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PUC To Consider Revised Labeling Requirements for Electricity Suppliers

The Public Utility Commission (“PUC”) recently issued a Tentative Order in the matter of: The Use of Fixed Price Labels for Products With a Pass-Through Clause, Docket No. M-2013-2362961 (Tentative Order entered May 23, 2013), in which it requested interested parties to comment on what it views as an emerging problem: certain Electric Generation Suppliers (“EGS”) offering products labeled as “fixed price” when the products clearly are “variable price” products.  Comments were filed June 24 and a PUC decision is expected soon.

A number of EGSs recently have begun offering longer-term products (3-7 years) under the label of a “fixed price” despite the fact that the products contain “pass-through” clauses that allow those EGSs to substantially increase the overall price customers are asked to pay, without notice.  Such contracts often have substantial early termination fees, effectively trapping customers who are unhappy about unexpected increases.  The typical pass-through clause does not permit the EGS to increase the commodity price component, but does allow increases to track changes in transmission charges, reliability charges, etc., and which substantially lessen the risk of long term contracts for those EGSs, by placing that risk on the customer.

In its Tentative Order, the PUC expressed concern that customers could be misled into believing that the products were fixed price; that the price was indeed fixed for the life of the contract, and that customers would not pay attention to the fact that their price could rise over the contract period of time, and that even if the customers did pay attention, they would be helpless to do anything.  Moreover, those suppliers who have abided by the Commission’s rules–which require that a product offered as a fixed-price product be a fixed-price product—are continuing to be competitively disadvantaged, because customers are attracted to these misleadingly lower-priced offers.

A number of parties submitted comments.  The parties can be divided into two groups.  The first group, exemplified by First Energy Solutions (“FES”), believes that offering a product as “fixed price” when it contains a substantial pass-through clause is perfectly acceptable and that the Commission should not be permitted to regulate the words used to describe these products, as that would constitute impermissible rate regulation.  It should be no surprise that FES has been actively offering these pass-through products.

On the other side of the debate are the “playing by the rules” suppliers, such as Dominion Retail, who believe that labeling a product as fixed price when it contains an expansive pass-through clause which could result in substantial price increases to customers is, at best, a matter of false advertising.   Dominion and others are gravely concerned that changing the rules to allow for such contracts to be labeled as anything other than variable price contracts could leave customers with no ability to assess the basis for those charges, to understand the risks associated with such charges or to adjust their behavior (including leaving the contract without substantial penalty) in the event of a price hike.  These commenters believe that any product labeled as fixed must be fixed for the initial term of the contract.  To do otherwise will lead to substantial customer dissatisfaction and further disaffection with the competitive market.  The PUC is expected to issue an order by the end of summer.

For Pennsylvania’s energy markets to mature, suppliers need to adopt sustainable marketing techniques that foster the long-term best interests of the market.  If the marketers will not police themselves and curb this type of behavior, it is clear that the Commission will come under increasing pressure to do so, from the public and the General Assembly.  Making questionable offers to customers results in negative attitudes about competitive markets and is a sure way to endanger the gains that have been achieved in Pennsylvania to date.

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