Former PNE power customers promised payment
If consumers accept the $9.50, they would waive any claim against PNE or its broker, Resident Power, for damages resulting from the confusion over their electric supply that started in February. PNE would continue as a competitive electric power supplier, and, along with Resident Power, would face no further penalties or sanctions from the PUC relating to the PNE default.
A PSNH attorney said the proposal "falls woefully short in many areas," and the PUC's own consumer advocate at a hearing before the regulatory agency on Wednesday called for larger compensation for customers.
Speaking on behalf of the PUC staff, attorney Alexander Speidel recommended approval, saying the deal offers a fair resolution to the matter, and "provides useful information and useful lessons that will inform our rule-making and policy-making going forward."
More than 45,000 residential electricity customers in New Hampshire have switched from PSNH to competitive electric suppliers in the past year, as low natural gas prices enabled competitors in the residential market to under-sell PSNH's electric supply rates. PSNH continues to provide transmission and billing services no matter who provides the power.
Resident Power, an electric supply broker that shares common ownership with PNE, attracted about 14,000 customers with a promise of lower rates, and placed 8,500 of them with PNE for power supply in the past six months.
Things were going smoothly as the price of natural gas continued at historic low levels for most of the winter, until severe cold weather, winter storms and constrained pipeline capacity triggered a shortage and a price spike in February.
PNE was unable to pay prices on the wholesale market that in some cases were five times what they had been only weeks earlier, went into default with the Independent System Operator (ISO) for the New England grid, and was suspended from the market.
The company was in the process of selling its 8,500 customers to FairPoint Energy, but had only succeeded in getting 1,200 transferred to FairPoint before being suspended on Feb. 20. Once PNE was suspended, the Independent System Operator had no choice but to transfer its customers to PSNH, the default provider.
That meant the remaining 7,300 customers, who thought they'd signed up with Resident Power, found themselves back with PSNH at rates about 2 cents higher per kilowatt hour because of the default of PNE, a company few of them had even heard of.
Weeks of confusion ensued, as those customers got complicated and sometimes conflicting notices from multiple sources. The PUC staff called for an investigation into the PNE default, its relationship with Resident Power, and the handling of the customer transfers to FairPoint.
Still some 'ambiguity'
Lawyers and staff members from PSNH, along with representatives of various media outlets, turned out Wednesday morning for what was supposed to be a hearing on the staff concerns, only to find out a settlement had been reached just hours before.
"We arrived at this hearing today expecting to testify and respond to questions that the commissioners may have," said PSNH attorney Robert A. Bersak. "Instead, we are met with a stipulation and settlement that was submitted well after the close of business last night."
The $9.50 per customer in the settlement was determined by taking 2-cents per kwh - roughly the difference between the PSNH default rate and the PNE competitive rate, and multiplying it by 500 kwh per month, the PUC's standard for average monthly household use. That amounts to $10 a customer, which was negotiated to $9.50.
The PUC consumer advocate, Susan Chamberlin, told commissioners that $12 to $15 per customer would be a "more accurate calculation," and that consumers suffered more than just financial losses due to the PNE default. "The real harm was the confusion and general chaos that followed," she said.
The settlement suggests that most of the 7,300 customers at issue either ended up with FairPoint or another competitive supplier at a lower rate than PSNH within 30 days. But that's not necessarily the case. "There is still ambiguity as to the status of approximately 2,000 to 3,000 customers," according to Bart Fromuth, managing director of Resident Power.
The $9.50 per customer amounts to a liability of about $70,000 for PNE. The company has to put $100,000 in escrow, pending the delivery of all the one-time payments. In addition, PNE has to establish another escrow account with at least $200,000 to ensure its ability to make future power purchases.
In a conversation with reporters after the PUC hearing, Gus Fromuth, managing director of PNE, said income from the company's commercial accounts would help fund the escrow. Gus Fromuth owns both PNE and Resident Power, and is on the board of Resident Power, which is run by his son, Bart Fromuth.
PNE has paid its bills to ISO and is no longer in default. If the staff recommendation is approved, both Resident Power and PNE will be back in business, although both father and son admit the publicity surrounding the default and subsequent customer confusion will not help their marketing efforts.
The complexity of an electric supplier going into default while in the middle of selling customers to another competitive supplier was a contingency no one anticipated in writing the rules for deregulation.
"There was really no playbook for this type of situation," said Steven Mullen, assistant director of the PUC Electric Division in testimony during the hearing. "I'm hoping we don't have anything like this happen again."