Utilties At Issue - August 2018

Recap: Utility and Energy Market Update

AOBA held a Utility and Energy Market Update on Wednesday, August 8, 2018 for members and AOBA Alliance participants. For 2019 budget considerations, members are encouraged to review the updated utility and surcharge rates included in the presentation. Meeting materials are posted online at www.aobaalliance.com, under Energy Market Update. For questions about the briefing, please contact Frann Francis or April Kreller.

NEW: Transmission Reallocation Costs to Impact Supply Costs

FERC issued an Order on May 31, 2018 (Docket Number EL05-121-009) approving a settlement for a reallocation of large scale transmission facility related costs from PJM-West to PJM-East. The order changes the cost allocation method of certain transmission projects, approved by PJM prior to February 1, 2013, 500kV and above built in eastern PJM, that have been partially allocated to western PJM based on their load ratio. These reallocations will result in credits or charges to all utilities and suppliers in the PJM zone. Customers with accounts behind the Pepco, BGE, and the Potomac Edison utilities will receive additional charges. The new transmission reallocation costs, knows as “TEC” or “TEAC,” will be billed on the supply portion of customer’s monthly electricity bills.

The TEAC charges will impact all suppliers; however, the method in which each supplier will pass through the costs to their individual customers will vary. AOBA has learned some suppliers plan to pass through the new charges to ALL customers, where as another supplier is electing NOT to pass the charges through to customers on a fully fixed supply contract. We encourage you to speak to your energy supplier about how they plan to pass through these new TEAC charges to your companies. Customers should begin to see these new transmission costs on their August bills.

Washington Gas Files Request for a $37.6 Million Increase in Virginia

Washington Gas filed its Application on July 31, 018 requesting authority to increase its rates and charges and to revise the terms and conditions applicable to gas service effective for usage beginning with the January 2019 billing cycle, subject to refund. WG has proposed to increase the annual operating revenues of Washington Gas by $37.6 million with approximately $14.7 million of the request relating to costs associated with the SAVE Plan. WG states that the revenue requirement reflects a $16.3 million reduction for lower tax expense due to the implementation of the Tax Cuts and Jobs Act (“TCJA”) and does not include any costs related to the acquisition of WG by AltaGas. The SCC will consider the effects of the accrued liability resulting from the TCJA beginning January 1, 2018 as well the effect on future gas rates going forward in this new proceeding. WG filed its last Application to request a general rate increase on June 30, 2016 with rates effective November 28, 2016, subject to refund.

The proposed increases to distribution rates by customer class are shown in the chart below. For 2019 budget considerations, members need to budget for the full increases to be effective with the January 2019 billing cycle. The full rates will be implemented at that time, subject to refund, pending a SCC decision.

Washington Gas Files Request for a $56.3 Million Increase in Maryland

On May 15, 2018, WGL filed a request for a $56.3 million increase to the Company’s Maryland annual base rate revenues. The proposed base rate increase includes $15 million of cost currently being collected through surcharges associated with WG’s STRIDE plan. AOBA filed its Direct Testimony on August 21, 2018. Hearings will be held beginning October 1, 2018 with a decision expected by December 10, 2018. This is the first base rate case that WG has filed in approximately 5 years.

The proposed increases to distribution rates by customer class are shown in the chart below. The increases proposed for the interruptible customer classes are substantial. The proposed distribution charges for the first 75,000 therms is proposed to increase by approximately 29%; the proposed distribution charges for therms used over 75,000 is proposed to increase by approximately 40%.

Washington Gas Files Application for New STRIDE Plan in Maryland

On June 15, 2018, WG filed its Application for approval of a new gas system Strategic Infrastructure Development and Enhancement Plan (“STRIDE 2”) and an accompanying cost recovery mechanism to become effective January 1, 2019. The estimated cost of the initial five-year period of Washington Gas’s gas system infrastructure replacement plan (2019 to 2023) is approximately $393.6 million. WG proposes to fund the costs of the accelerated infrastructure replacement through a surcharge cost recovery mechanism, the STRIDE surcharge. AOBA is reviewing WG’s Application and has intervened in the case. A PSC decision is expected by mid-December, 2018.

The proposed monthly STRIDE surcharges by customer class are shown in the chart below.

Settlement Approved in Washington Gas Case Considering TCJA Impacts - Rates to be Reduced for DC Ratepayers

As a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”), the DC PSC ordered Washington Gas to propose reductions to distribution rates and accrue as regulatory liabilities the impacts of the reduced corporate income tax rate beginning January 1, 2018. Washington Gas filed its Application for Approval of Reduction of Distribution Rates to Reflect the Tax Cuts and Jobs Act of 2017 on January 12, 2018 and its proposal to reduce rates by $6.2 million on February 12, 2018 for all classes except the interruptible class.

AOBA, WG, and the Office of People’s Counsel participated in several settlement discussions regarding WG’s Application. These discussions ultimately resulted in AOBA entering into a Unanimous Settlement Agreement with WG and other parties on April 30, 2018. AOBA submitted testimony in support of the Settlement Agreement on June 18, 2018. As part of the Settlement Agreement, the settling parties agreed to a reduction in WG’s rates of $8,226,090 for all customer classes effective for usage on and after August 1, 2018, including the interruptible class, served in the District of Columbia. These rates reflect the revenue allocation approved in WG’s last base rate case. Further, the allocation of the rate decrease by customer class was based on total distribution revenue including customer charges, peak usage and distribution charges. The settling parties have requested that rates become effective on the first day of WG’s next billing cycle following publication of the Notice of Final Tariff in the District of Columbia Register. The accrued regulatory liability beginning January 1, 2018 through the implementation date of reduction in rates, i.e., June 30, 2018, will be credited to customer’s bills in December, 2018. This one-time rate credit will total approximately $4,781,000.

These reductions are in addition to the $5,422,582 one-time rate credits for WG non-residential customers as a result of the AtlaGas/WG merger which was approved June 28, 2018 by the DC PSC. The rate credit should appear on customer’s bills with the September 2018 billing cycle. As part of the merger, AtlaGas has agreed that WG will not file a new application requesting an increase in base rates in the District of Columbia until after January 3, 2020.

The chart shows the decreases to distribution rates and approximate one-time credits by customer class for all customer classes in the District of Columbia, including the interruptible class.

Credits to be Issued to Dominion Energy Virginia Customers

During the 2018 session of the Virginia Assembly, lawmakers passed a bill to end the freeze to base rates and subjects Dominion Energy Virginia to triennial review of its rates, terms, and conditions for generation, distribution, and transmission services. The bill became effective July 1, 2018 and Dominion’s first review of rates will be in 2021. The law also contains provisions that require Dominion to issue its current customers generation and distribution services bill credits.

The credits will be issued in two parts. Dominion will issue the first one-time generation and distribution service bill credit to customers in an aggregate amount of $133 million no later than 30 days following July 1, 2018. The one-time distribution credit will be received under Rider BC1D at a rate of 0.0695 cents per kWh for usage consumed on and after January 1, 2017 through and including December 31, 2017. The one-time generation credit will be received under Rider BC1G at a rate of 0.1360 cents per kWh for usage consumed on and after January 1, 2017 through and including December 31, 2017.

The second one-time generation and distribution service bill credit will be issued to customers no later than 30 days after January 1, 2019 in an aggregate amount of $67 million.

Reminder: Dominion Fuel Rider Increase in Effect

On May 21, 2018, the State Corporation Commission (“SCC”) approved an increase to the Fuel Rider on an interim basis effective for usage on and after July 1, 2018. Dominion shall increase its fuel factor from the current rate of 2.383 cents per kilowatt-hour to 2.719 cents per kilowatt-hour effective for usage on and after July 1, 2018, a 13% increase.

Dominion Energy Virginia Files Proposal for Updated Underground Rider

On March 19, 2018, Dominion Energy Virginia filed its Application for revision to the Company’s Rider U for the recovery of costs associated with Dominion’s Strategic Underground Program for the rate year February 1, 2019 through January 31, 2020 pursuant to Senate Bill 966. In its Application, Dominion proposes to recover Rider U costs from GS-1 customers and GS-2 customers through a combination of cents-per-kWh charges for bills with load factors equal to or less than 50% and dollars-per-kW (demand) charges for bills with usage that reflect load factors greater than 50%. In AOBA’s testimony filed on June 12, 2018, AOBA witness Bruce Oliver presented an alternative rate design that ensures all GS-2 (and GS-2T) customers are assessed rates that are premised on a more uniform distribution of Rider U revenue requirements in terms of the effective dollars per kW billed. AOBA counsel and witness participated in the public hearing on July 24, 2018 and briefs are due September 7, 2018.

The proposed Strategic Underground Program rates, Rider U, are shown in the chart below.

¹ If the monthly Load Factor is less than or equal to 50%, the Energy Rate (kWh) applies; otherwise the Demand Charge(kW) applies to the kW Demand. Load Factor is calculated as Monthly Total kWh divided by the number of Days in the Billing Month divided by 24 divided by the Maximum Measured kW of Demand.
² If the monthly Load Factor is less than or equal to 50%, the Energy Rate (kWh) applies; otherwise the Demand Charge(kW) applies to the On-Peak Electricity Supply Demand. Load Factor is calculated as Monthly Total kWh divided by the number of Days in the Billing Month divided by 24 divided by the Maximum Measured kW of Demand.

Pepco District of Columbia Distribution Rates to be Reduced by $24.1 Million - Settlement Approved in DC Rate and Tax Cases

On December 19, 2017, Pepco filed an application requesting authority to increase electric distribution rates by $66,209,000. The Company also requested an increase in its authorized return on equity (ROE) from the current rate of 9.5% to 10.10%. AOBA retained the consulting firm, Revilo Hill Associates, Inc., to provide expert consulting services.

This base rate case was filed just months after Pepco’s last request for a base rate increase in DC. In that case, the DCPSC approved a $36,888,000 rate increase and a 9.5% ROE for Pepco on July 24, 2017, with new rates effective August 15, 2017.

The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), which reduced the Federal corporate income tax rate from 35% to 21% effective January 1, 2018, resulted in the DC PSC ordering Pepco to propose reductions to distribution rates and accrue as regulatory liabilities, the impacts of the reduced corporate income tax rate beginning January 1, 2018.
 
Pepco, AOBA, and other parties agreed to consolidate Pepco’s $66.2 million requested increase to distribution rates with the TCJA proceeding to reflect reductions to distribution rates due to the lower corporate tax rate. The effect of the TCJA on Pepco is in two parts. The first, is a reduction due to the accrued regulatory liability beginning January 1, 2018 until the effective date of its return to customers. The second, is the calculation of reductions in rates going forward due to the lower Federal corporate income tax rate.

Settlement discussions were held in the consolidated proceedings between AOBA, Pepco, and eight other parties to discuss Pepco’s proposed increase to distribution rates in conjunction with the impacts of the TCJA. These discussions ultimately resulted in AOBA entering into a Non-Unanimous Settlement Agreement with Pepco and other parties on April 17, 2018. The Settlement Agreement provides for Pepco to reduce its distribution rates for its DC customers by $24,100,000 going forward. The parties further agreed that customer charges for all classes will remain unchanged and the reduction in rates will be proportional decreases in the volumetric charges and demand charges, where applicable. In addition, the parties agreed to a rate of return on equity of 9.525% and an overall rate of return of 7.45%. Finally, the parties agreed that there will be a moratorium on the filing of new base rate applications by Pepco until May 1, 2019.

The PSC issued an Order on August 9, 2018 approving the Settlement with new rates to be effective for usage on and after August 13, 2018. Further, all Pepco customers will receive an approximately $24.9 million one-time rate credit which reflects the accrued decrease in the Federal corporate income tax rate from 35% to 21% from January 1, 2018 through August 12, 2018. Customers should see the credit on their electricity bills within the next two to three months.

Additionally, Pepco agreed to establish a separate MGT-LV Rate Class. The MGT-LV rate class will apply to customers whose maximum 30-minute demand is equal to or in excess of 100 kW during 2 or more billing months within 12 consecutive billing months. Correspondingly, the applicability of the GT-LV class will be redefined to apply only to customers whose maximum 30-minute demand equals or exceeds 1,000 kW in two or more months within 12 consecutive billing months. The establishment of these redefined rate classifications will be accomplished on a revenue neutral basis under the settlement by applying the same customer, distribution and demand charges to both classes. Pepco will compute separate revenue per customer targets for the new MGT-LV rate class and the redefined GT-LV rate class. These recomputed revenues per customer targets will be applied on a going forward basis in all BSA revenue reconciliations with revenues reconciled separately for the MGT-LV and GT-LV rate classes. Pepco agreed to work with AOBA, OPC, and other interested parties to further address in Pepco’s next rate case the Bill Stabilization Adjustment (BSA) structural deficiencies identified by the Commission in previous decisions.

The newly established MGT_LV rate class will be charged the same undergrounding surcharge rates as the GT_LV class which are as follows:

                      Underground Project Charge:  $0.00049 per kWh
                      Underground Rider:  $0.00365 per kWh

The approved decreases to distribution rates by customer class and the one-time rate credit in DC are shown in the chart below.

*The regulatory one-time rate credit will be based on $24.9 million. The numbers in the chart above are based on the originally proposed amount of $19.5 million. Pepco is in the process of calculating the effect of the $24.9 million one-time rate credit.

The above decreases will be affected by Pepco’s Bill Stabilization Adjustment (BSA). The effect of the BSA on each class and the individual billing components must be calculated separately.

Pepco Maryland Distribution Rates to be Reduced by $15 Million - Settlement Approved in Maryland Rate Cases

On January 2, 2018, Pepco filed an application requesting authority to increase electric distribution rates by $41,439,000 and an authorized rate of return on equity of 10.10%, an increase from the current authorized rate of 9.5%. Pepco also requested approval of “a phase in of revenue associated with reliability plant not to exceed $15,000,000.”

This case was filed on the heels of Pepco’s last request for a base rate increase in Maryland. In that case, the MD PSC denied Pepco’s request for a $68,619,000 million increase in rates and reduced Pepco’s request by approximately 50% to $33,967,000 million, with rates effective for service on and after October 20, 2017.

As in DC, the enactment of the TCJA has resulted in the MD PSC ordering Pepco to propose reductions to distribution rates and accrue as a regulatory liability the impact of the reduced corporate income tax rate beginning January 1, 2018.

Pepco, AOBA, and other parties agreed to consolidate Pepco’s requested $41.4 million increase to distribution rates with the MD Commission ordered proceeding to consider reductions to Pepco’s distribution rates as a result of the TCJA. The effect of the TCJA on Pepco is in two parts. The first is a reduction due to the accrued regulatory liability from January 1, 2018 until the effective date of its return to customers. The second is the calculation of a reduction in rates going forward due to the lower Federal corporate income tax rate.

As in DC, extensive settlement discussions were held between AOBA, Pepco, and other parties.  AOBA entered into a Settlement Agreement with Pepco and other parties on April 20, 2018 and a hearing was held on May 16, 2018.  The MD PSC approved the Settlement on May 31, 2018.

As part of the Settlement Agreement, Pepco agreed to reduce distribution rates for its Maryland customers by $15,000,000 with new rates effective for service on and after June 1, 2018. However, AOBA and other parties did not agree to Pepco’s proposed additional $15,000,000 phase in of revenue associated with reliability plant.

The Settlement Agreement also provides that the TCJA regulatory liability accrued from January 1, 2018 to May 31, 2018 of $9.7 million will be distributed to customers in the form of a one-time bill credit, approximately a 2% decrease, to be issued 60 days from the Commission’s approval of the Settlement Agreement, i.e., July 31, 2018. In addition, Pepco will not file a new Maryland distribution base rate case earlier than December 15, 2018.

The approved decreases to distribution rates and one-time bill credit by customer class in Maryland are shown in the chart below.

*The BSA may result in small increases to some customer’s bills for the Residential and GS_LV class.

The above decreases will be affected by Pepco’s Bill Stabilization Adjustment (BSA). The effect of the BSA on each class and the individual billing components must be calculated separately.