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PSC Approves Change Which Likely Will Result In Higher Purchase Of Receivables (POR) Discount Rate

October 22, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The District of Columbia PSC has granted a motion from Pepco for approval to recover costs related to forgiven arrearages, including recovery of forgiven supplier-related arrearages through the POR discount rate

Previously, the PSC approved an Arrearage Management Program (AMP) which, after 12 months of payments, forgives two types of arrearages owed by customers: (1) distribution costs (including taxes and surcharges); and (2) electricity supply costs. Customers' supply costs either originate as part of the District's Standard Offer Service ("SOS") Program, where Pepco serves as the SOS Administrator, or as part of the District's Purchase of Receivables ("POR") program, where Pepco pays third-party suppliers for their receivables.

The PSC later clarified that "[a]ny costs that are determined to be electricity supply related costs will be referred to Formal Case No. 1017 and Docket PEPPOR for appropriate action, including rule changes."

However, Pepco then submitted a motion for approval of methodologies to recover AMP-related arrearages. Pepco said that it was working to implement a system whereby it can segregate distribution, SOS, and retail costs for AMP participants, and these costs can then be recovered when the AMP customers' related arrearages are forgiven

Regarding SOS-related arrearages that are forgiven, Pepco proposes to recover these costs through the SOS Administrative Charge. Pepco recommended that each year when SOS administrative costs are trued-up, Pepco would include in the SOS-related arrearages that are forgiven for the time period being trued up along with other actual incremental costs-including the uncollectibles for each SOS customer group. Pepco notes that because the Administrative Charge is trued up annually, "[t]here will a lag between the time Pepco begins to forgive SOS amounts and the time that amounts forgiven appear in the Administrative Charge that is included in SOS rates." Further, Pepco noted that the definition of 'Administrative Charge' in the Commission's rules do not explicitly include the types of costs contemplated in the AMP, and requested a waiver of the rule to the extent the Commission determines that a waiver of the rule is required.

Regarding arrearages forgiven related to the supply portion of the bill for a customer that is supplied by a retail supplier (TPS), Pepco proposed including these forgiven charges in a future annual POR true-up filing, as part of the POR Discount Rate. Pepco estimated that due to the timing of the true-up, the POR Discount rate is not expected to change until at least 2020. Pepco noted the definition of the POR Discount Rate established by Commission Order No. 16916 does not explicitly contemplate forgiveness of arrearages, but Pepco said that the discount, "rather was set up as a way to account for POR-related uncollectible expenses generally." Pepco argued that good cause exists for the Commission to expand the POR discount definition to include AMP-related arrearages forgiven because of the nature of the program being considered. Pepco also contended that while it is possible that the POR Discount Rate may increase as AMP customers supplied by a TPS have arrearages forgiven, it is also true that the AMP benefits TPS's in a way similar to how the program will benefit customers by allowing customers to remain in good standing and adopt behavioral changes that establish routine payment habits.

In granting Pepco's motion, the PSC said, "Pepco's cost recovery proposal, which is supported by or not opposed by parties that participated in the AMP Working Group, does not contravene any direction in our prior orders. Pepco's request for clarification and/or confirmation seems reasonable before implementing changes to its IT system to ensure AMP costs are accurately accounted for and no 'unnecessary costs' are incurred."

"Given the complexities of accounting for changes in uncollectible expenses and arrearage forgiveness across three different recovery methods (distribution rates, SOS Administrative Charge, and POR discount rate), as well as the need for clarity and full vetting with third-party suppliers, Pepco's Motion is reasonable," the PSC said

The PSC directed that, "In implementing changes to IT infrastructure, Pepco is reminded that its system should be flexible enough to also permit the allocation of program administrative costs, such as ongoing operating expenses and one-time IT costs into each source: distribution costs, and SOS or POR as the Commission might direct following a decision in a distribution rate case."

The PSC said in its order that the Commission will initiate changes to the definitions of the SOS Administrative Charge and POR Discount Rate definitions to permit recovery of AMP expenses as designated by the Commission.

"Finally, the Commission recognizes that Pepco's original AMP implementation timeframe may require updating given the finalization of any required changes to its IT infrastructure. Therefore, the Commission directs Pepco, in consultation with the AMP Working Group, to prepare an updated AMP implementation plan and separate AMP cost estimate to be filed with the Commission in not less than forty-five (45) days from the date of this order," the PSC said

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