The Delaware Public Service Commission on June 29 said that its staff and the Division of the Public Advocate (DPA) executed a settlement on June 27 that will result in a rate reduction of $6.85m for Delmarva Power customers.
The settlement resolves a pending rate increase request from the company that initially included $31m in distribution costs to be passed on to electric consumers, the commission said.
The commission noted that earlier this year, it approved a petition from the Public Advocate requesting a reduction in Delmarva Power rates as a result of savings realized by the company due to the federal Tax Cuts and Jobs Act of 2017 enacted last fall.
“This is a big deal for our ratepayers,” Public Advocate Drew Slater said in the statement. “Simply put, this case went from an increase in rates to a decrease in rates thanks to the parties involved in these negotiations and the commission’s support of our petition to ensure money from tax breaks flowed back to customers in the form of reduced rates.”
Raj Barua, executive director of the commission, said in the statement, “Delmarva’s customers win big in this case and the settlement reflects an agreement among the parties that the reduction in federal tax rates are reflected in customers’ bills.”
Delmarva Power, in a statement provided to TransmissionHub on July 12, said: “We are pleased to have reached a settlement for electric delivery rates that, if approved by the Delaware Public Service Commission, will lower bills for our Delaware customers. By passing along tax savings through this process, we are able to provide customers with a $6.85-million decrease on their electric bills, while also sustaining our important efforts to enhance the local energy grid and provide our customers with the safe, reliable and affordable service they have come to expect from Delmarva Power.”
According to the proposed settlement, the settling parties are the DPA, commission staff, Delmarva Power, and the Delaware Energy Users Group (DEUG).
As noted in the filing, Delmarva Power filed an application with the commission last August seeking approval to increase its electric distribution rates by about $24.4m, based on a proposed return on equity of 10.1%, and non-rate modifications to the company’s electric tariff.
The company on Oct. 16, 2017, placed $2.5m of its proposed rate increase into effect, with proration and subject to refund, pending the completion of evidentiary hearings and further proceedings. The filing added that on Oct. 18, 2017, Delmarva Power filed supplemental testimony that corrected an error discovered in the original application and provided three months of projected data updated to actuals, which increased Delmarva Power’s total increase request to about $31.2m.
In December 2017, the U.S. Congress passed, and the president signed into law, the Tax Cuts and Jobs Act, the filing said, adding that in February, Delmarva Power made a supplemental filing reflecting the rate reducing impact upon the docket, which lowered the company’s total rate increase request by about $18.6m to about $12.6m.
On March 17, Delmarva placed an additional $3.3m of its proposed rate increase into effect subject to refund, pending the completion of evidentiary hearings and further proceedings, the filing said.
On March 29, staff, the DPA, and DEUG each submitted direct testimony, and on May 11, Delmarva Power filed rebuttal testimony, in which the company reduced its requested rate increase to about $10.9m.
The filing added that it is acknowledged that the settling parties hold differing views as to the proper resolution of many of the underlying issues in the rate proceeding and are preserving their rights to raise those issues in future electric rate base proceedings on a prospective basis only.
According to the settlement, the settling parties agree to a net decrease of $6.85m to base revenues, with a rate effective date of March 17. The settling parties also agree to a rate of return on equity of 9.70%, and an overall rate of return of 6.78%, based on the company’s cost of debt of 3.80%, and the capital structure at March 31, consisting of 50.52% equity and 49.48% debt.
In addition, the filing added, the settling parties agree to flow back the excess deferred income taxes created by the Tax Cuts and Jobs Act in this manner:
- Protected Property Related Excess Deferred Income Taxes (EDIT): Settling parties agree to use the Average Rate Assumption Method (ARAM) to flow back $63m of protected property related EDIT
- Non-Protected Property Related EDIT: Settling parties agree to use a six-year amortization period to flow back $44.3m of non-protected property related EDIT
- Non-Protected, Non-Property Related EDIT: Settling parties agree to use a five-year amortization period to flow back $20.8m of non-protected, non-property related EDIT
Among other things, the settling parties agree that, within six months of the commission issuing a written order approving the settlement, staff plans to petition the commission to open a separate new docket to address jurisdictional cost allocation issues as raised in the docket by staff, which will include the assignment of accumulated deferred income taxes (ADIT) relating to state tax differences between Delaware and Maryland, the filing said.
Also, the settling parties agree that a refund will be required representing the difference in rates put into effect on March 17 and rates under the settlement.
Within 60 days of a written commission order approving the settlement, the filing added, credits will be posted to customer accounts for: the refund for excess merger synergies in the amount of about $2.8m (that pertains to the merger between Pepco Holdings and Exelon (NYSE:EXC)); and a refund in the amount of about $2.5m representing the regulatory liability created by a commission order concerning the Tax Cuts and Jobs Act beginning on Feb. 1 through March 16, which will have the effect of closing the Tax Cuts and Jobs Act regulatory liability with respect to Delmarva Power.