Pepco has taken important steps to enhance its multi-year plan, which is pending with the Public Service Commission of the District of Columbia. We know this is a difficult and unprecedented time for our customers and communities that we are privileged to serve. The plan we proposed provides significant support mechanisms, including extension of current shareholder funded customer credit and acceleration of tax credits so that customers experience no change in overall distribution rates for more than 18 months – at least until 2022. It also proposes extended payment arrangements, financial support for small businesses, nonprofits and houses of worship through discounted rates and payment plans and increases opportunities for customer participation in the Residential Aid Discount program and expansion of the company's arrearage management program.
With the COVID-19 pandemic disrupting many District residents' lives and livelihoods, the plan, originally filed with the Commission in May of 2019 and updated in June 2020, will continue to provide for a smarter, stronger and cleaner energy future, while ensuring greater assistance and predictability for customers, accountability for the company, and assistance for those in need.
This plan is proposing to extend several existing assistance and billing programs and will include several new proposed programs to help the company's residential, small business and nonprofit customers recover from the longer-term impacts of the pandemic. These changes also address questions by the Public Service Commission of the District of Columbia, Councilmember McDuffie, and other stakeholders to identify opportunities, that this plan allows, to expand support for our customers during this difficult time.
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Frequently Asked Questions:
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.
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.
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 did Pepco enhance the plan that was originally filed with the PSC?
Pepco filed testimony with the Public Service Commission of the District of Columbia to make several enhancements to its multi-year plan to 'freeze' energy delivery rates for the company's District of Columbia customers until January 2022 and implement several assistance efforts to help customers who are struggling due to the effects of the COVID-19 pandemic. The changes included in this testimony also address issues that some stakeholders raised with Pepco's initial multi-year plan filing.
How does the Multi-Year Plan differ from the traditional regulatory rate structure?
Traditionally, Pepco has performed the work needed to maintain and enhance the local energy grid and then, after the work is done, asked the Public Service Commission of the District of Columbia (PSC) to authorize future rates using those historical costs. The multi-year plan is a forward-looking, rather than backward-looking, way to authorize new rates. Under Pepco's proposed multi-year plan, the PSC will review what Pepco plans to spend before those investments are made. Then, on a yearly basis, the PSC will review Pepco's actual spending and performance to ensure the company is accountable for implementing the plan.
Why do you need the multi-year structure, can't you make these changes under the current regulatory rate structure?
The flexibility offered by a multi-year plan provides Pepco the ability to offer these innovative adjustments as a response to the impacts of the COVID-19 pandemic. In the face of COVID-19, we reviewed how we could provide certainty around energy costs going forward as well as targeted assistance to customers, based on changing circumstances and needs of our customers due to the pandemic. Under a traditional regulatory rate structure, like the one in place in the District today, Pepco would not be able to 'freeze' rates or extend assistance programs as traditional regulatory rate structures cover historical costs.
Will the modifications Pepco proposes to its MYP eventually result in higher costs for customers?
There will be a rate adjustment at the end of the multi-year plan period – in 2022. The overall rate adjustment requested in 2022 is lower that the adjustment that would have resulted from Pepco's original filing. The proposed 18-month freeze and innovative customer offerings included in the modified multi-year plan is being funded through adjustments Pepco made to its proposal, including reducing capital expenditures by $60 million, reducing costs associated with ongoing operations and maintenance, deferring recovery of previously approved items, reducing its requested return to shareholders, and accelerating the benefits associated with the Tax Cuts and Jobs Act of 2017.
During the final year of the multi-year plan, distribution rates will be adjusted upward for all customers so that over the period covered by the plan (2019 – 2022), rates will increase 1.5 percent on an average annual basis over the period. This will be the first energy delivery rate increase residential customers will have experienced since 2014. The bill for an average residential customer today is, $82.24, and in 2022 is expected to be $89.34 under this modified plan, which is lower than the average bill paid by residential customers in 2010. This will be the first energy delivery bill increase residential customers will experience in more than seven years.
What were the distribution rates proposed under the original multi-year plan that the company submitted in May of 2019?
At the time of Pepco's multi-year plan filing in May of 2019, the average residential customer bill was $85.44. Pepco's multi-year plan filed in May of 2019 proposed a 7.13 percent increase in year one, a 4.22 percent increase in year two and a 3.69 percent increase in the third year of the plan, resulting in an average residential customer bill of $98.91. Under Pepco's enhanced multi-year plan filed today, the average residential customer bill is expected to be $95.24.
Will deferring more than $60 million in capital expenditures have negative impacts on service reliability?
No. Pepco's modification to capital expenditures includes the adjusting of timelines for several infrastructure projects. Many of these projects will be performed under new timelines and it has been determined that deferring these projects will not impact the safety, reliability or resiliency of the local energy grid or the service we provide for customers. Pepco will continue to make needed investments in the local energy grid to make it stronger, smarter, cleaner and better able to serve customers during this time.
Would this limit the oversight of the Public Service Commission in determining what should be recovered in rates?
No. The Public Service Commission will continue to have full authority to determine just and reasonable rates and oversee the actions and spending of the company on an annual basis, ensuring that Pepco is only charging customers for investments made and cannot over-earn. This multi-year plan will have, in some respects, enhanced PSC oversight and opportunities for intervenor challenges than the current approach to ratemaking. The PSC would continue to review and approve rates and hold the utility accountable.
How do the Performance Incentive Mechanisms change under the updates Pepco proposes to the MYP?
The modifications Pepco proposes to the multi-year plan make it simpler and responsive to stakeholder comments, including making the Performance Incentive Mechanisms "tracking-only" during the period the multi-year plan covers (2018-2023). This will help all parties understand how best to evaluate these performance mechanisms and will help inform the development of future mechanisms that are supportive of the operational performance, customer and climate change needs of the District of Columbia and our customers.
You say energy delivery rates will not change until January 2022. How much will rates change for customers in January 2022?
The modifications to the MYP include a 'freeze' on energy delivery rates until January 2022, the start of the final year of the company's multi-year plan, resulting in no overall increase to average residential customer distribution bills in 2020 and 2021. During the final year of the multi-year plan, distribution rates will be adjusted upward for all customers so that over the period covered by the plan (2019 – 2022), rates will increase 1.5 percent on an average annual basis over the period. This will be the first energy delivery rate increase residential customers will have experienced since 2014. The bill for an average residential customer today is $82.24, and in 2022 is expected to be $89.34 under this modified plan, which is lower than the average bill paid by residential customers in 2010. This will be the first energy delivery bill increase residential customers will experience in more than seven years.
As a result of accelerating the TCJA benefits and other credits, will customers experience a rate adjustment in 2023?
Yes. In order to achieve the rate freeze, in addition to deferring capital expenditures and reducing going forward operations and maintenance cost, as well as requesting a lower return on equity, the Company was able to accelerate benefits associated with the Tax Cuts and Jobs Act and deferred recovery of previously approved regulatory costs. As a result, rates will be adjusted upward in 2023, so that over the period of 2019 through 2023, the average annual increase for customers will be 2.8%.