With Some Trepidation, Maryland ALJ Recommends Adopting Settlement to Set Adder to SOS Rates

A Maryland Public Utility Law Judge would approve, without modification, a contested settlement which would establish adders to the Standard Offer Service rates at Pepco and Delmarva.

"The settlement is generous to both the companies and the suppliers but not so burdensome to ratepayers to require that it be rejected," the judge said.

Specifically, the judge was concerned with the inclusion of the "administrative adjustment," which essentially serves as a proxy for certain costs that have not been unbundled and which are not reflected in SOS rates, and which are still recovered in distribution rates (e.g. overhead, etc.)

"It is speculation as to how large, if any at all, is needs [sic] to have it serve as a proxy for costs that suppliers also must cover," the judge said, though the judge ultimately found that, "inclusion of an administrative adjustment does not push the settlement out of the range of reasonable."

Under the settlement recommended for adoption, which was supported by the utilities, PSC Staff, and retail suppliers and opposed by OPC, SOS rates would include an administrative charge (or adder) consisting of a utility return component, an incremental cost component, an uncollectibles component, and an administrative adjustment component. Cash Working Capital costs will be added to SOS rates, but under a separate process and not part of the administrative charge.

For residential service, the total administrative charge under the settlement is set at 3.5 mills/kWh. This excludes cash working capital costs, which will be charged separately.

The settlement sets the utility return component at (per kWh):

Residential SOS: 1.3 mills

Type I SOS: 2.0 mills

Type II SOS: 2.0 mills

Hourly SOS: 2.25 mills

The settlement establishes a baseline for the incremental cost component of 0.2 mills/kWh, with a process for future adjustments

The settlement provides that the uncollectibles component for each of the utilities for Residential SOS service will consist of the allocation of their uncollectibles to the supply component determined by the Commission in each of the utilities' most recent base distribution rate case. For Types I and II SOS, as well as Hourly-Priced Non-Residential SOS, the utilities will use the uncollectibles methodology that was determined in a 2003 settlement.

As of the effective date of the settlement, the administrative adjustment for Residential SOS would be 0.41 mills/kWh for Pepco and 0.62 mills/kWh for Delmarva. These amounts are based on the parties agreement, noted above, that for Residential SOS, the total administrative charge will be set at 3.5 mills/kWh.