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PSC Denies Recovery Of Purchase Of Receivables Start-up Costs In Distribution Rates

Proposal Had Addressed High POR Discount Rates

October 18, 2018

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Reporting by Paul Ring • ring@energychoicematters.com

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The District of Columbia PSC has denied a proposal to recover a portion of purchase of receivables costs for Washington Gas Light's new POR program in distribution rates.

As previously reported, under the design previously adopted by the PSC for the POR program, the initial discount rates were to be 7.4743% for residential customers and 1.9157% for commercial customers.

The Retail Energy Supply Association has been working with WGL to develop an alternative discount rate calculation.

As a result of such discussions, WGL and RESA proposed to amortize the POR implementation costs over 10 years instead of the originally proposed five years and recover the incremental IT implementation costs for the August 2018 to January 2019 period (about $300,000) in base rates from all customers in WGL’s next base rate case. Further, WGL and RESA proposed to use 2014 supplier commodity billed revenues and late payment revenues in the first year calculation of the discount rate. At such time, WGL also provided an update on implementation costs. WGL explained that its actual implementation costs through July 31, 2018, were $672,000, slightly lower than the original estimate of $689,000 but that it anticipated to incur additional implementation costs of $294,747 from August 1, 2018, to January 2019, when WGL expects the program to start.

Based on this proposed new methodology, the discount rate for residential accounts would drop from the original 7.4743% to 3.442%, and the non-residential accounts would be set at 1.345%, compared to the initial 1.9157% calculation. Most of the reductions resulted from the proposed 10 year amortization, rather than the recovery of $300,000 in base rates

The PSC denied the proposal to recover the $300,000 in implementation costs in base rates

"From the onset of this proceeding, the Commission stated that the cost associated with the implementation and functioning of the POR program should be recovered entirely from the natural gas suppliers participating in the program and should not affect distribution service ratepayers, consistent with our approval of Pepco’s POR program. RESA never challenged our pronouncement, and to the contrary, urged the Commission to 'order WGL to move forward with a retail natural gas POR program identical to its [WGL’s] program in Maryland or to Pepco’s program.' In Order No. 19140, the Commission approved WGL’s POR program proposal and found that 'when amortized over five years, the implementation costs should not increase the discount rate to a point where CSPs would be discouraged from participating in the program.' The Commission also noted its expectation that WGL will complete the implementation within WGL’s cost estimate. However, the Joint Discount Rate Proposal indicates that an additional $300,000 incremental IT implementation costs have been incurred due to the delay in the POR program implementation, which was largely due to RESA’s concern that the initial discount rates are too high," the PSC said

The PSC also said that, "the discount rates proposed by WGL and RESA, with or without the $300,000 incremental IT implementation costs are still higher than those cited by RESA in the other jurisdictions and therefore, it is not clear why the marginally higher rates that include the $300,000 incremental costs will cause suppliers to not participate in the POR program."

"Nothing WGL and RESA present persuades us to abandon the Commission’s expectation and explicit directive that the POR program should be self-contained and that all program costs should be covered entirely from POR supplier participants. WGL’s calculation of the impact of including the additional $300,000 incremental IT implementation costs in the discount rate, when amortized over ten (10) years, shows a minimal impact on the discount rates, increasing the residential discount rate marginally from 3.442% to 3.836%, and the non-residential discount rate from 1.345% to 1.392%. In dollar terms, the impact for a supplier who sells $100,000 of monthly receivables is an incremental monthly cost of $394," the PSC said

"Accordingly, the Commission finds no reason to depart from its prior determination that WGL’s POR program should be self-contained with program implementation costs covered entirely by participating natural gas suppliers and rejects the request to recover the additional $300,000 incremental IT implementation costs in WGL’s base rates. WGL is to implement the POR program consistent with this Order and file an updated discount rate, an associated tariff, and implementation schedule within fifteen (15) days of the date of this Order," the PSC said

The PSC did not explicitly address the proposed 10-year amortization. In proposing the 10-year amortization, WGL had said that its support for such longer term was conditioned on the PSC accepting recovery of the $300,000 in base rates

FC 1140

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