Made in the keystone state: Pennsylvania's approach to retail electric competition

Electricity Journal

Volumn 12, Issue 1, 1999, Pages 26-39

  Rohrbach, John ^a  

^a NONE

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EID: 0032622115     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(98)00121-3     Document Type: Article

References (22)

1. 1. A customer with a 50 percent load factor, approximately 9 percent losses, a 20 percent pool reserve margin, and normal sales and general administration (SGA), GRT, and load-following costs could pay a maximum of 3.7 cents/kWh for generation in 1999. Contrast that figure with the 5 to 9 cents for generation embedded in monopoly rates for residential and commercial customers across the state.
2. 2. See statement of John Hanger, Commission Investigation into Electric Power Competition, July 3, 1996. Available via request of Harvard's Kennedy School of Governmentathttp://ksgwww. harvard.edu/∼hepg/index.html
3. 3. See http://puc.paonline.com/ acts1509.htm
4. 4. See http://puc.paonline.com/ pm_agendas/1997/pm121197.htm R-00973953
5. 5. See http://puc.paonline.com/ pm_agendas/1998/CIA/cia0514.htm
6. 6. See http://puc.paonline.com/ pm_agendas/1997, special public meeting for PECO on Dec. 11.
7. 7. Generally, the formula is: NUG - P × kwh - Market Price × kWh, across the contract life for each NUG project.
8. 8. See West Penn decision at http://puc. paonline.com (under Public Meeting agendas for 1998).
9. 9. The Commission generally adopted the ENPRO modeling of OCA witness Douglas Smith in its restructuring decisions. In West Penn, the Commission noted: "We note that West Penn's brief supports the OCA's witness Smith's approach and result as the most reasonable if their proposals are not adopted, although it severely criticizes both the approach and the results in its Exceptions. In PECO, we found that the ENPRO model was reasonable and fair and that Mr. Smith's use of it was credible and responsible. We adopt the same conclusions and again find it to be the most reasonable valuation proposal based on the record of this case."
10. 10. PPLICA St. 2-S, at 35.
11. 11. PPLICA St. 2-S, at 30-31.
12. 12. See Application of Pennsylvania Power & Light Company for Approval of Rest ructuring Plan Under Section 2806 of the Public Utility Code, Docket No. R-00973954. Available at http://puc. paonline.com, 1998 Public Meeting Agendas.
13. 13. PPLICA Statement 2-S, Surrebuttal testimony of Falkenberg, at 52-54, 55.
14. 14. As the Commission stated in PECO Energy: "Witness Falkenberg demonstrates the unreasonableness of witness Hieronymus' prediction that market prices are falling in both real and nominal terms, despite the rise in fuel costs predicted by PECO. Witness Bustard's projection that market prices will increase 2.4% from 1995 to 1999 is only marginally more consistent with his fuel price predictions. No evidence in the record suggests that the other costs to produce electricity, such as capital, operations and maintenance, or taxes, are falling in either real or nominal terms."
15. 15. PPLICA St. 2-S, at 17.
16. 16. PPLICA St. 2-S, at 18.
17. 17. See PECO Energy at 88.
18. 18. The unbundling of T&D rates is an arduous but non-option task that faces any Commission that wishes to embrace retail choice. The following is an excerpt of the Commission's review of the T&D allocation debate in the case of PECO Energy. For a complete review of this issue, consult Hyperlink http://puc. paonline.com/pm_agendas/ 1997/pm121197.htm under the discussion for T&D costs.
19. 3. PECO'S Allocation of Costs Both PECO's original filing as revised and the Partial Settlement fail to meet the Act's requirements in several respects. The cost allocation methodology used by PECO in its initial filing fails to properly assign certain general costs to generation and allocates 100 percent of those costs to T&D. Although PECO revised this approach, the revisions only partially addressed the issue. The effect of PECO's misallocation drives the T&D rates above those levels which were in force on Jan. 1, 1997. In addition to the misallocation of expenses, PECO's use (initially) of an artificially low kWh sales figure results in an incorrect revenue requirement which also has the effect of overstating the rate. The record in this matter indicates that PECO has misallocated costs among the three unbundled services. Simply put, in its original filing, PECO assigned the vast majority of administrative and general (A&G), overhead and general plant expense to its T&D rates. In an effort to address other parties' concerns, PECO revised its methodology on rebuttal. According to PECO, it followed a new procedure for A&G expense allocation by reviewing separately tracked costs which were charged by "work centers." PECO identified work centers as small, single-function work groups which are functionally aligned by production, T&D, corporate central services and corporate center. Our review of the record in its entirety leads us to find that PECO's allocation of General and Administrative Costs requires significant adjustment. In order to comply with the Act's mandate that T&D rates remain capped at those levels in existence as of Jan. 1, 1997, we must ensure that there is an appropriate allocation of all costs among generation and T&D. We must find that, based upon a preponderance of the evidence, PECO's allocation of general expenses will result in T&D rates which comply with the Act's rate cap provisions. We agree with the OCA, the Department of the Navy, Enron and the other parties who argued that the allocation methodology must be modified to correctly allocate costs.
20. 4. Directed Allocation Methodology As we determine the resulting allocation, we are extremely concerned that we not take any action which would jeopardize the continued reliability of PECO's T&D system. To that end, we have very carefully reviewed the methodology detailed below to ensure that it will provide for a continued efficient and reliable T&D system as required by the Act, while avoiding impermissible cost allocations prohibited by the Act. The resulting determination is a careful balancing of all factors in this record. . . . The OCA methodology was generally described in its direct testimony as follows: A substantial percentage of these costs [A&G] should be allocated to the production function as well. Costs in these accounts are not easily identifiable with particular operating functions. They include salaries and office supplies for personnel in administrative functions such as human resources, legal, or accounting. These activities contribute to the generation function as well as distribution and transmission. Generation planners and marketers make use of these administrative functions and expenses. An appropriate functionalization of these accounts is one based on the total labor costs in each utility function. OCA St. No. 4, pp. 4-5. The OCA adopted a labor allocation approach to A&G functions. In 1996, 66% of all directly functionalized labor was in the generation function. Accordingly, the OCA used a 66% allocation factor of A&G expense to generation. OCA St. No. 4, p. 6; OCA St. No. 4S, pp. 2-3. Our adoption of the OCA methodology and adjustments results in a reduction of the T&D rate from the PECO-revised number of 3.11 cents/kWh, to the OCA-adjusted figure of 2.93 cents/kWh. (Exh. LS-12.) Several parties assert that this reallocation of expense to generation does not increase PECO's stranded costs or should not be recovered. We disagree. See PECO St. No. 12-R, p. 9; PECO St. No. 1-R.Subject to receipt and review of PECO's compliance filing, we conclude that this will result in anincrease to PECO's stranded costs ofapproximately $460,691,000. This amount is to be included as part ofPECO's stranded cost recovery.
21. 19. For a list of currently licensed electric generation suppliers, see http://puc. paonline.com/electric/ eleclist.htm
22. 20. The total rate is approximately 14.2 cents/kWh: 5.1 - 3.93 = 1.17 cents/kWh savings, which is over 8 percent.