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Maryland Staff Calls Proposed SOS Admin. Charge Order "Contrary to Law"
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March 18, 2011
A proposed Maryland order which would completely eliminate the bypassable Standard Offer Service administrative charge at Pepco and Delmarva is "contrary to law" and "not supported by the record evidence," Maryland PSC Staff said in a memorandum on appeal to the Commission (Case 9226 & 9232).
As only noted in Matters, the proposed order, going well beyond what any party in the case had advocated, found that the SOS administrative charge should be completely eliminated, finding that the charge is no longer justifiable given the maturity of the retail market. Current costs of SOS collected through the charge, including uncollectibles and incremental costs, would be shifted to nonbypassable distribution rates.
As noted by Matters in our 2/7 story, this relief went beyond even what the Office of People's Counsel requested, which had sought elimination of the residential SOS administrative adjustment, but did not contest the addition of incremental costs, uncollectibles, and a certain level of cash working capital costs to the bypassable SOS rate through the SOS administrative charge.
Depending on customer class, the SOS administrative charge is as high as 6 mills/kWh, which may be bypassed by customers who take competitive supply.
"A review of the Proposed Order reveals that it has virtually no citations to the evidentiary record," Staff noted. The hearing examiner's conclusion that the retail market is sufficiently mature was based, in part, on the fact that there are 70 "suppliers" (many of which are brokers that do not serve load) registered on the PSC's website. Staff noted that such information is not in the record, nor did any part seek judiciary notice of the supplier listing, depriving parties of an opportunity to contest the evidence. Meanwhile, Staff noted that the hearing examiner ignored record evidence showing minimal residential migration.
The proposed order's elimination of the SOS return component, SOS incremental cost component, SOS uncollectibles component, and the non-residential SOS administrative adjustment, "are all outcomes that no party in the case advocated, and for which there is no record evidence," Staff said.
"The Proposed Order should be vacated on these grounds alone," Staff submitted.
Staff also cited legal deficiencies in the proposed order, such as its failure to recognize the statutory requirement that SOS rates shall reflect, "a market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity plus a reasonable return."
Given that the proposed order would eliminate from the bypassable SOS rates all costs except the base commodity cost and cash working capital, "the SOS price could only be a below-market price," Staff said.
Staff, as well as several parties appealing the proposed order (the utilities and suppliers), cited the recent Severstal Sparrows Point precedent (see 9/20), in which the Court of Special Appeals affirmed the statutory requirement for SOS pricing cited above, and struck the PSC's ability to set SOS rates using the "just and reasonable" standard used in setting distribution rates. However, the shifting of various SOS costs, such as incremental costs and uncollectibles, into distribution rates as proposed by the hearing examiner would contravene the decision in Severstal Sparrows Point, by now applying the distribution rate setting mechanism to SOS rates.
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