Improving Default Service

1
Improving Default Service
A Strategy to Meet Customer Needs and Facilitate
Market Development David L. OConnor Commission
er Massachusetts Division of Energy
Resources June 21, 2002
Tp-info/presentations/restructuring/2002/default
062102
2
Statewide Electricity by Service Type ( of Load)
22
18
60
Source DOER Customer Migration Numbers
3
Statewide Electricity by Service Type ( of
Customers)
1
28
71
Source DOER Customer Migration Numbers
4
Current Default Service Design

• Strengths
• Monthly prices, competitively bid
• Prices reflect class-specific load curves and
  migration risks
• Reasonable migration rules address gaming
• Appropriate notice of price changes
• More market responsive than Standard
  OfferWeaknesses
• Rate reflects only wholesale power supply
  prices
• Prices do not reflect class-specific contract
  lengths
• Potential for significant price discontinuity
  every 6 months
• Distribution companies remain strategic
  buyers
• Large, infrequent procurements (few buyers and
  sellers)
• Customers receive no more than 6 mos. of price
  info

5
Changes in Default Service Prices
Source DOER / Massachusetts Electric Company
prices
6
Re-Design Goals

• Maintain timely reflection of market conditions
  in price
• Reduce short-term price volatility
• Minimize price relative to value of the product
  provided
• Facilitate sustainable migration to competitive
  suppliers
• Provide a forward price-to-beat for buyers
  sellers
• Minimize opportunities for "gaming" the product
• Enhance wholesale market liquidity

7
Recommended Procurement Changes

• For all classes, procure supply on a
  staggered schedule in
• smaller quantities, more frequently.
• For residential customers, lengthen the term of
  procurements to
• 2 years.
• - E.g. Every 3 months, procure 1/8 load for
  2-year term
• For Standard Offer customers, contracts beyond
  February 2005
• serve a pro rata share of their demand.
• Limit amount of demand one supplier can serve
  at one time.

8
Default Service Procurement for Residential and
Small CI Customers

• Staggered Procurements
• Procured quarterly,
• 2-year supply contracts for 1/8th of demand,
• Contracts A-3 and after absorb S.O. customers in
  3/05.

Residential and Small CI
Transition Contracts
Existing
March 1, 2005
3.75 Average Monthly Price
9
A New Retail Relationship

• Reduce fixed price option to 3 months.
• Reflect supply-related bad debt in price.
• Require suppliers to be licensed competitive
  suppliers.
• Identify all current suppliers on customers
  bill.
• Designate a servicing supplier for each
  customer.
• Require each supplier to provide supply-related
  
• customer service (e.g. 800 call center).

10
A Customer-Supplier Relationship
11
Customer Protections Continue

• Uniform price for all customers of the same
  class.
• No barrier to migration in or out (beyond current
  
• anti-gaming reconciliation).
• No additional deposit requirements.
• No late payment penalties.
• Full panoply of utility service cutoff
  protections.
• Additional protections possible.

12
Improvements for Default Service Customers

• Staggered contracts provide a more stable price
  path.
• More frequent contracts maintain market
  responsiveness
• of price.
• Longer contract terms provide
• a more predictable price for Default Service
  customers,
• and for Standard Offer customers, beyond
  February 2005
• a hedge against risks of migration, as well as
  market and
• regulatory changes.
• Smaller volume contracts should increase
  competition
• among suppliers.

13
Changes to Enable Retail Competition

• Longer term contracts provide better forward
  price information.
• Contract prices reflect the value of the hedge
  against risks of
• migration, regulatory and market changes.
• Inclusion of supply-related bad debt increases
  similarity to
• other retail products.
• Shorter fixed price option encourages customer
  shopping to get
• fixed prices for longer terms.
• Identification of suppliers makes clearer who
  provides the supply.
• Designation of a servicing supplier
  establishes a
• customer-supplier relationship.
• Customer service call center enables
  customer-suppler
• interaction.