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Proposed Order Would Cut Adder Applied to Default Service Rate By 30%, Eliminate Certain Categories

November 23, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

A proposed order from a Maryland Public Utility Law Judge would eliminate certain adders to the residential SOS electric rate at Baltimore Gas & Electric, while making adjustments to the level of retained adders.

The PULJ's proposed order would set the administrative charge for BGE residential SOS at 2.88 mills/kWh, a reduction of nearly 30%, as follows:

Proposed

Component                  Amount
Incremental Costs          0.08 mills/kWh
Uncollectibles             1.67 mills/kWh
Cash Working Capital       0.95 mills/kWh
Return                     0.18 mills/kWh
Administrative Adjustment  N/A
Total Admin. Charge        2.88 mills/kWh

Until the end of 2016, BGE would not collect the return component of the residential administrative charge, due to a prior prohibition on collecting such a return through such date, the PULJ said.

Except for the Return, an adjustment or true up of actual costs would occur every four months to set the Administrative Charge. An adjustment of the Return would occur annually.

The current BGE SOS Admin. Charge is 4.0 mills/kWh, as follows:

Current

Component                  Amount
Incremental Costs          0.50 mills/kWh
Uncollectibles             1.10 mills/kWh
Cash Working Capital       N/A
Return                     1.50 mills/kWh
Administrative Adjustment  0.90 mills/kWh
Total Admin. Charge        4.00 mills/kWh

The most notable change is the elimination of the Administrative Adjustment, and addition of Cash Working Capital costs.

The Administrative Adjustment is a charge applied to SOS customers and refunded to all distribution customers. It had served as a proxy of certain overhead costs associated with BGE's provision of SOS that are currently contained in nonbypassable base distribution rates.

However, the PULJ would terminate the Administrative Adjustment, concluding that, in defining SOS as a "market price", the General Assembly, "did not directly mandate that the utility recover the costs of providing SOS as part of the market price."

Other than anecdotal evidence, the PULJ said that no parties, "presented evidence to support that competitive suppliers indeed include specific overhead expenses (or the exact nature of those expenses) in determining rates."

"Additionally, competitive suppliers' overhead costs may include certain costs that BGE either does not incur or may not include in distribution rates, such as expenses associated with marketing, customer acquisition, advertising, or lobbying. Consequently, an allocation of the A&G Costs currently recovered through distribution rates to be shifted to SOS customers to 'level the playing field' without any specific, credible evidence to establish the relationship between costs being shifted to the SOS customer or the types of the overhead costs incurred by the competitive supplier is not justified," the PULJ said

"Similarly, I find that the record does not support an 'arbitrarily' determined proxy to increase the price of SOS through an Administrative Adjustment. Consequently, unless and until the parties are able to demonstrate with some certainty that either the proposed proxy or the allocation method of the A&G Costs reflect the 'verifiable, prudently incurred costs' used to 'procure" SOS, I find that an Administrative Adjustment or Allocable Costs component cannot be approved at this time," the PULJ said

Regarding uncollectibles, the PULJ rejected a proposal from the Office of People's Counsel to offset SOS uncollectibles with revenues from late payment fees, similar to how purchase of receivables uncollectibles are offset by such fees

Also notable is that while the PULJ would permit BGE to collect a return on SOS, the PULJ found that the return was not intended by the General Assembly to act as a profit margin.

"I conclude that the General Assembly did not intend for BGE or any of the utilities to receive a 'profit margin' above and beyond its capital investment in procuring SOS as it is inconsistent with providing, 'economic benefit for all customer classes,'" the PULJ said

The return, therefore, must be limited to being based on the capital investment of BGE in procuring the SOS load, the PULJ said

While the return has been cited as providing a "level playing field" between SOS and retail suppliers, the PULJ said that, "I have concerns that increasing a cost component of the Administrative Charge merely to ensure a 'level playing field' may foster a competitive supply market but will not necessarily provide an 'economic benefit for all customer classes.'"

The PULJ also said that BGE faced little risks in providing SOS given the full requirements nature of the contracts, the CWC and uncollectibles charges, and BGE's disconnection authority.

"I conclude that a 'reasonable return' should be based on the inflationary difference in the value of money over a selected period of time. Consequently, I find that the Return component rate should be determined by applying the most recent five year preceding moving average change in the rate of the electricity (per kWh) prices as measured by the Consumer Price Index - Average Price issued by United States Department of Labor to the ewe asset. The initial Return rate shall be determined by calculating the average increase in electricity CPI-Average Price from January 2011 to January 2015. The same procedure shall be used to reset the Return rate on an annual basis using the most recent five-year average. Using the aforesaid method, I find that the average five-year percent change for electricity per kWh is 2.18%," the PULJ said.

The PULJ further calculated that, as a result, the Return on the CWC asset is $1,622,618, which was translated into the per kWh charge above based on the amount of residential sales.

For Type I and Type II SOS and hourly priced service, the PULJ would adopt BGE's proposal for the Admin. charges with the exception of modifying the calculation of the Return component to be consistent with the calculation adopted by the PULJ for residential service. The proposed order did not list what the total final commercial Admin. charges would be under this modification.

Case 9221

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