Residential Utility Customers Betting Against Each Other: A Bad Idea

The Office of the Consumer Advocate (OCA) has asked the Public Utilities Commission (PUC) to cancel the "Fixed Price Option" offered by Liberty to its New Hampshire gas customers for the coming winter, effective immediately.

In pleadings filed on November 28 in two "cost-of-gas" dockets at the PUC, the OCA asked the regulators to rescind their previously granted approval of the Fixed Price Option for the winter season that began on November 1.  As its reasons, the OCA cited both flaws in notifying customers of the availability of the fixed price as well as the fundamental unfairness of the entire program.

"I'm aware that many unregulated fuel dealers offer their customers a fixed price for the winter season, but the fixed price program offered by Liberty is fundamentally different," said Consumer Advocate Donald Kreis.  "When a fuel dealer offers such a program, it's offering a risk trade-off with its customers by offering a fixed price that might force the supplier to sell fuel at a loss.  Customers who accept such an offer are also taking on a risk, that market prices might go down.

"What Liberty is doing is something else entirely, because the utility assumes no risk whatsoever as a result of its fixed price offer," continued Kreis.  "The utility always recovers 100 percent of its fuel costs, via a rate reconciliation mechanism, so in effect the Fixed Price Offer amounts to residential customers trading risk with each other.

"I'm fine with consumers betting against each other when they buy tickets from the State Lottery," said the Consumer Advocate.  "But it's bad public policy, and totally unfair, for utility regulators to bless a program in which residential gas customers are effectively betting against each other when it comes to the cost of heating their homes in the winter."

The OCA motion to cancel the Fixed Price Option also cited confusing and misleading notices provided this year to Liberty's gas customers.  The utility sent its customers a letter, dated September 25, offering a Fixed Price Option of 63.75 cents ($0.63.75) per therm and giving them a month to sign up.  Then, because wholesale market prices went up, Liberty asked the PUC to approve a higher and different Fixed Price Option of 77.63 cents ($0.7763).  The utility took that step just three days before the previously announced October 26 sign-up deadline.  Relying on the originally proposed rate, more than ten thousand of Liberty's gas customers in New Hampshire signed up.

"Liberty's customers have been contacting me to complain they have been subject to bait-and-switch tactics by their gas utility," said Kreis.  "I would not go that far, because the September 25 letter did contain some 'weasel-words' suggesting that the PUC would have to approve the rate proposed for the Fixed Price Option.  Regardless of what it says to customers via letters or otherwise, the law requires utilities to charge the rates specified in their published, PUC-approved tariffs.  When the rates in the published tariff do not align with the rates quoted in letters the utility is sending to its customers, then we have a problem."

The regular cost-of-gas rate approved by the PUC for Liberty, effective on November 1, is 75.63 cents per therm -- two cents less than the Fixed Price Option rate.  "The only fair thing to do in these circumstances is to bill all Liberty customers in New Hampshire at 75.63 cents unless and until a new cost-of-gas is approved," said the Consumer Advocate.

[Note:  The above applies to all Liberty gas customers in New Hampshire except those in Keene.  Liberty operates a free-standing system in Keene, with separately determined rates.  The OCA has also asked the PUC to order Liberty to revoke its Fixed Price Option in Keene as well.]