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Consultant's Report Directed By PSC Recommends Benchmarking SOS Adder To Ensure Adder Reflects Retail Supplier Marketing Costs, Does Not Undercut Competition
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A consultant retained by Pepco, at the direction of the District of Columbia PSC, to conduct an audit of the bypassable SOS Admin. Charge, has recommended that the current bypassable Adder included in the bypassable SOS Admin. Charge at Pepco should be, "tied more closely to competitive third-party [retail] supply pricing", to ensure that the Adder does not "undercut" competition
The consultant states, "The Adder provides an important
function in ensuring a level, competitive playing
field in Washington DC for electric supply," noting that the Adder was established as a proxy for acquisition costs (marketing) and customer care costs
"But,
as the SOS Administrative Charge and the Adder
are currently derived, there is very little
association between the third-party marketing
costs, for which the Adder is established as a
proxy, and the Adder itself," the consultant stated
The consultant, "recommends a potential enhancement to
Pepco’s process so that the SOS Administrative
Charge and Adder may be tied to or verified
against third-party quotes to ensure that the
Adder does not undercut competition."
Currently, the Adder has no fixed value. Rather, any difference between the level of the set total SOS Admin. Charge and Pepco's actual administrative costs (incremental
charges, uncollectible expenses, margin, and true-ups -- the components whose costs are recovered via the SOS Admin. Charge) is deemed the Adder.
The bypassable Adder is designed to be refunded to all distribution customers through a monthly
rolling credit (Administrative Credit)
The consultant said, "today, Pepco goes through a circular process whereby the Administrative Charge is
determined by first forecasting the over/under recovered balance through the end of the
upcoming SOS year and setting the rate to recover the forecasted over/under recovered balance.
Due to the one-year lag, the over/under recovered calculation used for the Administrative Credit
calculation is utilized in forecasting over/under recovery through the end of the upcoming SOS
year."
The consultant said, "The Adder is the residual between the cost components and the administrative rate that is
set, and since it is set to eliminate any over or under recovered balance, the Adder would as a
result be quite small and inconsequential; and the SOS Administrative Charge may not necessarily
be representative of what is required to place SOS service on a level playing field with third-party
suppliers."
The consultant proposes, "a potential enhancement to Pepco’s SOS process so that the Administrative Charge is set
such that it is tied more closely to competitive third-party supply pricing."
"For example, it could be set such
that the SOS rate would equal the higher of i) the highest 12-month electric supply quote as published for
the upcoming 12-month period, as can be found on search.dcpowerconnect.com/search-offers and filtered
for a 12-month contract length (or other more comprehensive resource for third party supply quotes), or
ii) actual incremental SOS Administrative costs, i.e., Incremental Costs, Uncollectible Expenses, Cash
Working Capital, Margin, and Taxes. In i) above, the Administrative Charge would be the residual of the
highest quoted third-party supply rate, less Pepco’s SOS generation charge and the SOS transmission
charge. The Adder should then be calculated as the residual between the Administrative Charge and SOS’s
incremental SOS costs. This would truly place the SOS rate on an equal playing field with third-party
electric suppliers. In situations where Pepco’s SOS incremental administrative costs exceed the otherwise
calculated SOS Administrative Charge, the SOS Administrative Charge would exactly equal the sum of
Pepco’s incremental SOS Administrative costs, and the Adder would be zero," the consultant said
Currently, if Pepco's actual SOS administrative costs exceed the set SOS Admin. Charge, the Adder is set to zero without immediately increasing the SOS Admin. Charge
The consultant recommends that, if it is determined that Pepco’s SOS administrative costs exceed its SOS Administrative Charge for any
given rate class, Pepco should increase the fixed Administrative Charge to equal the sum of the Administrative
Cost components. However, while the SOS Admin. Charge would be updated in this situation, the consultant still recommends that, in this case, the Adder should be set to zero
In an audit of the SOS Admin. Charge for June 1, 2018, through May 31, 2024, the consultant identified $51,000 in costs that were double-counted when including them in the SOS Admin. Charge. The consultant proposes a correction for these duplicate
charges in Pepco’s next SOS Administrative
Charge filing
The consultant otherwise said that, "In all other material respects, Atrium’s substantive testing and review of the SOS Administration
Charge found that SOS filings were mechanically correct, consistently calculated over the audit
period, were confirmed by source documentation, and were appropriately billed to customers."
FC 1017
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April 15, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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