The recent issues concerning PNE and Resident Power, two competitive retail electricity suppliers in New Hampshire, one of which (PNE) saw its license suspended by ISO-NE after it wasn’t adequately collateralized due to objectionable financial practices, has shed light on unfair penalties imposed on ratepayers versus those imposed on companies that supply power. In addition, the agreement reached with the Public Utilities Commission is a terrible precedent that only encourages risky business practices in the electricity market.
The New England Ratepayers Association (NERA) fully supports the competitive marketplace for power, but it is irresponsible to leave ratepayers facing excessive penalties without comparable compensation if the supplier goes out of business. It is disappointing that the PUC did not establish a penalty for PNE and other competitive suppliers that is comparable to the penalty ratepayers face from these same suppliers.
In February, more than 7,000 PNE customers were informed at the last minute that they were being switched to a default service provider. Due to their imprudent business practices and electricity market actions, the company was suspended by the New England Independent System Operator. This switch forced other providers to clean up the PNE mess and preserve service to the families and businesses that had relied on PNE for electricity supply.
The New Hampshire Public Utilities Commission (PUC) recently issued its ruling on the matter in a Settlement Agreement. That agreement stipulated that PNE will be required to pay a penalty of approximately $9.50 per customer for its actions that terminated contracts with thousands of its customers. Any person or business that accepts the $9.50 payment must then waive “any claims against PNE relating to the customer’s placement on default service.”
With this “slap on the wrist” settlement, PNE will be able to re-enter the competitive market on similar terms and conditions that had previously allowed them to default, essentially exonerating them of their prior irresponsible behavior. This is in stark contrast with the requirements imposed on customers that signed up for service with PNE or Resident Power. Those requirements state that customers who decide to terminate the contract early have to pay a $200 penalty. Other competitive providers have even more severe cancellation fees–with one provider requiring the customer to pay a fee for all the electricity they would have used through the end of the contract.
Thus, if a competitive supplier makes poor business decisions that force thousands of customers to be shifted to a new supplier – with all the costs and hassles associated with that transfer – the company pays a penalty of $9.50 per customer. If you are a homeowner that has to cancel your contract because you need to relocate to a new job or to take care of a family member in another state, you pay a cancellation fee of $200, or even more. This is an unfair burden on ratepayers and a disproportionate standard that needs to be addressed.
What is more distressing than the lenient penalty is that it was imposed by the PUC, an organization that should be protecting the interests of the general public. This precedent is terrible for competitive supplier customers, terrible for ratepayers and should be a real concern to elected officials. The settlement does nothing to deter the type of high-risk activity that drove PNE out of the market. In fact, one could argue that it encourages more high-flyers to enter the market and gamble with ratepayers, with little downside risk.
Legislators in New Hampshire and other New England states should review the customers’ protections in this market and enact legislation that protects ratepayers from the risky behavior of irresponsible competitive suppliers. Responsible competitive suppliers use proper business practices to hedge their supply, while irresponsible risk-takers are allowed to hedge their supply on the backs of ratepayers.
There are many alternatives available for lawmakers to consider including establishment of substantial and tangible capital levels to provide insurance against volatile energy markets. Penalties could be established that are more in line with the penalties ratepayers face when they have to cancel their contracts with suppliers, with escrow accounts imposed ahead of time to cover those penalties in case of default. Alternatively, insurance or hedging procedures can be imposed in lieu of upfront capital. Each state can determine what works best, but each state should address this issue immediately.
Competitive electricity market rules should not allow suppliers to act recklessly and reap substantial rewards when they get lucky, yet have their downside risk limited to $9.50 per customer. The recent actions before, during and after the PNE debacle demand more from our regulators and legislature.
Ratepayers deserve better.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.
(A version of this column originally appeared in the Nashua Telegraph.)