PSC Sets Amount For Bypassable SOS Adder To Reflect Certain Supply-Related Costs Currently Recovered In Distribution Rates -- Uses "Hybrid" Approach

December 18, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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The Maryland PSC has established the level for the SOS Administrative Adjustment, a bypassable charge, for electricity service at Baltimore Gas & Electric

The PSC ordered that BGE, "shall file tariffs allocating a total of $13,569,649 in its indirect costs to Standard Offer Service that are currently embedded in BGE’s distribution rates and set a normalized distribution SOS Administrative Adjustment rate of 1.09 mills per kWh."

The PSC further said, "The Commission ... adopts BGE’s 'normalized' allocation method, which computes the mills per kWh as the same across each customer class (and is computed to be 1.09 mills per kWh)."

The PSC rejected a proposal from retail suppliers which would have allocated a greater number of costs to the SOS Admin. Adjustment, and would have resulted in an SOS Admin. Adjustment of about 1.1¢/kWh for residential customers. (see details here)

The PSC said that, "In Order No. 87891, the Commission determined that retaining the Administrative Adjustment would help level the playing field between utility provided-SOS rates and competitive retail suppliers, but it also made clear that an Administrative Adjustment rate only serves as a 'proxy' for administrative and general costs retail suppliers must include in their rates, which are embedded in the distribution rates of utility companies. BGE, Staff, and ESC [energy supplier coalition] presented different cost of service studies resulting in a wide range of proposals for the SOS Administrative Adjustment rate. The recommended rates range from BGE’s $12.3 million to Staff’s final position on Rejoinder of $15.9 million to ESC’s proposal of $173.1 million. OPC did not present a cost of service study or endorse any of the other parties’ proposals. Therefore, OPC would maintain the status quo and keep the SOS Administrative Adjustment rate at 0.00 mills per kWh."

The PSC said that, "ESC’s recommendation to allocate $173.1 million of non-incremental costs to SOS is a significant departure from prior Commission decisions setting an appropriate Administrative Adjustment. BGE noted that to arrive at its $173.1 million of nonincremental costs, ESC 'allocated unreasonably large percentages of electric distribution ('cost pools') to the SOS business.' For example, ESC allocated nearly $60 million of administrative and general overhead and $80 million of electric distribution depreciation and amortization expense. BGE argues out that the SOS business is not 'capital intensive' or 'labor intensive' and doesn’t justify ESC’s expense allocation. ESC argues that its analysis, unlike BGE’s or Staff’s, fully unbundles SOS costs from distribution costs and therefore more closely aligns with the directive in Order No. 87891. However, the Commission did not direct BGE to perform a full unbundling of SOS costs; rather, the Commission requested that 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 in SOS.' The Commission’s Order calls for the SOS Administrative Adjustment to be reasonably precise, not a full unbundling as argued by ESC. BGE has presented a cost of service study in response to the Commission’s request."

The PSC said that, "OPC does not present a cost of service study and does not endorse any of the other proposals offered by other parties, thereby suggesting that the Commission maintain the status quo and set the SOS Administrative Rate to 0.00 mills per kWh. OPC’s position is inconsistent with the Commission’s directive of Order No. 87891 to retain the SOS Administrative Adjustment and become reasonably precise to yield a more market reflective price."

The PSC noted that, using the language of Order No. 87891 as a guide, BGE identified four high level cost centers with non-incremental costs that support SOS and allocated as follows:

Billing systems: BGE functionalized a portion of the electric distribution billing system costs (both amortization of the billing system and the unamortized costs in rate base) using a revenue allocator.

Billing, credit & collections: BGE identified the billing and credit & collections projects that support SOS, then functionalized a portion of the electric distribution costs for those projects to SOS using a revenue allocator.

Customer call center: BGE used data from its interactive voice response (IVR) system to first determine the percentage of incoming calls from customers that related to billing or credit & collections. BGE applied this percentage to the customer calls [sic] center’s electric distribution expenses first, and then further functionalized to SOS using the revenue allocator.

Regulatory, accounting & legal: BGE personnel from these areas were asked to identify their SOS-related tasks/deliverables and then estimate time they spent on each activity. Based on this information, the functionalization factor for each area was derived by multiplying the percentage of time spent per employee during the year on SOS-related activities by the respective cost center expenses recorded in the general ledger.

The PSC said that, "The Commission finds that BGE’s approach is reasonable. BGE’s cost of service method and allocation was well-reasoned and followed the Commission’s directive in Order No. 87891. However, BGE’s approach does not examine certain of the SOS costs incurred with the FERC Accounts enumerated in Order No. 87891, as discussed in Staff’s SOS Administrative Adjustment cost allocation method. These include: FERC Account 909 Informational and Instructional Expense, FERC Account 910 Miscellaneous Customer Service, Account 920 Administrative and General Salaries, Account 921 Office Supplies and Expenses, Account 923 Outside Services, Account 930.2 Miscellaneous General Expenses, General Plant Depreciation Amortization Account 391, and Load Profiling and Settlement Costs."

The PSC said that, "The Commission does not, however, find that Staff witness Hoppock’s reasoning for additional allocation of call center 'Start, Stop and Move' or 'General Business Inquiry' costs are sufficiently supported or appropriate and therefore rejects those additions to BGE’s cost of service allocation. Regarding the other additional cost categories, the Commission notes that BGE witness Manuel agreed that the inclusion of FERC Account 909, 930.2, and Load Profiling may be reasonable to allocate a portion of General Plant Depreciation Amortization Account 391 to SOS, as this utility account relates to office furniture and equipment that is used by all BGE employees, including the few employees directly supporting SOS activities. However, the Commission finds that Staff did not adequately support its allocation of costs from FERC Account 909 (Informational and Instructional Advertising Expense) and FERC Account 930.2 (Miscellaneous General Expense). These should be excluded, as none of the expenses in either account relate to SOS. During the hearing, Witness Hoppock conceded that he did not have specific documentation to support these costs but believed these were costs likely to be borne by retail suppliers."

The PSC said that, "Consequently, the Commission finds that the appropriate cost allocation method at this time is a hybrid approach that combines portions of BGE’s and Staff’s SOS Administrative Adjustment. Specifically, the Commission accepts the total costs and revenue allocations of BGE for the following cost categories: Billing System Amortization Expense ($1,979,003), Billing System Unamortized Costs ($1,434,101), Credit & Collections ($4,409,677), Billing ($1,740,435) million), Call Center ($2,655,323 million), Regulatory ($81,263), Accounting ($14,460), and Legal ($8,530). The Commission also accepts Staff’s inclusion of FERC Accounts 909 ($468,811), FERC Account 930.2 ($260,175), General Plant Depreciation Amortization ($133,774), and Load Profiling and Settlement Costs ($382,097). The Commission’s determination to adopt BGE’s costs allocations, as modified in part by Staff as discussed above, results in $13,569,649 in costs to be allocated to SOS. The Commission also adopts BGE’s 'normalized' allocation method, which computes the mills per kWh as the same across each customer class (and is computed to be 1.09 mills per kWh). The Commission’s determination for each cost component comprising the SOS Administrative Adjustment is represented below in Exhibit 1 - Commission Hybrid Approach in the Commission Decision column."

Case 9610

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