Settlement Halves Rate Relief for Delmarva Power

Almost exactly a year after it was granted a nearly $40 million rate increase, an electric utility, Delmarva Power & Light Company, has received permission from the Maryland Public Service Commission to raise its rates by a further $13.4 million. The latest increase, which was memorialized in a settlement, represents only about half of the utility’s initial request for a little more than $27 million in additional revenues.

Delmarva Power filed its rate application in July of 2017, less than six months after the commission’s February 2017 rate order, in which the commission found that the company’s continued investments in distribution system improvements and its ongoing rollout of advanced metering infrastructure (AMI) justified an increase in rates (see Letter No. 4308). The utility listed continued investments in reliability projects and ongoing AMI deployment efforts as key drivers in its instant rate docket as well.

In reviewing the proposed stipulation in the case, the commission acknowledged the importance of infrastructure upgrades and other system improvements. However, despite its general support for such initiatives, the commission questioned the disproportionately high costs claimed by the company for its programs. The commission said that its staff had brought to its attention during the course of the proceeding the fact that Delmarva Power expends much more on its reliability projects and programs on a per customer basis than any other utility in the state.

Finding a need to more closely examine and evaluate the utility’s capital programs, the commission endorsed a recommendation from its staff that a working group be convened to further inquire into the reasonableness and cost-effectiveness of Delmarva Power’s capital investment plans. The commission stated that it was particularly interested in learning whether the company’s planned reliability spending through 2020 appears appropriate and cost-beneficial.

But most of the terms included in the settlement were deemed fair and reasonable by the commission. As an example, the commission pointed to the establishment of regulatory assets and liabilities for tracking costs incurred following Winter Storm Stella and in introducing dynamic pricing programs. Similar accounts were authorized for Delmarva Power’s AMI expenses as well as costs associated with executing the utility’s merger with and acquisition by Exelon Corporation.

The commission also found reasonable the agreement’s provisions on rate of return on equity (ROE), although it commented that the negotiating parties had emphasized that the ROE presented in the stipulation was solely for purposes of calculating an allowance for funds used during construction and regulatory asset carrying costs. The ROE so adopted was 9.50%. Re Delmarva Power & Light Co., Case No. 9455, Order No. 88567, Feb. 9, 2018 (Md.P.S.C.).