BEFORE THE PUBLIC SERVICE COMMISSION OF MARYLAND

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Jerome Tate
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1 BEFORE THE PUBLIC SERVICE COMMISSION OF MARYLAND IN THE MATTER OF THE COMMISSION S ) INVESTIGATION INTO DEFAULT SERVICE ) CASE NO: 0 FOR TYPE II STANDARD OFFER SERVICE ) CUSTOMERS ) IN THE MATTER OF THE COMPETITIVE ) SELECTION OF ELECTRICITY ) SUPPLIER/STANDARD OFFER OR ) CASE NO: 0 DEFAULT SERVICE FOR INVESTOR-OWNED ) UTILITY SMALL COMMERCIAL ) CUSTOMERS; AND FOR THE POTOMAC ) EDISON COMPANY D/B/A ALLEGHENY ) POWER S, DELMARVA POWER AND ) LIGHT COMPANY S AND POTOMAC ) ELECTRICAL POWER COMPANY S ) RESIDENTIAL CUSTOMERS. ) DIRECT TESTIMONY OF FRANK MOSSBURG AND KATHERINE GOTTSHALL BOSTON PACIFIC COMPANY, INC. ON BEHALF OF THE STAFF OF THE PUBLIC SERVICE COMMISSION OF MARYLAND June 1, 01

2 Q. Please state your names, business positions, and business address. A. Our names are Frank Mossburg and Katherine Gottshall. We are, respectively, a Managing Director and Project Director at Boston Pacific Company, Inc. (Boston Pacific). Boston Pacific is the Monitoring Technical Consultant for this, the 01 Request for Proposals (RFP) by the four Maryland utilities. Boston Pacific is located at 10 New York Avenue NW, Suite 0 East, Washington, DC Q. Please briefly summarize your qualifications and those of your firm as monitoring consultants for full requirements RFPs. A. Boston Pacific has extensive hands-on experience monitoring many of the major full requirements solicitations in the country, including our engagements for (a) New Jersey s 00 through 01 Basic Generation Service Auctions, (b) the 00 through 01 Standard Offer Service (SOS) RFPs for the District of Columbia, (c) Delaware s 00 through 00 SOS RFPs, (d) Maryland s SOS RFPs from 00 to 00 and 0 to 01 for all four utilities, (e) Allegheny Power s (now West Penn Power) 00 RFP for full requirements supply in Pennsylvania, (f) the 00 Illinois Auction and the 00 through 01 Illinois RFPs, (g) FirstEnergy s 00 through 01 Auctions for its Ohio load, (h) Duke Energy s 0 through 01 Auctions for its Ohio load, (i) Dayton Power & Light s 01 through 01 Auctions for its Ohio load, and (j) AEP s 01 through 01 Auctions for its Ohio load. In each of these cases we represented the State Public Utility Commission. Frank leads or has led our day-to-day efforts since 00 for our engagements in New Jersey, Maryland, Ohio, Pennsylvania, Delaware and the 1

3 District of Columbia. Since 00, Katherine has been fully involved in our engagements in Illinois, the District of Columbia, Maryland, Delaware, Pennsylvania, and the AEP-Ohio auction. In these engagements she has created our evaluation tools, evaluated bids, helped review price benchmarks, reviewed procurement design and helped present reports to the Commissioners. She currently leads our day-to-day efforts in Illinois and the District of Columbia. Q. What is the purpose of your testimony? A. The purpose of our testimony is to provide a recommendation to the Maryland Public Service Commission (the Commission) as to whether to accept the results of this fourth bid day for the Maryland Utilities 01 RFP for SOS Q. What is your recommendation? A. We recommend that the Commission accept the results of this most recent bid day. Our recommendation is based on the following points. 1. The winning prices were consistent with broader market conditions. No winning bids were rejected due to implementation of the Price Anomaly Threshold.. The RFP was sufficiently competitive. Eight bidders participated in at least one of the product offerings and three bidders won some share of supply. Ultimately, the entire supply of each product was fully subscribed.

4 . The RFP was open, fair and transparent. All bidders, including utility affiliates, signed the same contract and all bids were judged solely on the basis of price.. There were no violations of RFP rules or regulations. All bids were properly evaluated in the manner laid out in the RFPs More broadly, we base our recommendation on Boston Pacific s independent review and ranking of all of the submitted bids, our assessment of current market conditions, and our substantial experience as a monitor for SOS RFPs. We also base this on our full participation in all phases of the RFP process. This included: reviewing all RFP documents and data, monitoring the RFP websites, reviewing all Q&A, attending the pre-bid conference, participating in pre-bid dry runs to test bidding software, and having discussions with Staff, the Maryland Office of People s Counsel, and utilities regarding multiple issues Q. When did the solicitations take place and what products were solicited for this fourth bid day? A. This fourth bid day took place on Monday, June 1. It solicited full requirements service 1 for six different products among four utilities. For Baltimore Gas and Electric 1.. MW of Type II supply covering the September 1, 01 to November 0, 01 time frame 1 Full requirements service (also known as Standard Offer or Basic Generation Service) is electricity service for customers who choose not to use a third-party supplier. It is comprised of several components including: energy, capacity, ancillary services, and renewable portfolio obligations.

5 For Pepco of Type II supply covering the September 1, 01 to November 0, 01 time frame For Potomac Edison 1.. MW of Residential supply covering the June 1, 01 to May 1, 01 time frame.. MW of Residential supply covering the June 1, 01 to May 1, 01 time frame.. MW of Type II supply covering the September 1, 01 to November 0, 01 time frame For Delmarva Power and Light 1.. MW of Type II supply covering the September 1, 01 to November 0, 01 time frame The solicitation was a fixed-price pay-as-bid process. Supply was broken into blocks of roughly 0 MW each, representing a percentage share of the total product load. Bidders offered prices at which they would serve each product. All bidders for a given product signed the same contract so selection was based solely on which bidders offered the lowest price. Winners will be paid the prices that they bid. 0 1 Q. Please explain the criteria used in making your recommendation. A. In evaluating SOS procurements we generally like to ask four standard questions: (a) Are winning prices consistent with broader market conditions? (b) Was there

6 sufficient competition? (c) Was the process open, fair, and transparent? and (d) Did the process adhere to rules and procedures as laid out in the RFP and Commission Orders? Q. Please explain your findings with respect to fairness and transparency. A. This RFP process was structurally open, fair, and transparent because it (a) had a well-defined product that could be offered by multiple parties, (b) used standard contracts so there was no discretion on non-price factors in choosing winners, and (c) featured a straightforward, price-only bid evaluation. Additionally, the utilities were prompt in answering questions from bidders and distributing information to all bidders Q. Please describe your findings with respect to competitiveness. A. We assessed several indicators of the RFP s competitiveness. A full detailing of the levels of participation for each of the six products can be found in Exhibit One Q. What information did you review regarding competitiveness? A. We first looked at the number of bidders. There were a total of eight bidders who submitted bids for one or more of the six products available. This is the same number of bidders that we had in February. We compare to the February bid day because it solicited a similar range of products. The bid day in April solicited substantially more residential supply.

7 Another measure of competitiveness we examined was the ratio of MW bid to MW needed. For the entire RFP we received approximately. MW bid for every MW needed. This metric is slightly better than February s RFP, which saw. MW bid for every MW needed overall. For the Potomac Edison Residential products, the ratio was.0 to one, higher than the ratio of. to one in February. For the Type II products, the ratio was. to one, slightly more competitive than February s. to one ratio. Q. Did you examine any other measures of participation? A. We examined the number of winners. There were three winners, which is three fewer than we saw in February s procurement Q. Please describe your findings with respect to prices. A. The primary test for reasonable prices in this RFP is the Price Anomaly Threshold or PAT. This serves as a hard cap on bids, meaning that it forces some bids to be rejected if winning bids are higher than the PAT. A PAT is developed for all Residential and Type I products Q. Did the implementation of the PAT cause any bids to be rejected? A. The implementation of the PAT did not lead to the rejection of any winning bids. All average winning prices came in below the PAT. Technically, the PAT is compared against the average price of winning bids, so some individual bids may exceed the PAT.

8 Q. Please describe your findings with respect to rules and regulations. A. In this, the RFP was successful. All procedures were carried out as envisioned in the RFP. This included: (a) all documents and data properly posted, (b) conformance with the bid plan, and (c) a price-based method of determining winners. All security procedures were properly observed. Most importantly, Boston Pacific was able to independently review bids and determine the winners and winning prices. Q. Does this conclude your testimony? A. Yes.

9 Exhibit One Results for Residential Products Product Number of Bidders MW Solicited/ MW Bid Ratio of MW Bid to Number of Eligible Actual Awarded Solicited Winners PE - Residential 1 Month PE - Residential Month Total. 0..0

10 Exhibit One Results for Type II Products Product Number of Bidders MW Solicited/ MW Bid Ratio of MW Bid to Number of Winners Eligible Actual Awarded Solicited BGE - Type II PEPCO - Type II PE - Type II... DPL - Type II Total

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