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PSNH discount carries a cost: Loyal customers pay more, those who switch offered lower rate

New Hampshire Union Leader

July 02. 2014 9:39PM

A pilot program offering a special rate to lure Public Service of New Hampshire customers back into the fold after they had left for competitive energy suppliers is likely to be suspended.

The staff of the Public Utilities Commission and the Office of Consumer Advocate are recommending that the PUC end the “alternative default energy rate” because it hasn’t been working as intended, and has been harming PSNH’s longtime, loyal customers.

In a page taken from the Prodigal’s Son, the PUC approved the alternative rate in April 2013, when regulators became concerned about the pace at which customers were leaving PSNH to purchase energy supply from someone else, even though PSNH continues to deliver the electricity.

With so many customers leaving PSNH energy supply, the PUC became concerned that the burden of utility costs on a shrinking number of ratepayers would become unsustainable. Something had to be done to stop the bleeding.

At the time, competitive energy suppliers were undercutting the PSNH rate by one or two cents per kilowatt hour. So while customers who never left PSNH energy supply continued to pay the higher energy supply rate, anyone who returned to PSNH was offered a lower rate closer to what competitors were offering in the unregulated market.

The theory was that such a move would stop the “customer migration” and keep rates more stable for all PSNH customers. But it didn’t work out that way.

“To date, the alternative energy default rate has failed to achieve the stated goal of providing a measure of benefit to default rate customers,” the staff attorney and consumer advocate wrote in a June 23 letter to the commissioners.

“In each of the monthly reports filed by PSNH, default energy service customers are subsidizing alternative default energy customers in every month except April 2014. This means that default customers are not receiving any benefit and in fact are being harmed by the alternative default energy rate ... This is the opposite of the projected impact.”

The likely end of the alternative default rate is another indication of how fluid energy prices have been for the past two years. As the staff points out in its letter to the PUC, the market costs of power were so high in the winter months that the alternative rate served no purpose and was not even offered.

What about customers who are still on the alternative rate? “PSNH will have to develop a process to move those customers to the default energy service rate or advise them of the opportunity to return to competitive supply,” the staff writes.

The PUC staff has now turned its attention to a new dynamic. Customers have figured out that they can take the low-cost competitive supply in the spring, summer and fall, and return to the more stable PSNH default rate for the coldest months, when the market rate soars because of natural gas constraints. That kind of consumer behavior in large numbers would spell real trouble for PSNH.

“We believe that PSNH needs to address what the company will do if energy prices spike in the coming winter as they did in 2013-2014,” according to the staff letter. “Because customers can return to PSNH energy service when competitive suppliers’ prices reflect the higher market prices, PSNH could again experience increased load that would have to be supported through market purchases at those higher prices.”

The letter from staff attorney Suzanne Amidon and Consumer Advocate Susan Chamberlin hints at how regulators might solve that problem. “Staff originally proposed that customers who migrate to competitive supply should be subject to a one-year ‘stay-out’ from default service; the commission may want to reconsider the merits of that proposal.”

PSNH spokesman Martin Murray said a range of options is on the table.

“Energy prices were steady when the pilot program was developed and filed,” he said, “subsequently, they became very volatile and the rate did not produce the relief that was expected. We are open to revisiting the rate and exploring a range of practical options for implementation of an alternative rate that might be more effective.”

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