January 14, 2015 VIA MESSENGER AND . Mark D. Marini, Secretary Department of Public Utilities One South Station, 5 th Floor Boston, MA 02110
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1 Patricia Crowe Senior Counsel Legal Department January 14, 2015 VIA MESSENGER AND Mark D. Marini, Secretary Department of Public Utilities One South Station, 5 th Floor Boston, MA Re: Massachusetts Electric Company and Nantucket Electric Company each d/b/a National Grid Basic Service Bill Recalculation, D.P.U Dear Secretary Marini: On behalf of Massachusetts Electric Company and Nantucket Electric Company each d/b/a National Grid, enclosed please find the Initial Comments of National Grid in the abovecaptioned docket, as well as an Appearance of Counsel. Thank you for your time and attention to this matter. Very truly yours, Patricia Crowe Enclosure cc: Jeffrey Leupold, Hearing Officer Elizabeth Anderson, Assistant Attorney General Nathan Forster, Assistant Attorney General dpu.efiling@state.ma.us 40 Sylvan Road, Waltham, MA T: F: patricia.crowe@nationalgrid.com
2 THE COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES ) Investigation by the Department on its own ) Motion into Initiatives to Improve the ) D.P.U Retail Electric Competitive Supply Market ) ) COMMENTS OF NATIONAL GRID ON ELIMINATING THE RECALCULATION OF BASIC SERVICE COSTS I. Introduction Massachusetts Electric Company and Nantucket Electric Company each d/b/a National Grid (together National Grid or the Company ) submit these Comments in response to the Department of Public Utilities (the Department ) December 11, 2014 vote and order opening an investigation into initiatives to improve the retail electric competitive supply market ( Order ). In its Order, the Department is proposing several initiatives relating to the retail electric competitive supply market in Massachusetts, including a proposal to eliminate the basic service bill recalculation provision for residential and small commercial and industrial ( C&I ) customers. Order at 1, These comments address that issue with the Company requesting that the Department continue its current practice of applying the basic service bill recalculation provision to residential and small C&I customers when they leave basic service to obtain their electric supply from the competitive market. II. The Department Should Continue the Practice of Applying the Basic Service Bill Recalculation Provision to Residential and Small C&I Customers on the Fixed Price Option Who Leave Basic Service As described in its Order, the Department established two pricing options available to basic service customers: 1) a fixed price option; and 2) a variable price option. Order at 7-8 citing Pricing and Procurement of Default Service, D.P.U A (2000) and D.P.U B 1
3 (2000). To lessen customer confusion for basic service, residential and small C&I customers are placed by default on the fixed price option, with the opportunity to elect the variable price option, while medium and large C&I customers who generally are more informed about their energy usage and the competitive supply market 1 are placed on the variable price option. Order at 8 citing D.P.U A at 6-7; D.P.U B at 8. Also as noted by the Department in its Order, the recalculation of bills for customers taking basic service under the fixed price option who leave basic service would ensure that basic service customers pay the full costs of basic service during the time they received basic service, as did customers who took basic service and were billed on a variable price option. Order at 8 citing D.P.U A at 8; D.P.U B at 10. National Grid supports retaining the current practice of applying the basic service bill recalculation provision to residential and small C&I customers on the fixed price option who leave basic service during a six-month pricing term for the same reasons which the Department approved the practice in D.P.U B. With the increased differences between basic service s fixed-price option and variableprice option over the past two winters, the amount of adjustments generated by the basic service bill recalculations has increased. The Company also expects adjustments to increase with the successful rollout of the competitive supply website under study by the Department in this docket. As the Department ruled in D.P.U B, the bill recalculation is intended to ensure the proper allocation of the cost of providing basic service to the customers who received basic service. Without the bill recalculation, especially during pricing periods where there is a noticeable difference between the monthly variable rate and the fixed basic service rate, when customers leave basic service, all customers compensate for the migrating customers avoided 1 Basic Service customers receiving delivery service on the Company s street lighting rate schedules are also placed on the variable price option. 2
4 cost that would have been generated by the bill recalculation through the reconciliation process, which results in the basic service adjustment factor. Although the net impact of the bill recalculation may be relatively small when compared to the total cost of basic service, the bill recalculation maintains equity among customers. The bill recalculation provides an element of fairness because customers who leave basic service to obtain their electric supply in the market, presumably at a lower electricity price, pay the full cost of the energy they received while on basic service during the applicable pricing period. With the elimination of the bill recalculation, all customers will pay for the benefit that these customers would get by no longer being subject to the bill recalculation. This results in customers who go to the market for their electric supply receiving two benefits: avoiding the bill recalculation adjustment (to the extent it results in a surcharge) and a lower electric supply price from their new competitive supplier. It also has the opposite affect depending on the monthly variable prices and when a customer switches to a competitive supplier. That customer may receive a credit to their account when the fixed price is greater than the first one to two months of variable prices. By eliminating the bill recalculation, this customer is, in essence, paying more than the cost of their basic service supply, which reflects an unfairness in the fundamental premise of cost-based ratemaking. The bill recalculation also prevents basic service being used as a competitive supply option when customers choose their providers of electricity. The Department stated that basic service should be a last-resort service and not a competitive supply option. Petitions for Approval of Municipal Aggregation Plans, D.P.U through , at 19 (2014) citing NSTAR Electric Company, D.T.E , at (2014); see also Provision of Default Service, D.T.E B at 7 (2003). In D.T.E , at 18, the Department directed 3
5 NSTAR Electric to revise its terms and conditions to preclude a customer switching from a competitive supplier to basic/default service from returning to the same competitive supplier for period of six months from the effective date of the change unless the customer has been placed on basic/default service upon the expiration of a contract with such competitive supplier. This directive prevents the practice of multiple switching transactions during a contract term but it does not eliminate the use of basic service as a competitive supply option. If the bill recalculation is eliminated, a customer may choose a competitive supplier contract for the lowerpriced months of March through December and switch to basic service for the subsidized, below market basic service fixed rate applicable in January and February. However, the bill recalculation prevents this gaming by requiring switching customers to pay their actual January and February costs when they switch to competitive supply. With the Department moving towards appropriate price signals for customers and time varying rate structures as part of grid modernization, eliminating the bill recalculation while maintaining two basic service pricing options moves in the opposite direction from establishing a mechanism to achieve some element of cost responsibility. Therefore, eliminating the bill recalculation provision without a change in pricing structure does not contribute towards more accurate price signals for basic service customers. 2 III. CONCLUSION For the reasons stated above, the Department should not eliminate the bill recalculation for residential and small C&I customers on the fixed-price basic service pricing option who leave basic service to receive their electric supply from a competitive supplier. 2 For example, the underlying procurement of basic service could be altered to require wholesale suppliers to bid a fixed, uniform rate for a six-month pricing period or the fixed price option is eliminated and all customers are billed at the variable basic service rates. In each scenario, customers are billed at the cost of providing the service, ensuring equitable cost responsibility among customers. 4
6 Respectfully submitted, MASSACHUSETTS ELECTRIC COMPANY and NANTUCKET ELECTRIC COMPANY each d/b/a NATIONAL GRID By their Attorney, Patricia Crowe National Grid USA Service Company Inc. 40 Sylvan Road Waltham, MA Phone: (781) Dated: January 14,
7 THE COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES ) Massachusetts Electric Company and ) Nantucket Electric Company d/b/a ) D.P.U National Grid ) ) APPEARANCE OF COUNSEL In the above referenced proceeding, I hereby appear for and on behalf of Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid. Respectfully submitted, Patricia J. Crowe National Grid 40 Sylvan Road Waltham, MA (781) Dated: January 14, 2015
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