As Maryland's large utilities call on state regulators to consider new rate-setting approaches, consumer advocates are urging that any such changes be approached with caution and are questioning whether the utilities have demonstrated adequate justification.
The state Public Service Commission generally 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. But advocates for changing this paradigm said alternative rate plans, such as formula rates, fully-forecast test years, and multiyear rates, offer an opportunity to set rates more efficiently, benefiting utilities and customers alike.
"In today's environment, customers do not need utilities only to control costs (although that is still an expectation), they also need utilities to innovate, offer sustainable energy solutions and improve the quality of service," Baltimore Gas and Electric Co., Potomac Electric Power Co. and Delmarva Power & Light Co. said in comments filed with the commission May 21. "[Alternative rate plans] facilitate the long-term investments utilities need to make in order to enable this evolution of service."
The Exelon Corp. subsidiaries were among those filing comments following an April technical conference the commission hosted on the issue of alternative rate plans. The comments mirrored remarks made earlier this year as state lawmakers considered an ultimately unsuccessful bill that would have called on the commission to allow use of certain alternative rate plans if they lead to "just and reasonable rates."
While proponents of alternative rate plans touted their benefits, consumer advocates are not yet on board. The state's Office of People's Counsel, which represents residential utility consumers in regulatory proceedings, and the attorney general's office separately told the commission that those in favor of moving away from traditional ratemaking have not provided a compelling justification.
"A healthy skepticism about the need for [alternative forms of ratemaking] is in order: there is no evidence that the utility companies are struggling financially or that traditional ratemaking has fallen short as a means of setting just and reasonable rates," the attorney general's office said in comments.
Paula Carmody, who oversees the Office of People's Counsel, said utilities have not backed up claims that setting rates in a new way will allow for grid modernization investments. During the April hearing, "no presenter provided any concrete examples of needed grid modernization investments that are not possible either under the commission's current ratemaking practices or with minor adjustments tied to a utility's specific circumstance," Carmody said in comments.
The consumer advocates said regulators should take their time on the issue and make sure alternative rates come with clear customer benefits.
Potomac Edison Co. agreed that any changes to the ratemaking process will require time and consideration by the PSC. However, the FirstEnergy Corp. subsidiary told regulators that while some of the larger-scale alternative rate plans and methods likely need more time and evaluation, "there are smaller incremental changes that can be made relatively quickly and easily that are familiar to stakeholders in Maryland and build directly on existing processes."
For instance, the commission can allow for surcharges beyond those related to recovery of infrastructure costs tied to distribution system reliability.
In their joint filing, Baltimore Gas & Electric, Potomac Electric and Delmarva Power proposed a timeline for the commission to consider a variety of alternative rate structures. The first of a three-phase process would allow for a working group to spend the latter half of 2019 evaluating how to implement formula rates and for utilities in spring 2020 to propose formula rates that would take effect in January 2021.
Under the proposed timeline, the working group would spend much of 2020 evaluating forecast test year and multiyear rate plans and would spend October 2020 to March 2021 on the issue of performance-based rates and performance incentive mechanisms.
WGL Holdings Inc. subsidiary Washington Gas Light Co. supports this timeline.
The commission is considering next steps and will issue a notification when a determination is made, spokesperson Tori Leonard said. (Maryland PSC Public Conference 51)