Maryland PSC Issues Order On Dispute In Calculation Of Purchase of Receivables (POR) Discount Rates

The Maryland PSC has issued letter orders regarding the calculation of the purchase of receivables (POR) discount rates at Pepco and Delmarva, which has been disputed as part of the annual update to the rates

As exclusively reported by EnergyChoiceMatters.com, during this year's annual update, it became apparent that Pepco (and Delmarva) applies a payment posting sequence to retail choice revenue under POR consolidated billing. As described by PSC Staff, for customer payments that are not paid in full, Pepco first applies customers' payment to distribution (and SOS if any) charges prior to applying payment to retail choice charges. For example, if a retail choice customer has a $50 arrearage consisting of unpaid SOS and distribution charges and a $50 arrearage for unpaid retail choice charges ($100 total arrearages) and makes a partial $50 payment to Pepco, all SOS and distribution charges would be paid in full while the retail choice arrearage would remain unpaid. Staff said that this payment posting sequence is likely to result in higher uncollected costs for retail choice, as a percent of billed charges, than for SOS and distribution uncollected costs.

Pepco argues that the payment posting sequence described above is included in its delivery service tariff and is required to be followed. Staff argues that, notwithstanding any legacy language in the customer tariff, the calculation of the POR discount rate is addressed in the supplier coordination tariff, and the current partial payment allocation as it relates to revenue used in the POR calculation is not consistent with the supplier coordination tariff. It is Staff's contention that partial payments should be prorated between all billed energy and distribution charges (including retail choice charges, SOS charges and base revenue charges).

In letter orders on the Pepco and Delmarva POR filings, the PSC said, "With regard to payment posting sequencing, the Commission is not persuaded that the Companies’ methodology should be revised at this time."

The PSC further said, "However, payment posting sequencing as it relates to the calculation of POR rates, supplier consolidated billing, and the impact of such a change on other utility activities may warrant further investigation by Staff and other parties. Therefore, OPC’s suggestion that such issues be considered more broadly in a generic proceeding has merit. Prior to initiating such a proceeding, Staff should provide an analysis of the payment posting sequencing methods utilized by each of the Maryland electric and gas utilities for the Commission’s review and for comment by the utilities and interested stakeholders."

The PSC also addressed the inclusion of various retail market enhancement costs adopted under RM54 (accelerated switching, etc.) in the POR discount rates, and allocation among classes, with the PSC ordering that such costs shall not be included in the POR discount rates

"The Companies’ proposals to include RM54-related costs in their POR Supplier Discount Rates are denied," the PSC said

"In Commission Order No. 88432 (in Case No. 9443), the Commission reiterated (citing the August 1, 2017 Letter Order) that it had directed that the costs associated with implementation of any changes required by RM54 should not be included in the POR discount rate, but rather should be considered in a base rate case where costs would be spread among all ratepayers. The Commission also noted that it would evaluate the appropriateness of allowing RM54 cost recovery from the balance of the Supplier Liability Fund, concluding that 'tapping the Supplier Liability Fund [for the Companies’ recovery of RM54 costs] is the optimal method of recovery at this time.' Therefore, to the extent that the Supplier Liability Fund has funds in each class sufficient to recover the Companies’ RM54-related costs, these costs should be recovered on a customer-count basis by class from within that fund. Any RM54 costs that the Companies are unable to recover from the Supplier Liability Fund should be included for recovery in the Companies’ subsequent rate cases consistent with each company’s class cost of service study. The Companies, however, are authorized to establish regulatory asset accounts to track uncollected RM54 costs for review in future rate cases," the PSC said

Concerning the final discount rates, the PSC ultimately ruled that, "the Commission approves the PHI Companies’ POR Supplier Discount Rates, subject to the Companies’ removal of RM54 costs, and subject to Delmarva revising the amortization period for its 2016 and 2017 Residential POR uncollected costs to a period of four years. The PHI Companies’ proposed revision of the Companies’ Supplier Coordination Tariffs to include language allowing the companies to recover RM54 costs through POR rates (as filed) is rejected."

Although the rates will be finalized in a compliance filing, it is understood that, based on the PSC's direction in the letter order, Pepco's new residential POR discount rate would be about 0.69% (compared to the current 0.6339%). The updated Pepco POR discounts for Type I, Type II and Hourly customers will be 0%.

Due to the use of a four-year reconciliation which was only discussed at the administrative meeting and not specifically proposed in any filing, Delmarva's final residential POR discount rate will not be known until its compliance filing. However, Delmarva estimated that the four-year amortization, along with the other changes adopted by the PSC, would result in a residential POR discount of about 2.1% (compared to the current 1.7078%). The updated Delmarva POR discounts for Type I, Type II and Hourly customers will be 0%.