Atlantic City Electric seeks approval in New Jersey for retail base rate increase of about $78.9m

Atlantic City Electric has asked the New Jersey Board of Public Utilities (BPU) for approval of an annual increase in the company’s current retail base rates for electric service of about $78.9m, with the net monthly bill impact on a residential customer taking basic generation service and using 1,000 kWh per month to be about $11.73, or about 6.3%.

The company said in its March 22 petition filed with the BPU that it intends to implement its proposed rates for service rendered on and after Dec. 22, on an interim basis under law, if the BPU has suspended the effective date of new rates, but has not finally determined a just and reasonable tariff schedule before that date.

Atlantic City Electric also said that it has requested a return on equity (ROE) of 10.6%, and used a capital structure consisting of 49.48% common equity and 50.52% long-term debt.

As TransmissionHub reported, Exelon (NYSE:EXC) and Pepco Holdings (NYSE:POM), of which Atlantic City Electric was a subsidiary, announced their merger completion on March 23. Atlantic City Electric is now an Exelon company.

An Atlantic City Electric spokesperson on April 15 told TransmissionHub, “At this time, there are no changes to the [rate] application since the filing date of March 22.”

Atlantic City Electric said in its petition that its present rates and charges for electric service are unjust and unreasonable in that they do not and will not provide sufficient operating revenues to reflect increased investment in the company’s rate base, meet operating expenses, taxes and fixed charges, and provide an opportunity to earn a reasonable rate of return on the fair value of the company’s property.

The company noted that its last base rate change was implemented for service rendered on and after Sept. 1, 2014, based on a test year ending Dec. 31, 2013. Atlantic City Electric said that it has continued to invest considerable sums of money in its electric distribution system to provide safe, adequate and reliable electric service to its customers, noting that since 2011, it has spent $715.9m on capital distribution system projects, with $114.6m spent in 2015 alone.

That investment is planned to continue over the next several years, the company said.

The company is also seeking approval of a new grid resiliency initiative known as the PowerAhead Program, which is a comprehensive plan to advance the modernization of the electric grid through energy efficiency, increased distributed generation, and resiliency, all geared toward improving the distribution system’s ability to withstand major storm events. The program, the company added, is consistent with a prior BPU order in which the BPU encouraged utilities to investigate opportunities to protect New Jersey’s infrastructure against damage from major storms.

As proposed, the program includes investments in various projects over a period of five years – beginning in 2017 – and at a total approximate capital investment of $176m. The company added that it has proposed – and seeks approval of – a cost recovery mechanism associated with the program to enable the company to recover the revenue requirement associated with the capital investments made through the program.

Further discussing the PowerAhead Program, Michael Sullivan, senior vice president, Operations and Engineering of Pepco Holdings, noted that over the past five years, the company’s service territory has experienced four intense and damaging storm events: Hurricane Irene, the 2012 Derecho, Superstorm Sandy and the June 23, 2015, Bow Echo storm event. In response to those events, the BPU has engaged in discussions with Atlantic City Electric and other electric distribution companies in New Jersey regarding steps that could be taken to mitigate the risk of future widespread and long-lasting outages following such storms.

The PowerAhead Program, Sullivan added, would proactively strengthen and protect distribution infrastructure against damage from storms, and is similar to Public Service Electric and Gas’ (PSE&G) Energy Strong Program.

The PowerAhead Program will provide for investment in such projects across the company’s service territory as:

  • Structural improvement of poles and lines in addition to the replacement of equipment along those lines, which will allow for the distribution lines that have been most impacted during major storms to withstand higher winds without loss of load
  • Selective undergrounding of overhead lines in high customer density areas where traditional rebuilding of overhead lines would not remove the risk of tree-related outages during major storms
  • Replacement of open wire secondary lines with equipment that will withstand higher winds and be less impacted from tree contact during storms
  • Increased automation of the distribution system that will provide for automation of the distribution system as well as provide remote control for system operators
  • Construction of a new substation at the Harbor Beach site that will be built with indoor gas insulated switchgear and built above the flood plan level
  • Implementation of distributed energy resource initiatives to improve opportunities for distribution system interconnection of solar photovoltaics by identifying cost-effective methods to enhance circuits

Sullivan also said that the company will not make those investments if the program and cost recovery mechanism are not accepted, adding, “Appropriate and timely cost recovery is essential to the implementation of PowerAhead since the company cannot continue to add increased levels of capital expenditures on top of the capital plan already planned by the company.”

Of the PowerAhead Program cost recovery mechanism, Joseph Janocha, manager of rate economics for Pepco Holdings, said that the company proposes to recover the revenue requirement associated with the program based upon actual plant in-service for six-month periods. Atlantic City Electric would make an initial filing including three months of actual expenditures and three months of forecast expenditures. A subsequent filing would be made to replace forecast data with actual results by the 15th of the month following the end of the forecast period, Janocha added.

The revenue requirement and resulting base rate roll-in are calculated using three months of actual cost data and three months of forecast data, including the actual costs of engineering, design, and construction; property acquisition; as well as actual labor, materials and allowance for funds used during construction (AFUDC) transferred to plant in service.

The company will track the capital investments individually for each project in a construction work in progress (CWIP) account and record a monthly accrual of AFUDC, which will be included in the CWIP balance.

The revenue requirement includes a return on investment and return of investment through depreciation based on the capital costs, Janocha added, noting that the adjustment to base distribution rates would be effective 180 days after the company’s filing. Rate adjustments established in the semi-annual electric filings will be provisional and subject to refund subject to prudency review in a base rate case, Janocha said.

The total revenue requirement is allocated to each rate class on the basis of current rate class specific levels of non-customer-related distribution revenue as approved by the BPU. Once the revenue targets are established, Janocha added, the PowerAhead Program base distribution rate adjustment is designed for each rate class based on the class’ distribution rate design.

Among other things, Janocha said that the proposed PowerAhead Program distribution rate adjustment is estimated to result in a rate increase for a typical residential customer using 1,000 kWh per month of $1.54, or 0.83%, upon completion of all projects after five years.

About Corina Rivera-Linares 3106 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.