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In Final Order, Pa. PUC Denies Re-allocation Of $100 Million From PECO Distribution Rates To Default Service

PUC: "Distinction ... Between Shopping And Non-Shopping Customers Is Not A Definable [Ratemaking] Classification"

December 20, 2018

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Reporting by Paul Ring • ring@energychoicematters.com

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The Pennsylvania PUC in a final order in a PECO rate case has denied a proposal from NRG Energy to re-allocate approximately $100 million in costs at PECO which NRG had argued are attributable to electricity default service and thus should be allocated to generation rates rather than nonbypassable distribution rates, as is done currently

See background on NRG's proposal here

In a brief NRG had said, "The effect of this reallocation, which relies on commonly utilized allocators of revenues and number of customers, would be an increase in the PTC for residential default service from 7.15 cents per kWh to 8.40 cents per kWh, a 15 percent increase."

The PUC in its final order said, "[U]pon our review of the record evidence, the Recommended Decision, the Exceptions and Replies, thereto, in this proceeding, we are persuaded by the parallel positions of PECO and the OCA and the finding of the ALJs that (1) the Company has carried its burden of proof regarding the justness and reasonableness of its underlying cost allocations, as presented in its cost of service study, which is used as a guide in allocating the final revenue increase among the various customer classes; (2) NRG has not carried it’s burden of proof to re-allocate to default service certain administrative costs as proposed in this proceeding; and (3) the 1997 restructuring proceeding does not support NRG’s proposal."

"The types of costs that should be recognized in a default service provider’s PTC is a complicated issue that was first considered in each EDC’s restructuring filings. Through our Policy Statement at 52 Pa. Code § 69.1808(a), we endeavored to fairly identify those costs that should be recovered from default service customers through the PTC, the rate the utility charges for a service which is also available in the competitive market. The PTC does not determine the level of costs that would equal an EGS’s costs for like service," the PUC said

"Consistent with our Policy Statement, the Commission has reviewed PECO’s distribution rates twice – once in 2010 and again in 2015 – and determined that those distribution rates were just and reasonable. In addition, the Commission has considered PECO’s default rate design (including the costs that would be recovered in the PTC) four separate times in approvals of PECO’s default service programs," the PUC said

"The question in this base rate proceeding is not whether suppliers’ cost structure is the same as the Company’s; it is whether PECO incurs a cost and whether those costs are accurately recovered in its revenue requirement. An alternative electric supplier’s cost structure is irrelevant to this proceeding. The only costs in question here are the costs that PECO seeks to recover in its revenue requirement. Thus, as it relates to the re-allocation of certain indirect costs that NRG raises, the question is not whether the alternative suppliers’ cost structure is the same as the Company’s, but whether PECO incurs a cost that should be recovered from all customers," the PUC said

"After reviewing the testimony and exhibits submitted by PECO that support the proposed unbundled rates, we find that NRG has failed to justify its alternative allocation of default service costs," the PUC said

The PUC noted that NRG's proposal, would leave PECO at risk for not recovering its costs of providing distribution service should a greater percentage of customers choose to receive generation service form an EGS in the future.

"On this point, NRG does not recommend any type of recovery mechanism for lost revenues, other than simply suggesting that PECO increase its PTC during its quarterly adjustments as necessary to recover the re-allocated indirect costs," the PUC said

"While under the Code, PECO is entitled to recover all actual costs to provide default service on a dollar-for-dollar basis, NRG has failed to provide sufficient empirical support for any actual known and measurable costs that are not being recovered through the existing PTC," the PUC said

The PUC also said that the 1997 restructuring proceeding, which concluded with the 1997 Restructuring Order, which was cited by NRG in support of its proposal, is unrelated to NRG’s proposal

"In this proceeding, [NRG witness] Mr. Peterson could not identify specific additional costs related to providing default service, having done no analysis of the costs that PECO actually incurs to provide default service. Rather, Mr. Peterson merely indicated that a 'significant portion' of PECO’s expenses 'reasonably support' residential default service since PECO provides default service to approximately sixty-six percent of its residential customers and those costs would be incurred if default service was provided through a division of PECO separate from its distribution operations. Therefore, we agree with the ALJs and PECO witness Cohn that the primary goal of cost allocation is appropriate recognition of cost causality, and that Mr. Peterson has not shown that the costs that he proposed to be reallocated to default service are caused by, or even vary with, his chosen allocators," the PUC said

"A theory that underlies NRG’s proposal is that the categories of costs incorporated in alternative energy suppliers’ charges to their customers should be the same as the categories of costs incorporated in PECO’s PTC. However, rate design is governed by the principle of cost causation. The principle requires that the cost of supplying public utility services is allocated to those who cause the costs to be incurred," the PUC said

"The distinction that NRG wishes to draw between shopping and non-shopping customers is not a definable classification," the PUC said

R-2018-3000164

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