PSC Rejects Pepco's Dynamic Pricing Proposal (Included SOS and Shopping Customers)

The District of Columbia PSC has rejected Pepco's dynamic pricing proposal, finding that the proposal requires further review.

Pepco had proposed to automatically place all District of Columbia residential distribution customers on a critical peak rebate (CPR) program regardless of whether they purchase their energy supply through Pepco's Standard Offer Service or through a competitive supplier. Customers who participate in a retail supplier's or a curtailment service provider's demand response program that is bid into the PJM demand response market would not be able to participate in Pepco's CPR program.

Although the PSC noted opposition from retail suppliers to the offering of dynamic pricing by the utility, given the competitive nature of dynamic pricing products, the PSC did not, at this time, adjudicate these protests. The PSC did say that it was not satisfied with Pepco's responses concerning retail supplier access to AMI data, and sought additional comment on retail supplier access to AMI data (click here for related story today).

"[W]e do not approve Pepco's [dynamic pricing] proposal as presented for the following reasons: (1) we are concerned about the potential financial burden that would be placed on residential distribution ratepayers, particularly in the early years of the Dynamic Pricing Plan, as a result of Pepco's proposed true-up mechanism; (2) we are concerned about the proposed funding mechanism contained in Pepco's Plan in light of the recent FERC order approving PJM's proposal to limited demand resources; (3) we have questions about the omission of small commercial customers from Pepco's proposal; and (4) Pepco's Dynamic Pricing Plan and the parties' comments raise a number of other economic and technical issues and questions about the implementation of dynamic pricing in the District that warrant further investigation by the Commission," the PSC said.

More specifically, "we are concerned about the potential burden on residential distribution ratepayers particularly in the early years of the Dynamic Pricing Plan, as a result of Pepco's proposed true-up mechanism. Pepco proposes to establish an 'annual distribution rate true-up mechanism for the difference between PJM market revenues, PJM market transactional costs, customer credit payments and ongoing program operational expenses.' According to Pepco, '[t]he true-up would be applied to residential distribution customer bills as an adjustment to the distribution price charged per kWh of consumption,'" the PSC said.

"After reviewing Pepco's true-up mechanism, we find that this approach to cost recovery is likely to cause an increase in consumer distribution rates until PJM revenues increase sufficiently to match Dynamic Pricing expenditures. We are also concerned because in proposing a true-up mechanism, Pepco appears to have deviated from the approach Pepco is using in Maryland and Delaware to recover ongoing operational costs," the PSC said.

The PSC noted that Pepco has excluded small commercial customers from its proposed dynamic pricing offering. "[W]e are not sure if small commercial customers have the same opportunity and capability to participate and we are not convinced by Pepco's comments that small commercial customers should not be given the opportunity to receive the same benefits from dynamic pricing as residential customers. Thus, we believe this issue warrants further examination," the PSC said.

The PSC scheduled an informal hearing for April 23, 2014 to further consider Pepco's dynamic pricing proposal. Among the questions the PSC will consider are:

• In a restructured market, which of these companies should provide dynamic pricing programs and why: the distribution company only, the standard offer service provider only, third party suppliers only, or some combination of the listed companies?

• What type or types of dynamic pricing programs should be offered in the District and why?

• Should dynamic pricing programs be opt-in or opt-out and should an opt-in program offer critical-peak pricing or hourly-pricing or both?

• Should dynamic pricing programs be restricted to residential customers or should non-residential customers who do not have access to dynamic pricing programs offered by competitive suppliers also be included?

• Should a dynamic pricing program include shadow billing component

FC 1109