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<title>July 2003: Maine PUC To Test Systems For Aligning Standard Offer Price
Changes With Market Changes</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<p ALIGN="left"><u><br>
July 2003</u><font size="6"><br>
Maine PUC To Test
Systems For
Aligning
Standard Offer Price
Changes With Market Changes</font><strong><br>
by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong>
</b><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 200</em>3/08/11)</font><b><strong><br>
</strong></b></p><center>
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<p align="left">The Maine Public Utilities Commission ("PUC") has released a report addressing various issues relating to standard offer service. Report on Standard Offer Service Issues, Docket No. 2003-17, May 28, 2003 ("Report"). Among other things, the PUC considered options to better align standard offer service prices with market prices. In particular, the PUC considered the utility of adjusting standard offer prices based on an index of market prices. The PUC concluded that it would be premature to implement such a system, but decided to create and track standard offer prices with an index that shadows actual market prices to test the viability of indexing. As an alternative, the PUC will also explore the administrative feasibility of more frequent standard offer solicitations.</p>
<p align="left">Standard offer service is the default service for customers who have not contracted for electric service in the competitive market. The PUC currently solicits bids for the provision of standard offer service every six months under fixed price contracts. Using this method presents the risk that customers will "game" the standard offer service by opting in or out of standard offer service depending on predicted price trends over the next six months. To mitigate this risk, opt-out fees are charged whenever a customer leaves standard offer service, but the PUC is concerned that such fees may discourage customers from entering the competitive market. An indexed pricing system would make the opt-out fee unnecessary.</p>
<p align="left">Commenters suggested several possible indexes. The Report states that the PUC will probably use month-ahead electricity prices at the Massachusetts hub as the index for the shadow standard offer prices and will carefully monitor the index for manipulation. The PUC considered using NEPOOL day-ahead market or real time clearing prices but concluded that billing complications were presently insurmountable. The PUC also took the view that customers should have more advance notice than an index based on day-ahead or real time prices would allow. The PUC declined to use an index based on natural gas prices but did not rule out the use of such an index in the future. The PUC rejected a proposal to simply mark-up clearing prices by 150%, stating that it preferred the mark-up on wholesale prices to be determined by competitive bid.</p>
<p align="left">As an alternative to indexing, the PUC will also explore whether "a mechanism can be developed under which a sufficient number of potential standard offer providers are pre-qualified through agreement on all non-price terms, allowing for solicitations on a quarterly or monthly basis."</p>
<p align="left">The shadow standard offer prices will be monitored only with respect to large commercial and industrial customers. According to the Report, there has been little retail competition for residential and small commercial classes. Although retail competition is fairly well developed for both large and medium sized commercial and industrial customers, the PUC indicated that it would probably defer indexed pricing for the medium class until a workable model has been successfully implemented for the large class. The Report states that the PUC will track the shadow standard offer prices during the next standard offer term, but does not project how soon thereafter the PUC will publish its findings or implement a system for aligning standard offer prices with market rates, assuming such a system proves feasible.</p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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