07-G Senate Bill 7 - Laserfiche WebLink

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The Price To Beat Is Not Protecting Customers And Few Competitive Options Exist To Escape the High Price To Beat Rates. The Price to Beat Was Intended to Serve as a Safe Harbor During the Early Years of Competition. When SB7 was adopted, it was with the belief that all customer classes must benefit fi.om competition. Concerned that the primary beneficiaries of deregulation would be those using large amounts of power, the legislature ordered a six-percent rate reduction for residential and small commercial customers and challenged competitors to beat the regulated rate. Typically, residential customers are the most commonly discussed group of customers affected by the Price to Beat rate. However, because the Price to Beat rate is available to all customers with 1000 kW demand or less, most municipal accounts are eligible for the Price to Beat rate also. The Price to Beat rate is a regulated rate intended to be a safe harbor for residential and small commercial customers for a 5-year period during the transition to competition. The Safe Harbor Is Flooded. Unfortunately, adjustments made to the Price to Beat over the past year have effectively eliminated the six-percent rate reduction guaranteed by the Price to Beat statute and flooded the safe harbor for residential and small commercial customers. While the statute mandates a six- percent reduction off of 1999 bundled rates, it provided the Public Utility Commission with some discretion in setting the fuel factor that adjusts the Price to Beat rate. PURA § 39.202(b) required the Public Utility Commission to determine the fuel factor for each utility as of December 31, 2001. Market participants viewed the Price to Beat fuel factor as the only tool to meaningfully affect the level of the Price to Beat rate. Seizing the opportunity to maximize their earnings, the affiliated REPs requested Public Utility Commission approval for fuel factors that were inflated with non-fuel related costs. REPs that desired to compete against the Price to Beat rate for customers also took an active role in the proceedings before the Public Utility Commission, arguing that the fuel factors must be high in order to encourage REPs to enter the market and "benefit" competition. Cities protested the inflated fuel factors because the costs were inconsistent with the statute, Public Utility Commission practice and longstanding precedent. The inflated factors were approved over the Cities' objections. Tying the Price to Beat Rate to Changes in the Spot Natural Gas Market Gives Afffiiated REPs A Windfall at the Expense of Residential Customers. The affiliated REPs filed for fuel factor increases last summer to raise their overall Price to Beat rates by five to eight percent. PURA § 39.202(/) permits the affiliated REP to request an adjustment to the Price to Beat fuel factor if the REP can demonstrate that its existing fuel factor inadequately reflects significant changes in the price of natural gas and purchased energy used to serve Price to Beat customers. Despite the statutory mandate, increases to the Price to Beat fuel factors were approved without any evidence that current fuel factors were inadequate to recover the natural gas prices realized by affliated REPs. Instead, attention was focused exclusively on NYMEX prices over a ten-day period in comparison to the gas price assumed in the existing fuel 18 t 3\00~maa~mo030113grog 12