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Md. utility regulators look to update rate-setting process, open to 3-year plans

Maryland regulators are opening the door for electric and gas distribution utilities to have rate plans of up to three years.

The state Public Service Commission on Aug. 9 directed the formation of a working group to determine how best to implement multiyear rate plans. Such plans, the commission said, could limit the number and frequency of cases and give customers more certainty about the timing and scale of rate changes.

The 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. Many utilities now file rate cases every year in an effort to recover costs more quickly.

The commission in February opened a proceeding to explore alternative forms of ratemaking. During that process, advocates for changing the paradigm, including Exelon Corp. subsidiaries Baltimore Gas and Electric Co., Potomac Electric Power Co. and Delmarva Power & Light Co., 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. Consumer advocates, however, questioned whether changes are necessary and called on regulators to take their time on the issue and make sure alternative rates bring clear customer benefits.

Other regulated utilities in Maryland include FirstEnergy Corp. subsidiary Potomac Edison Co. and AltaGas Ltd. subsidiary Washington Gas Light Co.

State lawmakers earlier in the year also considered an ultimately unsuccessful bill that would have called on regulators to allow use of certain alternative rate plans if they lead to "just and reasonable rates."

Maryland law already gives the commission authority to adopt alternative forms of rate regulation, something the commission has done on a case-by-case basis by, among other things, approving use of revenue decoupling mechanisms, riders and surcharges for programs such as reliability improvements and gas infrastructure replacement.

"While alternative forms of regulation are not new in Maryland, we recognize that changes are rapidly occurring in the utility sector and more can be done to facilitate cost recovery, improve utility planning, and meet the changing needs and expectations of customers," commission Chairman Jason Stanek said in a statement released with the order.

Aside from giving utilities more predictable revenues and customers more predictable rates, multiyear rate plans also provide more transparency into a utility's planning process, the commission said.

"An MRP will require significant detail into utility planning that is not available to interested parties today," the commission said.

Regulators declined to develop formula rate plans at this time, pointing in part to concerns that moving forward with formula rates would be "complex and likely to require additional and lengthy analysis and proceedings to implement."

The order directs the commission's Public Utility Law Judge Division to convene a working group of stakeholders to determine how best to implement multiyear rate plans. Utilities, however, still have the option to file traditional rate cases using historic test year data.

The working group is also to explore ways to incorporate performance-based measures into a multiyear plan by identifying specific goals and outcomes, such as integrating more renewable resources and energy efficiency, facilitating energy storage and supporting grid modernization.

The working group must file its report by Dec. 20. The commission expects to issue a ruling by Jan. 30, 2020. The working group has until April 1, 2020, to file a report identifying where performance metrics are appropriate. Regulators will then give additional guidance on the proposed metrics. (Maryland PSC Public Conference 51)