Subchapter G. DEFAULT SERVICE

 The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

   Alternative energy portfolio standards—A requirement that a certain percentage of electric energy sold to retail customers in this Commonwealth by EDCs and EGSs be derived from alternative energy sources, as defined in the Alternative Energy Portfolio Standards Act (73 P. S. § §  1648.1—1648.8).

   Commission—The Pennsylvania Public Utility Commission.

   Competitive bid solicitation process—A fair, transparent and nondiscriminatory process by which a default service provider awards contracts for electric generation supply to qualified suppliers who submit the lowest bids.

   DSP—Default service provider—The incumbent EDC within a certificated service territory or a Commission approved alternative supplier of electric generation service.

   Default service—Electric generation supply service provided pursuant to a default service program to a retail electric customer not receiving service from an EGS.

   Default service implementation plan—The schedule of competitive bid solicitations and spot market energy purchases, technical requirements and related forms and agreements.

   Default service procurement plan—The electric generation supply acquisition strategy a DSP will use in satisfying its default service obligations, including the manner of compliance with the alternative energy portfolio standards requirement.

   Default service program—A filing submitted to the Commission by a DSP that identifies a procurement plan, an implementation plan, a rate design to recover all reasonable costs and other elements identified in §  54.185 (relating to default service programs and periods of service).

   Default service rate—The rate billed to a default service customer resulting from compliance with a Commission approved default service program.

   EDC—Electric distribution company—The term has the same meaning as defined in 66 Pa.C.S. §  2803 (relating to definitions).

   EGS—Electric generation supplier—The term has the same meaning as defined in 66 Pa.C.S. §  2803.

   FERC—The Federal Energy Regulatory Commission.

   Maximum registered peak load—The highest level of demand for a particular customer, based on the PJM Interconnection, LLC, ‘‘Peak Load Contribution Standard,’’ or its equivalent, and as may be further defined by the EDC tariff in a particular service territory.

   PTC—Price-to-compare—A line item that appears on a retail customer’s monthly bill for default service. The PTC is equal to the sum of all unbundled generation and transmission related charges to a default service customer for that month of service.

   Prevailing market price—The price that is available in the wholesale market at particular points in time for electric generation supply.

   RTO—Regional transmission organization—A FERC-approved regional transmission organization.

   Retail customer or retail electric customer—These terms have the same meaning as defined in 66 Pa.C.S. §  2803.

   Spot market energy purchase—The purchase of an electric generation supply product in a FERC-approved real time or day ahead energy market.

 (a)  The DSP shall be the incumbent EDC in each certificated service territory, except as provided for under subsection (b).

 (b)  The DSP may be changed by one of the following processes:

   (1)  An EDC may petition the Commission to be relieved of the default service obligation.

   (2)  An EGS may petition the Commission to be assigned the default service role for a particular EDC service territory.

   (3)  The Commission may propose through its own motion that an EDC be relieved of the default service obligation.

 (c)  The Commission may reassign the default service obligation for the entire service territory, or for specific customer classes, to one or more alternative DSPs when it finds it to be necessary for the accommodation, safety and convenience of the public. A finding would include an evaluation of the incumbent EDC’s operational and financial fitness to serve retail customers, and its ability to provide default service under reasonable rates and conditions. In these circumstances, the Commission will announce, through an order, a competitive process to determine the alternative DSP.

 (d)  When the Commission finds that an EDC should be relieved of the default service obligation, the competitive process for the replacement of the default service provider shall be as follows:

   (1)  An entity that wishes to be considered for the role of the alternative DSP shall file a petition under 66 Pa.C.S. §  2807(e)(3) (relating to duties of electric distribution companies).

   (2)  Petitioners shall demonstrate their operational and financial fitness to serve and their ability to comply with Commission regulations, orders and applicable laws pertaining to public utility service.

   (3)  If no petitioner can meet this standard, the incumbent EDC shall be required to continue the provision of default service.

   (4)  If one or more petitioners meets the standard provided in paragraph (2), the Commission will approve the DSP best able to fulfill the obligation in a safe, cost-effective and efficient manner, consistent with 66 Pa.C.S. § §  1103 and 1501 (relating to procedure to obtain certificates of public convenience; and character of service and facilities) and 2807(e).

 (a)  A DSP shall be responsible for the reliable provision of default service to retail customers who are not receiving generation services from an alternative EGS within the certificated territory of the EDC that it serves or whose alternative EGS has failed to deliver electric energy.

 (b)  A DSP shall comply with the code and Chapter 1 (relating to rules of administrative practice and procedure) to the extent that the obligations are not modified by this subchapter or waived under §  5.43 (relating to petitions for issuance, amendment, repeal or waiver of regulations).

 (a)  A DSP shall file a default service program with the Commission’s Secretary’s Bureau no later than 12 months prior to the conclusion of the currently effective default service program or Commission-approved generation rate cap for that particular EDC service territory, unless the Commission authorizes another filing date. Thereafter, the DSP shall file its programs consistent with schedules identified by the Commission.

 (b)  Default service programs must comply with Commission regulations pertaining to documentary filings in Chapter 1 (relating to rules of administrative practice and procedure), except when modified by this subchapter. The DSP shall serve copies of the default service program on the Pennsylvania Office of Consumer Advocate, Pennsylvania Office of Small Business Advocate, the Commission’s Office of Trial Staff, EGSs registered in the service territory and the RTO or other entity in whose control area the DSP is operating. Copies shall be provided upon request to other EGSs and shall be available at the DSP’s public internet domain.

 (c)  The first default service program shall be for a period of 2 to 3 years, or for a period necessary to comply with subsection (d)(4), unless another period is authorized by the Commission. Subsequent program terms will be determined by the Commission.

 (d)  A default service program must include the following elements:

   (1)  A procurement plan identifying the DSP’s electric generation supply acquisition strategy for the period of service. The procurement plan should identify the means of satisfying the minimum portfolio requirements of the Alternative Energy Portfolio Standards Act (73 P. S. § §  1648.1—1648.8) for the period of service.

   (2)  An implementation plan identifying the schedules and technical requirements of competitive bid solicitations and spot market energy purchases, consistent with §  54.186 (relating to default service procurement and implementation plans).

   (3)  A rate design plan recovering all reasonable costs of default service, including a schedule of rates, rules and conditions of default service in the form of proposed revisions to its tariff.

   (4)  Documentation that the program is consistent with the legal and technical requirements pertaining to the generation, sale and transmission of electricity of the RTO or other entity in whose control area the DSP is providing service. The default service procurement plan’s period of service must align with the planning period of that RTO or other entity.

   (5)  Contingency plans to ensure the reliable provision of default service when a wholesale generation supplier fails to meet its contractual obligations.

   (6)  Copies of agreements or forms to be used in the procurement of electric generation supply for default service customers. This includes all documents used as part of the implementation plan, including supplier master agreements, request for proposal documents, credit documents and confidentiality agreements. When applicable, the default service provider shall use standardized forms and agreements that have been approved by the Commission.

   (7)  A schedule identifying generation contracts of greater than 2 years in effect between a DSP, when it is the incumbent EDC, and retail customers in that service territory. The schedule should identify the load size and end date of the contracts. The schedule shall only be provided to the Commission and will be treated as confidential.

 (e)  The Commission may, following notice and opportunity to be heard, direct that some or all DSPs file joint default service programs to acquire electric generation supply for all of their default service customers. In the absence of such a directive, some or all DSPs may jointly file default service programs or coordinate the scheduling of competitive bid solicitations to acquire electric generation for all of their default service customers. A multiservice territory procurement and implementation plan must comply with §  54.186.

 (f)  DSPs shall include requests for waivers from the provisions of this subchapter in their default service program filings. For DSPs with less than 50,000 retail customers, the Commission will grant waivers to the extent necessary to reduce the regulatory, financial or technical burden on the DSP or to the extent otherwise in the public interest.

 (a)  A DSP shall acquire electric generation supply at prevailing market prices for default service customers in a manner consistent with procurement and implementation plans approved by the Commission.

 (b)  A DSP’s procurement plan must adhere to the following standards:

   (1)  The procurement plan shall be designed to acquire electric generation supply at prevailing market prices to meet the DSP’s anticipated default service obligation at reasonable costs.

   (2)  DSPs with loads of 50 mW or less shall evaluate the cost and benefits of joining with other DSPs or affiliates in contracting for electric supply.

   (3)  Procurement plans may include solicitations and contracts whose duration extends beyond the program period.

   (4)  Electric generation supply shall be acquired by competitive bid solicitation processes, spot market energy purchases or a combination of both.

   (5)  The DSP’s supplier affiliate may participate in a competitive bid solicitation process used as part of the procurement plan subject to the following conditions:

     (i)   The DSP shall propose and implement protocols to ensure that its supplier affiliate does not receive an advantage in the solicitation and evaluation of competitive bids, or other aspect of the implementation plan.

     (ii)   The competitive bid solicitation process shall comply with the codes of conduct promulgated by the Commission in §  54.122 (relating to code of conduct).

 (c)  A DSP’s implementation plan must adhere to the following standards:

   (1)  A competitive bid solicitation process used as part of the default service implementation plan must provide, to the extent applicable and at the appropriate time, the following information to suppliers:

     (i)   A bidding schedule.

     (ii)   A definition and description of the power supply products on which potential suppliers shall bid.

     (iii)   Bid price formats.

     (iv)   A time period during which the power will need to be supplied for each power supply product.

     (v)   Bid submission instructions and format.

     (vi)   Price-determinative bid evaluation criteria.

     (vii)   Current load data for rate schedules or maximum registered peak load groupings, including the following:

       (A)   Hourly usage data.

       (B)   Number of retail customers.

       (C)   Capacity peak load contribution figures.

       (D)   Historical monthly retention figures.

       (E)   Estimated loss factors.

       (F)   Customer size distribution.

   (2)  The default service implementation plan must include fair and nondiscriminatory bidder qualification requirements, including financial and operational qualifications, or other reasonable assurances of a supplier of electric generation services’ ability to perform.

   (3)  A competitive bid solicitation process used as part of the implementation plan will be subject to monitoring by the Commission or an independent third party evaluator selected by the DSP in consultation with the Commission. A third party evaluator shall operate at the direction of the Commission. Commission staff and a third party evaluator involved in monitoring the procurement process shall have full access to all information pertaining to the competitive procurement process, either remotely or where the process is administered. A third party evaluator retained for purposes of monitoring the competitive procurement process shall be subject to confidentiality agreements identified in §  54.185(d)(6) (relating to default service programs and periods of service).

   (4)  The DSP or third party evaluator shall review and select winning bids procured through a competitive bid solicitation process in a nondiscriminatory manner based on the price determinative bid evaluation criteria set forth consistent with paragraph (1)(vi).

   (5)  The bids submitted by a supplier in response to a competitive bid solicitation process shall be treated as confidential pursuant to the confidentiality agreement approved by the Commission under §  54.185(d)(6). The DSP, the Commission and a third party involved in the administration, review or monitoring of the bid solicitation process shall be subject to this confidentiality provision.

 (d)  The DSP may petition for modifications to the approved procurement and implementation plans when material changes in wholesale energy markets occur to ensure the acquisition of sufficient supply at prevailing market prices. The DSP shall monitor changes in wholesale energy markets to ensure that its procurement plan continues to reflect the incurrence of reasonable costs, consistent with 66 Pa.C.S. §  2807(e)(3) (relating to duties of electric distribution companies).

 (a)  The costs incurred for providing default service shall be recovered through a default service rate schedule. The rate schedule shall be designed to recover fully all reasonable costs incurred by the DSP during the period default service is provided to customers, based on the average cost to acquire supply for each customer class.

 (b)  Except for rates available consistent with subsection (f), a default service customer shall be offered a single rate option, which shall be identified as the PTC and displayed as a separate line item on a customer’s monthly bill.

 (c)  The rates charged for default service may not decline with the increase in kilowatt hours of electricity used by a default service customer in a billing period.

 (d)  The PTC shall be designed to recover all default service costs, including generation, transmission and other default service cost elements, incurred in serving the average member of a customer class. An EDC’s default service costs may not be recovered through the distribution rate. Costs currently recovered through the distribution rate, which are reallocated to the default service rate, may not be recovered through the distribution rate. The distribution rate shall be reduced to reflect costs reallocated to the default service rate.

 (e)  A DSP shall use an automatic energy adjustment clause, consistent with 66 Pa.C.S. §  1307 (relating to sliding scale of rates; adjustments) and Chapter 75 (relating to alternate energy portfolio standards), to recover all reasonable costs incurred through compliance with the Alternative Energy Portfolio Standards Act (73 P. S. § §  1648.1—1648.8). The use of an automatic adjustment clause shall be subject to audit and annual review, consistent with 66 Pa.C.S. §  1307(d) and (e), regarding fuel cost adjustment audits and automatic adjustment reports and proceedings.

 (f)  A DSP may use an automatic energy adjustment clause to recover reasonable nonalternative energy default service costs. The use of an automatic adjustment clause shall be subject to audit and annual review, consistent with 66 Pa.C.S. §  1307(d) and (e). A DSP may collect interest from retail customers on the recoveries of under collection of default service costs at the legal rate of interest. Refunds to customers for over recoveries shall be made with interest, at the legal rate of interest plus 2%.

 (g)  The default service rate schedule must include rates that correspond to demand side response and demand side management programs, as defined in section 2 of the Alternative Energy Portfolio Standards Act (73 P. S. §  1648.2), when the Commission mandates these rates pursuant to its authority under 66 Pa.C.S. Chapter 1 (relating to general provisions).

 (h)  Default service rates shall be adjusted on a quarterly basis, or more frequently, for all customer classes with a maximum registered peak load up to 25 kW, to ensure the recovery of costs reasonably incurred in acquiring electricity at prevailing market prices and to reflect the seasonal cost of electricity. DSPs may propose alternative divisions of customers by maximum registered peak load to preserve existing customer classes.

 (i)  Default service rates shall be adjusted on a quarterly basis, or more frequently, for all customer classes with a maximum registered peak load of 25 kW to 500 kW, to ensure the recovery of costs reasonably incurred in acquiring electricity at prevailing market prices and to reflect the seasonal cost of electricity. DSPs may propose alternative divisions of customers by maximum registered peak load to preserve existing customer classes.

 (j)  Default service rates shall be adjusted on a monthly basis, or more frequently, for all customer classes with a registered peak load of equal to or greater than 500 kW to ensure the recovery of costs reasonably incurred in acquiring electricity at prevailing market prices and to reflect the seasonal cost of electricity. DSPs may propose alternative divisions of customers by registered peak load to preserve existing customer classes.

 (k)  When a supplier fails to deliver electric generation supply to a DSP, the DSP shall be responsible for acquiring replacement electric generation supply consistent with its Commission-approved contingency plan. When necessary to procure electric generation supply before the implementation of a contingency plan, a DSP shall acquire supply at prevailing market prices and fully recover all reasonable costs associated with this activity that are not otherwise recovered through its contract terms with the default supplier. The DSP shall follow acquisition strategies that reflect the incurrence of reasonable costs, consistent with 66 Pa.C.S. §  2807(e)(3) (relating to duties of electric distribution companies), when selecting from the various options available in these energy markets.

 (a)  A default service program will initially be referred to the Office of Administrative Law Judge for further proceedings as may be required.

 (b)  The Commission will issue an order within 7 months of a program’s filing with the Commission on whether the default service program demonstrates compliance with this subchapter and 66 Pa.C.S. § §  2801—2812 (relating to the Electricity Generation Customer Choice and Competition Act).

 (c)  Upon entry of the Commission’s final order, a DSP shall acquire generation supply for the period of service in a manner consistent with the terms of the approved procurement and implementation plans and consistent with the standards identified in §  54.186 (relating to default service procurement and implementation plans).

 (d)  Upon receiving written notice, the Commission will have 1 business day, to approve or disapprove the results of a competitive bid solicitation process used by a DSP as part of its procurement plan. When the Commission does not act within 1 business day the results of the process will be deemed approved. The Commission will not certify or otherwise approve or disapprove a DSP’s spot market energy purchases made pursuant to a Commission-approved procurement plan. The Commission will monitor the DSP’s adherence to the terms of the approved default service program and 66 Pa.C.S. § §  2801—2812 (relating to the Electricity Generation Customer Choice and Competition Act). The Commission may initiate an investigation regarding implementation of the DSP’s default service program and, at the conclusion of the investigation, order remedies as may be lawful and appropriate. the Commission will not deny the DSP the recovery of its reasonable costs for purchases made pursuant to an approved competitive procurement process unless the DSP concealed or misled the Commission regarding its adherence to the program, or otherwise violated the provisions of this subchapter or the code.

 (e)  A DSP shall adhere to the following procedures in obtaining approval of default service rates and providing notice to default service customers:

   (1)  A DSP shall provide all customers notice of the filing of a default service program in a similar manner as found in §  53.68 (relating to notice requirements).

   (2)  A DSP shall provide all customers notice of the initial default service rates and terms and conditions of service 60 days before their effective date, or 30 days after bidding has concluded, whichever is sooner, unless another time period is approved by the Commission. The DSP shall provide written notice to the named parties identified in §  54.185(b) (relating to default service programs and periods of service) containing an explanation of the methodology used to calculate the price for electric service.

   (3)  After the initial steps of a default service procurement and implementation plan are completed, the DSP shall file with the Commission tariff supplements designed to reflect, for each customer class, the rates to be charged for default service. The tariff supplements shall be accompanied by supporting documentation adequate to demonstrate adherence to the procurement plan approved by the Commission, the procurement plan results and the translation of those results into customer rates.

   (4)  A customer or party identified in §  54.185(b) may file exceptions to the initial default service tariffs within 20 days of the date the tariffs are filed with the Commission. The exceptions shall be limited to whether the DSP properly implemented the procurement plan approved by the Commission and accurately calculated the rates. The Commission will resolve filed exceptions by order. The Commission may allow the default rates to become effective pending the resolution of those exceptions.

 (a)  At the conclusion of an EDC’s Commission approved generation rate cap, retail customers who are not receiving generation service from an EGS shall be assigned to the Commission-approved DSP in that service territory.

 (b)  A DSP shall accept applications for default service from new retail customers when the customers comply with Commission regulations pertaining to applications for service, including those in Chapter 56 (relating to standards and billing practices for residential utility service) and accept all retail customers assigned to its default service who switch from an EGS.

 (c)  A DSP shall treat a customer who leaves an EGS as it would a new applicant for default service.

 (d)  A default service customer may choose to receive its generation service from an EGS at any time, if the customer complies with all Commission regulations pertaining to changing generation service providers in Chapter 57 (relating to electric service).

 (e)  A DSP may not charge a fee to a retail customer for changing its generation service provider in a manner consistent with Commission regulations.