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Citing Lack of Evidence, PSC Removes Bypassable Adder Serving As Proxy For Utility Overhead Costs From Default Service Rates; Says Adder May Return Based On Future Cost of Service Study For Unbundling

PSC Lowers Other Bypassable Adders Included in Default Service Rates


November 18, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Maryland PSC has ordered that, while a bypassable Administrative Adjustment added to Baltimore Gas & Electric SOS electric rates is appropriate, until such time as actual costs for the Administrative Adjustment are determined in a rate case, the Administrative Adjustment shall be set at zero.

The Administrative Adjustment is a bypassable component of BGE SOS rates (part of the larger SOS Administrative Charge, which the PSC was addressing in a final order in Case 9221). The Administrative Adjustment is an adder to SOS rates which is meant as a proxy to reflect overhead and similar costs of providing SOS service that are embedded in distribution rates. The revenues collected from SOS customers under the Administrative Adjustment are refunded to all distribution customers.

For residential SOS, the bypassable Administrative Adjustment is 2.0 mills/kWh. The Administrative Adjustment for other SOS classes varies based on changes to other bypassable components of the SOS Administrative Charge such that, after consideration of other Administrative Charge components such as incremental costs (which vary), the total SOS Administrative Charge is set at 5.5 mills/kWh for Type I customers, 6.0 mills/kWh for Type II customers, and 2.25 to 3.0 mills/kWh for hourly SOS.

As part of a holistic case addressing the Administrative Charge, the Office of People's Counsel had sought to eliminate the Administrative Adjustment, and a proposed order from an ALJ would have eliminated the Administrative Adjustment component from SOS rates

The PSC in its final order reversed the ALJ on this issue, finding that the Administrative Adjustment should be retained.

"We conclude that the elimination of the Administrative Adjustment Component would cause BGE distribution customers to subsidize costs for BGE customers who receive SOS services. We also conclude that the elimination of the Administrative Adjustment Component would put energy retailers at a slight disadvantage and on an uneven playing field relative to BGE," the PSC said

"One of the best ways to ensure that retail suppliers’ prices remain competitive with BGE’s SOS is to factor into BGE’s SOS prices the costs that retailers pay and place into the SOS rate, which BGE receives from its embedded distribution rates," the PSC said

However, the PSC said that the record contained no evidence concerning the amount of SOS costs included in distribution rates, and therefore said that the Administrative Adjustment should be set at $0 until such time as such costs are identified (rejecting the current use of a proxy)

"[W]e are unable to glean what a reasonably precise Administrative Adjustment should be at this present time. Therefore, the only way for us to implement the Administrative Adjustment Component at this time, given the state of the evidence in the record before us, is to set its cost at 0 mills/kWh," the PSC said

"The issue of the precise amount of the Administrative Adjustment Component should be taken up in connection with BGE’s next general rate case, in which a cost of service study should be presented to reflect more precisely which costs should be properly allocated in distribution rates and which costs should be properly allocated to SOS prices," the PSC said.

Other than this general statement, the PSC did not opine further on what type of costs should be unbundled from distribution rates, for inclusion in the bypassable SOS Administrative Adjustment, and the extent of any future unbundling.

The PSC in its order established the BGE electric SOS Administrative Charge as including actual SOS-related Incremental Costs; actual SOS-related Uncollectible Costs; Cash Working Capital; a Return; and an Administrative Adjustment Component.

The PSC set the components for the BGE SOS Administrative Charge as follows:

Residential SOS (mills per kWh)
Incremental Charge          0.08
Uncollectible               1.67
Cash Working Capital        0.95
Return                      0.93
Administrative Adjustment   0.00
TOTAL                       3.63


Type I SOS (mills per kWh)
Incremental Charge          0.08
Uncollectible               1.03
Cash Working Capital        0.66
Return                      0.64
Administrative Adjustment   0.00
TOTAL                       2.41


Type II SOS (mills per kWh)
Incremental Charge          0.08
Uncollectible               0.32
Cash Working Capital        0.71
Return                      0.69
Administrative Adjustment   0.00
TOTAL                       1.80


Hourly SOS (mills per kWh)
Incremental Charge          0.22
Uncollectible               0.00
Cash Working Capital        0.63
Return                      0.13
Administrative Adjustment   0.00
TOTAL                       0.98

The total Admin. Charges prior to the PSC's order had been 4 mills/kWh for residential SOS, 5.5 mills/kWh for Type I SOS, 6.0 mills/kWh for Type II SOS, and 2.25-3.0 mills/kWh for Hourly service

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

Due to prior legislation, BGE shall not collect the Return Component of the Residential Administrative Charge until the end of 2016

Concerning Cash Working Capital (CWC), which was another contested component of the charge, the PSC said that the CWC component of the SOS Admin. Charge shall be calculated using BGE's most recently authorized rate of return (grossed up for taxes).

Concerning the Return component, the PSC said that the Return component shall be determined by the cost of capital on regulated assets using capital market data of similar risk, rejecting BGE's proposed "Return on Sales" Methodology.

Case 9221

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