Recently, Pepco took important steps to continue efforts to provide safe and reliable energy service and modernize the grid for its District of Columbia customers and communities. Pepco has requested the Public Service Commission of the District of Columbia (PSC) to review a multi-year plan to modernize the energy grid and improve company performance in the areas of customer service, reliability, and interconnection of distributed energy resources (DER), like rooftop solar.
Pepco's Multi-Year Plan will power a cleaner and brighter future for customers and communities by modernizing and investing in the energy grid to make it smarter, stronger, and cleaner. This proposal will help the District achieve its critical, forward-looking energy and climate goals, and support the District's growing economy.
How does the Multi-Year Plan differ from what's being done today?Traditionally, Pepco has performed the work needed to maintain and enhance the grid and then asked the Public Service Commission of the District of Columbia (PSC or Commission), to allow those costs to be recovered. The Multi-Year Plan is a forward-looking, rather than backward-looking, way to authorize new rates. Under performance based regulation, like Pepco's proposed Multi-Year Plan, the Commission would review what Pepco plans to spend before those investments are made. Then, on a yearly basis, the PSC would review Pepco's actual spending and performance to ensure the company is accountable for meeting the plans approved by the PSC.
Does this cost customers more?
No. In fact, the Multi-Year Plan will cost customers less. Under Pepco's proposal, distribution rates for typical residential customers will be 10 percent lower during the first year of the Multi-Year Plan than they would be under a traditional filing. The Multi-Year Plan gives Pepco flexibility to do the work needed to provide safe, reliable, and sustainable energy, while remaining committed to affordability.
Why does the Multi-Year Plan cost customers less?
Under this proposal, Pepco will explain to the Commission and our customers what we plan to do to improve the grid for the next three years (through 2022). By planning for the future in this way, Pepco can lessen the impact of these investments on customers' rates by spacing their recovery over time. This plan also saves customers money by reducing the number of rate cases filed – each of which costs $3 million to complete, according to the PSC. And, through the annual review of Pepco's performance under the plan, financial penalties can be imposed if Pepco fails to meet performance goals set by the PSC.
How does the Multi-Year Plan benefit customers?
The proposed Multi-Year Plan will provide more transparency for customers and regulators, and enhanced accountability for Pepco. This plan also better positions Pepco to help the District achieve its leading clean energy goals and support the District's economy, all while preserving oversight by customer advocates and remaining committed to affordability. The Commission is interested in moving in this direction, having agreed that it is important to explore alternative ratemaking in prior rate case orders.
How does the Multi-Year Plan increase transparency and accountability?
Transparency and accountability are the core of this proposal. Under this proposal, Pepco will provide spending plans up front to regulators and stakeholders for them to review and approve. The company will also be measured by Performance Incentive Mechanisms (PIMs) – strict performance targets set by the PSC for reliability, customer service, and interconnection of distributed energy resources (DER) like rooftop solar. Pepco is proposing a structure where Pepco would be subject to financial penalties if we do not meet the performance goals set out in the PIMs for each of these areas, as reviewed by the PSC on an annual basis – Pepco will not succeed unless we succeed for our customers.
Are Pepco's rates automatically approved for three years, with no opportunity to change?
No. In fact, the Commission will exercise stringent oversight of Pepco under the proposed plan, reviewing spending and performance on an annual basis through what is known as an annual reconciliation process. The Office of the People's Counsel (OPC) and other stakeholders will also have an opportunity to review spending and performance on an annual basis as part of the Multi-Year Plan. The Commission also maintains its existing right to initiate a review of Pepco's rates at any time. The OPC and other stakeholders would continue to have the right to appeal any orders of the Commission to the courts. Additionally, under our proposal, any party can petition the PSC to re-examine the rates approved through the Multi-Year Plan, with the conditions set by the PSC for the Multi-Year Plan.
Does the Multi-Year Plan help the economy in the District?
Yes. Pepco is a key partner in the District's sustained economic development, and the Multi-Year Plan will help Pepco build the strong, modern grid the District needs to be an engine of growth for residents of all eight Wards. The requested revenue increase of $160 million for the Multi-Year Plan will begin recovery of investments the company has already made and will make through 2022 to improve reliability, customer service and modernize the grid – making it smarter, stronger, and cleaner, which is critical to enabling the District's growing and changing economy. With this level of investment, Pepco's plan supports approximately 800 full-time jobs per year and creates more than $390 million of economic activity in the District as well as other economic benefits in the surrounding region.
How does the Multi-Year Plan support efforts to address resiliency and the impacts of climate change?
Climate change is real and the most important environmental issue we face. At Pepco, and our parent company Exelon, we recognize it is our responsibility to do our part to reduce emissions, prepare for a future impacted by a changing climate, and empower our customers and communities to reduce their carbon footprint and achieve their climate and resilience goals. The Multi-Year Plan provides the foundation for meeting the climate challenge by making the grid smarter, stronger and cleaner. It holds Pepco accountable in important areas such as interconnection of customers' rooftop solar systems, transparency for customers and stakeholders in grid investment planning, and for meeting high levels of reliability in the face of more extreme weather events. Pepco will also continue to partner with customers and stakeholders through the PSC's MEDSIS process (Modernizing the Energy Delivery System for Increased Sustainability) to develop the path forward on innovative solutions like transportation electrification and non-wires alternatives to meet growing demand efficiently, affordably and sustainably and to build the grid so it is equipped to meet our climate challenge.
How are low-income customers impacted?
The Multi-Year Plan maintains all existing protections and programs for low-income customers, including the Residential Aid Discount (RAD), which covers the entire distribution charge for qualifying customers. Customers receiving the RAD would not see any increase to the distribution charges on their bill based on the Multi-Year Plan. Additionally, Pepco is working with the PSC and stakeholders toward a discounted rate pilot program for senior citizens and disabled residents who do not qualify for the RAD, as well as an Arrearage Management Program (AMP) to assist customers who are behind on their energy bill. Customers who qualify for the senior citizen and disabled resident discounted rate pilot will see a decrease in their distribution rates for the life of the pilot. Eligible customers can also receive financial assistance from the District through the Low-Income Home Energy Assistance Program (LIHEAP), a federally-funded program that helps lowincome families meet the costs of their home energy needs. Pepco will continue to offer payment options, like budget billing, to help customers manage their monthly electricity bills and lessen the impact of their seasonal usage changes.
Does this filing approach guarantee utility profits?
No, the PSC will continue to have full authority to determine just and reasonable rates and customer advocates like OPC will maintain their rigorous oversight roles. Under the Multi-Year Plan, Pepco's rates will be tied in part to its performance in the areas of customer service, reliability, and interconnection of DER, like rooftop solar, through PIMs. Pepco will submit a reconciliation filing on an annual basis to ensure customer rates properly reflect the cost of providing service and that we meet the expectations of the Multi-Year Plan, as approved by the Commission. If we do not meet the approved metrics, Pepco would pay a penalty that would go directly back to customers.
Do the Multi-Year Plan and traditional test period reflect synergy savings that have been realized by customers as a result of the merger?
Yes, in addition to the $78 million in upfront financial benefits provided to customers and the District of Columbia at the completion of the merger, the joining of Exelon and Pepco Holdings has created significant synergy savings and operational improvements. The Multi-Year Plan's test year includes $11 million of annual merger synergy savings, which means customer rates will be $11 million lower than they would have been absent the merger.