Md. PSC Staff Recommend Lower Discount Rate at Allegheny

Maryland PSC Staff have recommended lower discount rates for Allegheny Power's Purchase of Receivables program to account for late fee revenues from non-residential customers, and to adjust programming expenses.

Staff's recommended discount rates, for the 12-month period beginning June 1, 2011, are below, compared to the current rates and rates proposed by Allegheny.

Staff said that it identified two problems with Allegheny's treatment of programming costs, resulting in downward revisions.

First, Staff said that Allegheny included 50% of 2009 and 2010 program costs to be collected in the first year of POR. "This is not appropriate because the initial rates were determined to collect 50% of 2009 programming costs. The new rate should be calculated with 50% of 2009 programming costs recovered in year one and 50% of 2009 and 2010 costs recovered in year two. When the Company files next year to propose discount rates effective June 1, 2012 the programming cost component should be calculated to recover 50% of 2010 and 2011 programming costs. If the Company's calculations are used, year three's programming costs would be based on 50% of 2011 programming only because all of 2010's costs (excluding any true-up amount) will have been recovered in the previous two years," Staff said.

Second, Staff said that Allegheny's programming costs base the purchased supplier bill amount on only 10.5 months, from mid-July to May. In Staff's calculation, 12 months of suppler bill amounts are projected by increasing the company's estimated supplier bill amount to account for a full 12 months.

With respect to the uncollectibles component, Allegheny would decrease the residential uncollectibles component by almost two thirds and significantly increase the Type I and Type II uncollectibles components, which were initially set at 0% as late fee revenues were expected to mitigate any non-residential uncollectibles.

Staff said that, as of the time of Allegheny's earlier discount rate filing, Allegheny had yet to program late fees for its POR customers and, therefore, neglected to charge any late fees. "Staff does not believe the discount rate should increase unnecessarily because the Company neglected to collect late fees from its customers."

Staff calculated an estimate of the company's late fee revenue, and said that, with the anticipated late fee revenue used as an offset, the uncollectible component would be negative or zero for all classes. Uncollectibles did exceed estimated late fees for the residential class; however, the rate is still negative due to the over-collection that occurred in the previous period. Rather than set a negative uncollectible component, Staff proposed to set the uncollectible components at 0% for all classes.