Press Release

PUC Issues Proposed Regulations for Providing Default Electric Generation Service

Published on 12/16/2004

Filed under: Electric

HARRISBURG – Companies which provide default electric generation service to small retail customers would be required to offer customers at least one-year contracts at fixed prices and to obtain their power through competitive bids, according to proposed regulations released today by the Public Utility Commission (PUC).

            The proposed rules cover what has been described in the past as provider of last resort service. It refers to generation service provided to customers who do not receive or choose not to obtain the service from an alternative supplier. This service will be identified as "default service" in the Commission's regulations

            “In reaching its conclusion on these issues, the Commission is guided by one of the key policy declarations of the [1996 Electric Competition] Act – that is, markets are superior to economic regulation in determining the cost of electricity generation,” the PUC said in its order.

            “It is our intent that these proposed regulations reflect this and other declarations of policy by the Pennsylvania General Assembly.  Specifically, default service should be reliable, available on reasonable terms and conditions, associated with high-quality customer service, and provided consistent with the level of protections currently afforded to low-income customers.”

            Default service is currently provided by electric distribution companies like PPL, Met-Ed and Allegheny Power. The companies are required to purchase power for their customers, but most of the generation rates are capped as a result of restructuring settlements related to the Electric Choice Law.

            The law, however, requires the PUC to develop regulations defining how the distribution companies - or other companies approved by the PUC - will continue to provide default service once rates caps expire and power is purchased at prevailing energy market prices. To understand the issues, the Commission held a series of roundtable discussions this summer with distribution companies, suppliers and other state utility commissions.

            Under the proposed regulations, distribution companies will continue to have the obligation to provide generation, unless the PUC authorizes another company to provide the service. Each company must use competitive bids to obtain power for their respective service territory. The Commission is requiring this method so that competition among potential suppliers will determine the price and allocation of load.

            Also, companies must offer residential and small business customers at least one-year service plans with fixed prices, which will be determined through the bidding process. Large commercial and industrial customers that do not select another supplier will receive default service at hourly rates, unless the Commission otherwise approves a fixed rate.

            The PUC said companies could offer longer contracts, but cautioned against long-term contracts spanning many years.

            “We acknowledge that a longer term could lead to lower default service prices from suppliers, who may be attracted by the opportunity of securing long-term customers,” the PUC said in its order. “At the same time, we are aware that a longer term may lead to divergence from the prevailing market price, which is the legal standard which controls default service rates.”

            The PUC also included a provision to prevent suppliers from exploiting seasonal price variations by transferring large numbers of customers back to a default supplier when generation prices are high. Now, a supplier must first obtain the consent of the default supplier. (Commissioner Kim Pizzingrilli statement )

            The PUC will approve all default service implementation plans and will ensure that the procurement process adheres to the plans. Companies must submit implementation plans 15 months before generation rate caps expire or their current default service plan ends. Companies which already have PUC-approved plans include Duquesne Light, Citizen’s Electric, UGI-Electric, Pike County Power and Wellsboro Electric.

            For companies which are part of the PJM regional transmission organization, the PUC is requiring default service implementation plans to follow PJM’s planning year, which begins June 1. Since all generation caps expire on Dec. 31 of various years, the initial default service proposals offered by these companies must cover at least 17 months.

            Today’s proposed regulations were issued as a notice of proposed rulemaking and the PUC is seeking comments from the public and other interested parties. Comments must be submitted within 60 days from the date the proposed regulations are published in the Pennsylvania Bulletin. Reply comments will be due 30 days after initial comments are submitted.

            The Pennsylvania Public Utility Commission ensures safe, reliable and reasonably priced electric, natural gas, water, telephone and transportation service for Pennsylvania consumers, by regulating public utilities and by serving as stewards of competition.

            For recent news releases, or more information about the PUC, visit our Internet homepage at www.puc.state.pa.us.

Docket No. L-00040169, M-00041792

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