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PSC Orders Development Of New POR Program At New Utility; Adopts Major Design Elements

June 16, 2017

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Copyright 2010-17
Reporting by Paul Ring •

The District of Columbia PSC ordered that Washington Gas Light shall develop a purchase of receivables program, as the PSC adopted major design elements of the program.

WGL was ordered to file a specific implementation plan within 30 days. The PSC will consider a timeline for implementing POR at WGL upon receipt of such implementation plan and stakeholder comments on such plan

The PSC adopted seven components to be included in the WGL POR discount calculation: 1) bad debt expense; 2) implementation costs; 3) incremental collection costs; 4) cash working capital costs; 5) risk factor; 6) reconciliation factor; and 7) late payment revenues.

The bad debt component will be calculated as a percentage of the actual net bad debt write-offs for the most recent 12 month period applied to commodity sales. WGL will include the bad debt rate as a cost in each annual calculation of the discount rate.

The PSC did not set specific implementation costs to be included in the POR discount at this time, and ordered that WGL file supplemental information regarding these costs. WGL has estimated the implementation costs for the POR program to range from $600,000 to $800,000, which includes costs associated with configuration, development and unit testing, updating configuration documentation, testing and cut-over, as well as WGL resources needed to consummate implementation of the program.

The PSC noted that, in comparison, in 2012, Pepco estimated POR program costs of $150,000, and the actual costs were $95,000, based on a three-year amortization period for the electric supplier program. Additionally, the PSC noted that, in 2012, WGL had reported a total IT cost of $3.3 million for implementing a POR program in Maryland

"Thus, based on the large discrepancies between Pepco’s actual costs and WGL’s implementation costs in Maryland and estimate for the District, the Commission finds that WGL’s implementation cost estimate lacks sufficient specificity and rational. To adequately address the impact of the implementation costs on the amortization period and discount rate, the Commission directs WGL to submit a detailed estimate of POR program costs for the District, which should include specific costs [sic] items, such as configuration, development and unit testing costs, updating configuration documentation costs, testing and cut-over costs, as well as WGL’s resources needed to implement the program for each component and project tasks, and any other related costs and their impact on the discount rate," the PSC said.

Incremental collection costs are comprised of incremental field collection work and the cost of WGL contractors after the accounts have been turned over to collections. Incremental collection costs usually relate to collection activities on customer arrearages that are more than 90 days or more past due. "Because no POR-related costs should be recovered from ratepayers, the Commission agrees that incremental collection costs should be included in the discount rate and paid by the CSPs," the PSC said

Cash working capital costs represent expenses associated with financing of WGL’s operations during the lag period between remitting payments to the CSPs (competitive service providers) and collecting payments from the CSP’s customers for the commodity portion of the bill. "[C]ash working capital should be included in the calculation of the discount rate and should be applied in the same manner it is applied by Pepco, and if applicable, by WGL in Maryland," the PSC said

The PSC adopted inclusion of a risk factor component in the POR discount, but set the risk factor to 0% at this time, which shall only be changed upon PSC approval. "Given that Pepco’s risk factor remains set at zero since the implementation of the Pepco District POR program in 2013, and no evidence of additional risk has been presented for that program, the Commission finds no reason to change its prior determination. Therefore, the Commission agrees that a risk factor of zero should be included the discount rate and remain at zero unless authorized by the Commission," the PSC said

The PSC directed WGL to include late payment revenues collected as a result of the POR program into the discount rate.

"WGL’s POR program costs, including late payment fees collected from CSP customers, should be accounted for separately from the distribution service costs and included in the POR discount rate," the PSC said

The PSC said that POR discount rates should not become negative. Negative discount rates and amounts by customer class should be tracked and used to offset positive discount rates in future periods for the applicable customer class, the PSC said

POR will be non-recourse as to the suppliers. A 90-day billing limit included in WGL's tariff will be applied only to existing arrearages or past due amounts, but not to any supplier charges.

WGL will not be responsible for billing any non-commodity related charges such as early termination fees. WGL will not be responsible for consumer complaints involving gas supply services provided by the CSPs, and WGL will have authority to hold back or reverse payments on disputed charges.

POR payments will be remitted to the CSPs bi-monthly on the 15th of the month and on the last day of the month, for the amounts due during this period minus any adjustments.

In addition, CSPs will receive a daily file outlining the status of their account. WGL proposed to use exclusively XML technology for communication between WGL and the CSPs because the Company has already invested in this technology for its Maryland POR program. "While the use of XML technology may expedite the process of integrating CSPs into WGL’s system we do not find a compelling reason to limit access to the POR program by mandating the use of specific technology and information between WGL and the CSPs should be communicated via any technological solution that allows for the transmission and use of the information in a secure and prudent manner," the PSC said

In the POR implementation plan required to be filed, WGL was ordered to submit a detailed estimate of the program costs and implementation timeframe. WGL should state whether any changes to the Commission rules are necessary for the implementation of the POR, the PSC said WGL should provide details of how it would place purchased receivables on its consolidated bills and how partial payments would be applied to customer charges, in compliance with Title 15 of the District of Columbia Municipal Regulations Section §305.4, the PSC said

Formal Case No. 1140

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