PSC Staff Oppose Cap On Default Service Rate Increase Sought By Utility

Maryland PSC Staff have opposed a cap on an SOS rate increase at the Southern Maryland Electric Cooperative (SMECO)

SMECO had filed revised Base SOS rates because the Residential class Purchased Power Cost Adjustment (PPCA) exceeded five percent of Base SOS rates three months in a row. SMECO’s revised Base SOS rates are calculated based on 12 months of projected costs and demand. SMECO's filing was largely triggered by a significant increase in transmission rates, primarily driven by FERC’s acceptance of a PJM transmission settlement agreement. This has caused the demand rate for the General Service Demand (GSD), Large Power (LP) and Naval Surface Warfare Center (NSWC) classes to increase significantly.

Due to this significant increase in rates for select classes, SMECO is proposing to limit the increase in any revised Base SOS rate to 25 percent. SMECO proposes to recover any revenue shortfall from the 25 percent cap through the PPCA.

"Staff opposes this cap on rates because it creates an advantage for SOS rates over retail supply and because SOS rates should reflect market rates," Staff said

"SMECO is proposing a 25 percent cap on Base SOS rate increases. Staff opposes this for two reasons: 1) The proposed cap creates a competitive advantage for Base SOS rates over retail supply and 2) Base SOS rates should reflect market rates. Retail suppliers serving SMECO customers face the same increase in transmission costs but likely do not have a mechanism to spread costs over time the way SMECO is proposing with the 25 percent cap and recovery of missing revenue through the PPCA. Thus, if the Commission adopts SMECO’s proposed Base SOS rates, retail suppliers will likely be at a competitive disadvantage. Further, as explained in Applicable Law, SMECO is required to provide SOS rates at a market price. Deferring costs for customers, which is effectively what SMECO is proposing, does not reflect a market price," Staff said

If the Commission accepts Staff's recommendations (which include certain other recommendations concerning assignment of transmission costs among classes, SMECO residential Base SOS rates will increase 1.7 percent ($0.0687/kWh to $0.0698/kWh) in summer and 4.7 percent ($0.0720/kWh to $0.0754/kWh) in winter. For an average Residential customer, this results in a $1.29 and $4.00 increase in summer and winter increase in their total bill