District of Columbia Adopts Purchase of Receivables Program

The District of Columbia PSC ordered Pepco to implement a purchase of receivables program within "approximately" nine months, further directing that all costs of the program shall be borne by retail suppliers (FC 1085).

The PSC generally adopted Pepco's proposed discount rate design, and the discount rate shall include uncollectibles, implementation costs, a risk factor, a reconciliation component, and potentially a cash working capital component.

No specific discount rates were established by the PSC's order.

In particular, the PSC adopted Pepco's proposed methodology for calculating the uncollectibles component of the discount rate. As proposed by Pepco, the uncollectible expense component percent will be calculated by dividing the estimated electric supplier uncollectible expenses associated with each rate schedule by the electricity revenues billed for all electricity suppliers for that rate schedule.

The PSC confirmed that a unique uncollectibles discount shall apply to residential and non-residential receivables, specifically directing that, "Pepco calculate a discount rate separately for each rate class."

"Similar to what is done in Maryland, the Discount Rate calculation, at a minimum, should be computed for each type of residential consumer and for the various classes of nonresidential," the PSC said.

The PSC noted Pepco recovers distribution uncollectible expenses through distribution rates and Standard Offer Service uncollectible rates through SOS rates, and does not have any way to account for uncollectible expenses associated with third-party supplier bills. "If Pepco purchases supplier receivables through the POR program, it is clear that the purchased receivables will have an uncollectible component. This uncollectible component is incremental to what Pepco is currently collecting and should be included as part of the Discount Rate for POR. The Commission accepts that Pepco's approach ensures that customers will not have to pay uncollectible expenses twice," the PSC said.

Additionally, the PSC ordered that revenues from late payment fees associated with purchased receivables shall be included in the discount rate as an offset to uncollectibles.

The PSC further noted there is a timing difference between Pepco's payment of receivables to retail suppliers, and actual collection of payment from customers. Pepco had not proposed a cash working capital component in its discount rate, but the PSC was open to Pepco requesting approval of such a cash working capital component to address this timing difference, particularly as Pepco will not be allowed to retain late payment revenue

As the PSC directed to Pepco implement its POR program "forthwith, with an effective start date approximately nine months from the date of this Order," Pepco will incur an estimated $150,000 in implementation costs which would not have been incurred had the start-date been pushed back to the launch of a new billing system in 2014.

The Commission directed that these program implementation costs shall be included in the discount rate as well.

Furthermore, the discount rate shall include a risk component, though the risk component shall be set at 0%, unless a change is authorized by the Commission

"We believe it would be prudent to build a Risk Component into the POR Program in the event operational experience discovers certain risks that are not apparent at this time. We emphasize that the POR program should not be designed in such a way that incurred costs are passed on to ratepayers indirectly," the PSC said.

The discount rate shall also include a reconciliation component to true-up over or under-collections on an annual basis. The PSC explicitly said that the reconciliation component could be negative, if suppliers overpaid under the prior discount rate, and that the negative reconciliation component could lead to an overall negative discount rate, reflecting a refund of the overpayment to suppliers. This negative discount rate, rather than a direct refund to suppliers outside of the POR discount, would be used to address any overpayments by suppliers.

In one of the few aspects of Pepco's proposal the PSC did not accept, the Commission rejected Pepco's proposal to levy a direct charge on retail suppliers if there are uncollected costs resulting from an insufficient number of participating suppliers to support cost recovery.

The PSC also ruled that receivables associated with non-commodity supplier charges are not to be included in the District POR program at this time.

The Commission also approved Pepco's transition plan, upon the start of POR, to purchase current billed accounts receivables on each consolidated bill and to bill non-current balances for ninety days.