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Md. utilities, regulators at odds over alternative rate plan bill

Maryland's large gas and electric utilities are supporting a bill the companies, and other supporters, claim will improve the methodology for setting rates in the state, ultimately helping to modernize its power grid.

But consumer advocates and the state's Public Service Commission, which approves rates for the utilities, argue that the proposal, which recently cleared the House of Delegates, could limit regulators' authority over gas and electric distribution rates. Sponsored by Del. Dereck Davis, a Democrat, House Bill 653 calls on the commission to allow use of certain alternative rate plans if they lead to "just and reasonable rates."

Lawmakers in the House on March 16 voted 83-51 in favor of the bill, sending the proposal to the Senate.

The PSC can already consider alternative rate mechanisms, but regulators do not typically approve those methods in rate cases, state Sen. Brian Feldman told a Senate panel in February during a hearing on a similar proposal, Senate Bill 572. Instead, the commission usually relies on a traditional ratemaking method that uses a "historical test year," or costs incurred during a recent 12-month period, to determine rates for electric and gas distribution utilities.

Under the House bill, starting Oct. 1, 2020, utilities could offer one of two alternative rate plans — one using a fully forecast test year, and one using a preset formula to adjust rates — to the commission. Regulators are to allow use of one of those alternative rate plans to set new base rates if the commission finds that it leads to "just and reasonable rates."

A fully forecast test year is based on projected costs and investments, while a formula rate is based on a previously set formula and subject to annual reconciliation adjustments. Bill supporters said use of the historical test year results in a lag between when a utility makes investments and when it can recover those costs, resulting in the filing of more rate cases and higher costs to consumers.

Feldman, also a Democrat, said the bill gives the commission clear policy direction to enable Maryland to adopt practices used by dozens of other states. According to S&P Global Market Intelligence affiliate Regulatory Research Associates, states across the country allow alternative regulation methods.

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Utilities that support the plan, including Exelon Corp.. subsidiaries Baltimore Gas and Electric Co., Delmarva Power & Light Co. and Potomac Electric Power Co., and WGL Holdings Inc. subsidiary Washington Gas Light Co., said the bill does not abolish regulatory oversight, will provide transparency and stability around energy bills, and will enhance utilities' ability to make investments to modernize the grid.

Regulators warn of "far-reaching" implications

Regulators, meanwhile, expressed concerns. Commission Chairman Jason Stanek in February testimony said that HB 653 "has far-reaching and uncertain implications on the commission's existing authority to set just and reasonable utility rates in Maryland."

The commission has scheduled a conference on April 30 to discuss and take comments about alternative rate designs and how they can be implemented in Maryland.

Paula Carmody, who oversees the state's Office of People's Counsel, which represents residential utility consumers in regulatory proceedings, said the bill essentially ties the commission's hands when it comes to considering rate proposals.

Carmody said in a March 18 interview that the bill seems to be a solution in search of a problem. The adoption of alternative rate plans has little connection to modernizing the grid or serving customers better, she said.

Rather than legislating alternative rate plans, she said, Maryland should explore the issue before the commission, consider other states' measures and assess whether those improved reliability, costs and infrastructure.