Pepco's rates are approved by the Public Service Commission ("PSC") and include the amount of revenue Pepco is authorized to receive for distribution services. The Bill Stabilization Adjustment mechanism ("BSA"), approved by the PSC in 2007, is an adjustment that will lower rates if Pepco is receiving more revenue than the PSC has approved, and will increase rates if Pepco is receiving less revenue than the PSC has approved.
The BSA removes the link between electricity use and utility revenue. Previously, the more electricity customers used, the more revenues Pepco received. This previous rate structure created a disincentive for the utility to encourage customers to conserve energy because that would lower Pepco's revenues. The BSA allows Pepco to promote energy efficiency programs that will help customers reduce their energy use and drive down electricity supply costs, which are the largest portion (75% - 80%) of the bill.
In January 2012, the PSC issued an Order to prevent use of the BSA beginning 24 hours after the commencement of the major Storm and continuing until all major Storm-related sustained interruptions are restored.
Bill Stabilization Adjustment (BSA)