to recover costs associated with purchase of receivables. (Pepco Filing at 5). NEM requests clarification that Pepco intends to separately compute and charge discount rates for residential and non-residential customers. While the structure of its proposal appears to contemplate separate discount rates for the different customer classes, and its Maryland program is constructed in this fashion, Pepco did not explicitly state its intention to do so. A fundamental issue in designing the discount rate is that so long as uncollectibles remain bundled in utility full service rates, migrating customers should not pay uncollectibles expenses twice, once as a function of the utility delivery rates and once as a function of the POR charge. In the absence of this rate unbundling, POR should be offered at little or no discount in compensation for Pepco s retention of uncollectibles in its base rates. When this unbundling has occurred, the uncollectible expense is typically a factor using in determining the utility s POR discount rate in other jurisdictions. Additionally, the utility s risk (and 4

5 commensurate need to charge a discount rate) is mitigated by its ability to terminate customers for non-payment in a POR program. 3 Pepco has also proposed to incorporate a risk component, in addition to uncollectibles expense, in the discount rate. It proposes to initially set the risk component at zero. (Pepco Filing at 4). NEM urges the Commission not to approve the inclusion of a generic risk component in the discount rate. While we recognize that this is a component of Pepco s Maryland POR program, this risk component has been set to zero throughout the program for all of the Maryland utilities. 4 In other jurisdictions, the use of a generic risk component over and above uncollectible expense has been disapproved by Commissions. 5 The discount rate should reflect the utility s uncollectibles experience. There is no need for a separate generic risk factor component to compensate the utility since they are otherwise able to collect their bad debt. Pepco proposes that the discount rate also include a component to recover program implementation costs, as is the case with its Maryland program. (Pepco Filing at 4). NEM suggests that the Commission consider that POR program implementation costs may properly be recovered from all ratepayers through Pepco s delivery rates. This is 3 While Pepco did not specifically mention that it would have the ability to terminate service to a consumer for non-payment of supplier charges, we assume this to be an element of its D.C. program as it is an element of Pepco s Maryland POR program. The ability of the utility to terminate for non-payment of supplier charges is a fundamental POR program design element incorporated in multiple jurisdictions because it mitigates the risk to the utility of nonpayment. 4 Although the Commission in its October 7, 2009 Letter Order to the Company indicated that a risk component could be included in the POR discount rate, the Commission finds that the Company has failed to adequately support the need for the risk factor it has requested. Accordingly, the Commission accepts Staff s recommendation and sets the risk factor at zero, and excludes it from the approved POR discount rates. Maryland Public Service Commission, RM17, Letter Order on BGE POR Program, June 10, The Pennsylvania Public Utility Commission determined that, we will not allow NGDCs to incorporate a further generic risk factor for the recovery of risks over and above those associated with uncollectible expenses. Pennsylvania Public Utility Commission, Docket No. L , Natural Gas Distribution Companies and the Promotion of Competitive Retail Markets, Advance Notice of Final 5

6 appropriate on the basis that the availability of choice benefits all consumers, even those that do not select a competitive provider, and therefore the costs should be recovered from all customers. It is tantamount that POR be implemented in a competitively neutral fashion. This is subject, of course, to Pepco s implementation costs being prudently incurred and actively managed, and just and reasonable. NEM also notes that Pepco argues that its program implementation costs will be significantly minimized and/or eliminated if it is allowed to delay implementation of POR to coincide with its new billing system. (Pepco Filing at 5-6). That being the case, the program implementation cost component of the discount rate proposed by Pepco should be at or near zero. By the terms of its proposal, Pepco will not allow late payment fees to be credited to uncollectible expense in setting the discount rate. (Pepco Filing at 4). It stated that, Pepco s billing system does not allow for the calculation of late payment fees for customers with a third party supplier. At such time as late payment fees can be billed on purchased receivables, Pepco will not credit those fees to uncollectible expense in determining that component of the Discount Rate, which is a difference from the Maryland program. Instead, such fees will be processed in the same manner as late payment fees received for distribution and for Pepco s SOS customers. Because suppliers are paid immediately under the POR program, it is not appropriate to provide them the benefit of late payment fees. (Pepco at 4). NEM opposes Pepco s proposal not to credit late payment fees against uncollectible expense. Currently in the non-por market, suppliers are collecting late payment fees. Under a POR model, if Pepco collects late payment fees from supplier customers and does not apply the fees to the uncollectible expense, it will act as a windfall to the utility. Rulemaking Order, issued July 29, 2010, page 26 and subsequently adopted in the Revised Final Rulemaking Order, issued April 14,

7 Suppliers and their customers should share in the benefit when late payment fees help to defer collection costs in a POR environment. Pepco proposes that a reconciliation component be added to the discount rate after the first year of the program s implementation. (Pepco Filing at 4-5). The reconciliation component will adjust for over- or under-collections experienced in the program. (Id.). This is how Pepco s Maryland POR program is structured and also reflects experience in other jurisdictions. The Commission may also consider the treatment of overcollections through either a rebate to suppliers or by setting forward-looking discount rates as negative, according to the way the discount rate is calculated. In addition to utilizing a discount rate as the means to recover the costs of the POR program, Pepco has proposed that it be able to assess an additional charge to suppliers as well. Pepco proposes that if there are unrecovered costs associated with purchase of supplier receivables and an insufficient number of participating suppliers to support cost recovery, that it be able to impose a charge to recover these costs. (Pepco Filing at 5). NEM opposes this proposal on a number of grounds. First, assuming that the discount rate is properly computed and inasmuch as Pepco is proposing to incorporate a reconciliation component to the discount rate to account for possible undercollections, it is unclear why such a charge would ever be necessary. Second, NEM is very concerned about the risk to the competitive marketplace attendant with Pepco having an unfettered ability to retroactively charge suppliers for what it may perceive to be unrecovered costs. NEM is not aware of another jurisdiction that allows a utility to impose this duplicative charge over and above the POR discount rate. We urge the Commission to reject this component of Pepco s proposal. 7

8 III. Pepco s Proposed POR Program Implementation Timeframe Pepco estimates that it will take nine months to implement POR in D.C. (Pepco Filing at 10). Pepco requests that it be permitted to implement POR in coordination with its new billing system in (Pepco Filing at 5-6). It maintains that doing so will allow for the reduction of incremental costs and duplication of effort in implementing POR in both its current and future billing system. (Pepco Filing at 11). We urge the Commission and Pepco to assign a high priority to the implementation of the POR program in order to permit expeditious competitive market entry. The favorable market circumstances that currently exist in D.C. as well as experience gained with POR programs in Maryland and other jurisdictions justify the resources to quickly put POR in place, so as to allow marketers to serve District of Columbia customers with competitive options as soon as possible. Pepco also explained that if it is allowed to delay program implementation that it should minimize or eliminate the incurrence of incremental costs. (Pepco Filing at 6 and 11). NEM urges that, if the Commission grants the delay, that Pepco should be required to adhere to this cost minimization strategy and any subsequent requests for program implementation costs should be subject to strict Commission scrutiny in this light. The delay in POR program implementation will be ameliorated somewhat by the willingness of Pepco to purchase the current billed accounts receivable on each consolidated bill account for competitive suppliers and to bill the non-current balances for ninety days. (Pepco Filing at 2). In so doing, if for example Pepco implemented POR by winter 2013, suppliers would be able to begin serving customers in the fall with the knowledge that their charges would remain on the bill and be collected. It is important 8

9 that this program feature be incorporated in Pepco s program to at least partially offset any delay in POR implementation that the Commission may allow. IV. Conclusion NEM appreciates this opportunity to offer comments and recommendations on Pepco s POR program proposal. Subject to the recommendations set forth herein, we urge the expeditious implementation of POR in the District of Columbia to incent supplier entry and market participation and thereby increase the competitive energy offerings to consumers. Respectfully submitted, Craig G. Goodman, Esq. President National Energy Marketers Association 3333 K Street, NW, Suite 110 Washington, DC cgoodman@energymarketers.com Tel: Fax: Dated: July 24,

10 CERTIFICATE OF SERVICE I hereby certify on this 24th day of July, 2012, that the Comments of the National Energy Marketers Association was served on the parties of record to this proceeding by electronic mail or first class mail. Stacey Rantala Director, Regulatory Services National Energy Marketers Association 3333 K Street, NW, Suite 110 Washington, DC (202) srantala@energymarketers.com 10