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PSC Staff Questions Utility's Use Of 2023 Bad Debt In POR Reconciliation Factor, Given Prior Order To "Use" 2022 Data (Addressing 11% Discount Rate)
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Staff of the District of Columbia PSC have issued an interrogatory to Pepco directing that Pepco explain its use of calendar year 2023 bad debt in the reconciliation factor that is part Pepco's latest update to Pepco's purchase of receivables residential discount rate, after a prior PSC order had directed Pepco to use, "Residential Calendar Year 2022 Bad Debt Expenses and Late Fees Revenues as a proxy for calculating the Company’s 2024 residential POR Discount Tariff."
As first reported by EnergyChoiceMatters.com, the normal operation of the annual update to Pepco's POR discount rate calculation resulted in a residential POR discount of 14.8693%, which the PSC rejected as harming the retail electric market
The PSC directed Pepco to use, "Residential Calendar Year 2022 Bad Debt Expenses and Late Fees Revenues as a
proxy for calculating the Company’s 2024 residential POR Discount Tariff."
In a filing to comply with this directive, Pepco filed an updated residential discount of 11.3079%, which was still higher than a prior alternative of 5.4197% proposed by Pepco that the PSC previously rejected due to similar concerns about the negative impact on retail choice (this alternative had used a different mechanism in deriving the alternative versus the use of 2022 bad debt)
Under the standard application of the POR discount mechanism, the 2024 residential discount of 14.8693% reflects s standard uncollectibles factor of 6.6591% and a reconciliation factor of 8.0061%.
Pepco said that its compliance filing which resulted in the 11.3079% discount rate, "us[ed] Residential Calendar Year 2022 Bad Debt Expenses and Late
Fees Revenues as a proxy for calculating the Company’s 2024 Residential rate."
However, it appears that Pepco's use of the 2022 bad debt expense was limited to using 2022 bad debt in determining only the uncollectibles component of the POR discount rate, and was not used in calculating the POR reconciliation factor, which still included 2023 write-offs
Pepco's filing to comply with the PSC's 2022 bad debt proxy order reduced the uncollectibles factor to 3.1706%, but maintained an 8% reconciliation factor, leading to the still eye-popping 11% discount
Although PSC Staff has not put forth their specific position, a data request from PSC Staff to Pepco suggests that Staff believes that the PSC's order requires that the 2022 bad debt data should be used throughout the entire discount rate calculation in any place in which 2023 bad debt levels would normally be used (including in the reconciliation factor component calculation) -- not solely in the bad debt component calculation
Specifically, PSC Staff noted that in Pepco's compliance filing, the 2023 bad debt expense was used in the reconciliation calculation
Concerning calculation of the reconciliation factor, Staff directed Pepco to: "Please explain why the Company used its CY 2023
Residential Customer Class write-off amount of $3.905M in Year 9 instead of using CY 2022 write-off amount of $2.055M as a proxy in Year 9 Residential Customer Class write-offs in
calculating the Company’s Residential Customer Class 2024 POR Discount Rate."
PEPPOR-2024-01
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August 26, 2024
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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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