4.17.20 - PAYS in Restructured Competitive Markets
Updated: Aug 31, 2020
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What’s the potential issue?
PAYS® has worked well in cases where a single utility (with tariff and disconnection authority) is guaranteed to be the service provider for its customers for the duration of the cost-recovery period. A critical question for broad adoption of PAYS is how it can be applied in the fifteen (and potentially more) states that have partially or fully restructured competitive retail electricity markets where a customer’s retail electricity provider can change multiple times in the course of the utility’s cost recovery period, which is often 8-12 years.
The customer side of this issue is not a problem, because the obligation stays with the location, not the occupant. The potential issues lie with how to ensure cost recovery for the entity making the investment when the energy supplier may change and is not the distribution utility (especially if the energy supplier doesn’t have the ability to collect charges when it no longer serves the location and or to disconnect a customer for non-payment).
So how can we maintain low-risk cost recovery and ensure that the investing entity is able to recover capital and the value of grid services in the various restructured cases?
In the cases where the poles and wires utility is still the billing agent or retailer:
Since distribution (i.e. poles and wires) utilities have tariff and disconnection authority in most jurisdictions, PAYS can proceed business as usual as long as the state does not prohibit the distribution utility from competing with retail marketers.
In the case where they are prohibited, we will need to see whether it is possible for the distribution utility to obtain a waiver that permits direct marketing of the program to the customer in jurisdictions that value investments in distributed energy resources.
However, leaving only distribution utilities able to make and recover investments will mean that some have little incentive to invest in energy efficiency and distributed energy resources that reduce their sales and revenues.
Since our mission is to maximize scale in a time frame that matters for families experiencing a high energy burden and for climate change, we have to have a plan for the other cases. The PAYS® field must think of a way for all retail suppliers to use the PAYS system.
In the cases where the billing agent is a retail marketer who might decide to leave a market or whose customers might switch or in the event of a CCA?
Perhaps the distribution utility could still make the investment and pass the cost recovery charge through the retail provider, which would collect and remit the payment back to the distribution utility.
Another option may be a state-created entity operating the program for all utilities which then ensures that the investing entity receives cost recovery from the billing utility.
Taking it a step further, it may be possible to secure commission approval to remove the opt-out option for locations where customers have signed agreements with the CCA or retailer.
What would NOT work for PAYS®
What would prevent PAYS from working would be a scenario where there’s a termination fee for the original or successor customers opting-out of an investing energy supplier to cover the remaining obligation for investments installed at the location. That would be paying without saving.
It would be less of a problem if the onus of an exit fee belonged to the retail provider that the customer is switching to instead of the original or successor customer but that might inhibit customer choice.
In any case, it is likely that legislation would be needed to clarify roles and obligations in restructured states. We are just starting to dig into this issue and would be appreciative if you share your ideas or thought experiments that come to mind on this topic!