BEFORE THE



October 4, 1999

Felecia L. Greer

Executive Secretary

Public Service Commission of Maryland

William Donald Schaefer Tower

6 St. Paul Street, 16th Floor

Baltimore, Maryland 21202-6806

Re: In the Matter of the Commission’s Inquiry into the Provision and Regulation of Electric Service – Case No. 8738 (Universal Service Working Group)

Dear Ms. Greer:

Enclosed for filing, please find an original and fifteen (15) copies of the Reply Comments of the Staff of the Public Service Commission of Maryland Regarding the Universal Service Program Design.

Copies of Staff’s Comments have been provided to the participants of the Universal Service Working Group and Case No. 8738.

If you should have any questions, please do not hesitate to call.

Sincerely,

Tracey L. Stokes

Assistant Staff Counsel

Enclosures

cc: Universal Service Working Group

Service List – Case No. 8738

BEFORE THE

PUBLIC SERVICE COMMISSION

OF MARYLAND

IN THE MATTER OF THE COMMISSION’S )

INQUIRY INTO THE PROVISION AND ) CASE NO. 8738

REGULATION OF ELECTRIC SERVICE ) (Universal Service)

REPLY COMMENTS

OF THE

STAFF OF THE PUBLIC SERVICE COMMISSION

OF MARYLAND

REGARDING

UNIVERSAL SERVICE PROGRAM DESIGN

October 4, 1999

TABLE OF CONTENTS

Introduction 1

Arrearage Retirement 2

Proposal for Off-Service Component of Bill Retirement 3

The Commercial & Industrial (“C&I”) Surcharge 6

MIG’s Proposal 6

The Baltimore City’s Proposal 7

The Joint Utilities’ Proposal 8

DHR’s Weatherization Proposal 9

Program Administration 11

Program Name 11

Conclusion 12

Introduction

In accordance with the procedural schedule issued by the Commission in Order No. 75401, the Staff of the Public Service Commission of Maryland (“Staff”) hereby submits the following reply comments. By these comments, Staff will address the universal service initial comments relative to the universal service program (“USP”) and funding proposals submitted in response to Order No. 75401.

Initial comments were filed on September 27, 1999, by:

1) The Maryland Energy Administration (“MEA”), the Maryland Department of Human Resources/Maryland Energy Assistance Program (“DHR/MEAP”), the Joint Utilities (“Allegheny Power, Baltimore Gas and Electric Company, Conectiv Power Delivery, Potomac Electric Power Company, Southern Maryland Electric Cooperative and Choptank Electric Cooperative”), the Office of People's Counsel (“OPC”) and Staff filed initial comments on the universal service program design proposals.

2) The Maryland Industrial Group (“MIG”) and the Maryland Retailers Association (“MRA”) filed initial comments limited to the Commercial and Industrial (“C&I”) universal service surcharge proposals.

3) Baltimore Gas and Electric Company (“BGE”) filed separate initial supplemental comments limited to the arrearage retirement component of the USP.

4) The Baltimore Department of Housing and Community Development (“BHCD”), the Maryland Energy Conservation, Inc., and Mr. Robert Adams[1] filed initial comments regarding the weatherization component of the USP.

Arrearage Retirement

OPC urges the Commission to require that certain of its recommendations be incorporated into the arrearage retirement program. Staff takes issue with only three of the recommendations. The first is OPC’s desire to “establish an initial funding level of no more than $4.1 million for years one, two and three.” (OPC Initial Comments, p. 18.) Staff believes that given the shortage of reliable data upon which to determine the amount of arrearages which must be retired, only the budgeted amount for Year 1 should be set at this time. Staff also believes the Utilities Proposal to fund Year 1 at a level of $5.1 million is preferable given the priority of retiring customers’ prior arrears so that they can receive electric service.

Second, OPC recommends that if the Commission considers a cap on the total outstanding arrears to be paid per customer, that a customer payment contribution, set within affordability limits, be developed as part of the program. (OPC Initial Comments, p. 19.) Staff believes that such a requirement is inconsistent with the “clean slate” concept the Act intends for customers with prior arrearages, and that it would have the effect of adding an additional customer payment burden to the customers least able to bear it.

As stated in our Initial Comments, many parties have a concern that there will not be enough arrearage retirement funds to retire all eligible customers’ arrears and also provide adequate bill assistance. Staff believes that the USP will not be successful if customers continue to have the burden of paying pre-July 1, 2000 debts. Consequently, Staff recommends that arrearage retirement should be the first funding priority of the USP. Staff recommends that DHR/MEAP estimate, as early as possible in the program, what that total arrearage liability may be. The first three months of program data will provide a better estimate of total arrearage liability for the first three program years than the information that is available to date.

Third, OPC recommends that the Commission revise the “seven year rule” in its regulations to limit the denial or termination of service for nonpayment to bills no more than three years old. (OPC Initial Comments, p. 19.) Staff agrees with BGE and the Joint Utilities that it is inappropriate to make the recommended Code of Maryland Regulations (“COMAR”) change in this proceeding because the change would be applicable to all residential customers, not just low income customers. (BGE Initial Supplemental Comments, p. 7; Joint Utilities Initial Comments, p. 2.) The instant proceeding is for the purpose of designing a Universal Service Program to assist low-income customers with their electric bills. It is not a proceeding to revise the Commission’s regulations regarding service terminations of residential customers. This provision may be revisited at a later time along with other COMAR provisions that will need to be rewritten as a result of restructuring.

Staff does agree with OPC and BGE that the arrearage balance for each USP customer should be paid from the Universal Service Fund (“USF”) over a period of three years (or one or two years if the customer does not apply for USP until Year 2 or 3). Staff further agrees with OPC that, in the event the amount budgeted for bill assistance or energy efficiency is not “spent” by year end, DHR should be allowed to “catch up” on arrearage obligations of future years by reallocating those unspent funds for payment of arrears.

Proposal for Off-Service Component of Bill Retirement

The Joint Utilities’ and BGE’s proposals for arrearage retirement for off-service, low-income customers are similar, but possess two significant differences: 1) a different capped amount per customer from the USF, and 2) whether the customer should remain responsible for remaining debt (or find other sources of assistance) as the Joint Utilities propose, or be “forgiven” the remaining debt as proposed by BGE.

Specifically, the Joint Utilities Proposal supports the full retirement of arrearages for on-service residential customers and proposes that off-service customers may receive up to $1,200 in credits from the USF in order to assist them in obtaining electric service. BGE proposes that off-service arrearage accounts would receive up to $2,000 from the USF. BGE states that the utility will then reconnect the customer, and “will require no further payment towards those amounts remaining above $2,000.” (BGE Supplemental Proposal, p. 7.) Under BGE’s proposal, any customer who is terminated for non-payment of arrearages that were incurred after the implementation of customer choice is not eligible for the arrearage retirement provisions of the USP for those arrearages.

Staff believes that the Act does not allow the USP to treat on- and off-service customers differently with respect to arrearage retirement. All arrearages for the eligible population incurred prior to July 1, 2000, are to be retired.

The Joint Utilities claim that BGE’s program design would channel a disproportionate amount of the Universal Service Fund to BGE since BGE estimates that it is due $6 million of the $7 million in estimated arrearages for current MEAP customers State-wide. (BGE Initial Supplemental Comments, p. 2.) The Utilities therefore conclude “BGE will benefit the most from full retirement of arrearages.” (Joint Utilities Initial Comment, p. 5.)

The Joint Utilities claim that USP participants’ arrearages could potentially total $30 million in the first year or by July 1, 2000 and that BGE’s share of that $30 million could be almost $26 million. However, Staff notes that the Joint Utilities’ own proposal is based on total estimated arrears of $15,300,000. (Joint Utilities Initial Arrearage Comments, p. 7, FN 1.) This highlights the necessity of developing supportable total arrearage estimates.

The Joint Utilities argue that it is not equitable for a large portion of the Universal Service Fund to go to any one utility since these funds are collected from all of the customers in the state, that other utility customers will be subsidizing BGE’s low income customers, and that BGE will be competitively advantaged. (Joint Utilities Initial Arrearage Comments, pp. 3-4.) By contrast, the Joint Utilities’ plan would entitle every utility to reimbursement from the USF for arrearage retirement of up to $500,000 in the first year, depending on the level of claims from MEAP-certified low income customers. (Joint Utilities Initial Arrearage Comments at pg. 7.) Then the remainder would be available for reimbursements on a pro-rata basis to those utilities with additional need (anticipated to be BGE) up to the $5.1 million budgeted in the first year.

The Joint Utilities’ argument implies there must be an equitable allocation of arrearage retirement funds to utilities that is not required by the Act. The Joint Utilities also aver that the Act would allow different treatment of BGE customers as compared to the customers of other utilities. Staff sees no basis in the act for the $500,000 per utility allocation. The Joint Utilities’ plan limits the opportunity to retire the arrearages of BGE customers. The Joint Utilities argue that the Commission does not have authority to require utilities to forgive customer debt and that further, they do not agree with BGE’s willingness to waive their rights to recover this debt. If the Joint Utilities allege that they are being denied recovery of this debt, they have thus far provided no evidence that this debt has not been written off and is not embedded in rates so that there is no double recovery.

When evaluating the Joint Utilities’ argument that the Commission has no authority to require debt forgiveness, and other of the Joint Utilities’ arguments regarding USP funding and fund allocations, it is important to remember that the USP will very likely reduce the utilities credit and collection costs. If the USP succeeds in making a large number of low-income customers current in their electric utility payments and provides them with the ability to remain current through bill and weatherization assistance, the utilities should experience significant customer service, credit and collections cost savings. Information obtained during the Universal Service Working Group process indicated that these savings could be $5 million or more annually. It is likely that this benefit will more than offset any financial distress the utilities allege with respect to the forgiveness of low-income customer debt.

The Commercial & Industrial (“C&I”) Surcharge

MIG’s Proposal

The Maryland Industrial Group (“MIG”) proposal allocates the $24.4 million commercial and industrial (“C&I”) revenue responsibility for USP using a 23 step, fee structure developed on the basis of designated revenue tiers. The first year fees would be based on bundled electric bills rendered through 1999. In subsequent years, the fee steps would be based on the customer’s annual distribution bills.

MIG contends their proposal “treats all customers in the State, who fall within the same billing population tier, equally” (MIG Proposal at 6). Staff notes that the Joint Utilities show clearly that the proposed tiers do not produce fees that are equitable, especially for the small C&I customer with annual bundled electric bills of $5,000 per year or less. (Joint Utilities Initial Comments, pg. 8.) The Joint Utilities state that “over 178,000 of the total 216,326 C&I accounts, or 82%, fall within the range annual bills of less than $5,000 per year” who, will pay proportionately 10 times more than the largest C&I customers. (Joint Utilities Initial Comments, pp. 7-8.)

Staff believes that the disproportionate percentage of customers with annual bills under $5,000 per year will even increase in the second program year. It is likely that many customers in a particular total-revenue-based tier in year one will move to a different distribution-revenue-only tier in year two because distribution charges are a larger portion of the total bill for small C&I customers than they are for large C&I customers. MIG’s proposed 23-tier structure might be “doable” from a utility billing standpoint, however, Staff agrees with the Joint Utilities that MIG’s plan will require the utilities to make extensive programming and system modifications to produce this inequitable result.

The Baltimore City’s Proposal

Baltimore City proposed a method with a single percent-of-bill fee assessed on all C&I accounts State-wide. The proposal would cap an individual account cap of $60,000 and cap aggregated accounts of $85,000 per year. Customers with multiples accounts, such as the State of Maryland, Baltimore City, Baltimore and Montgomery counties, and Giant Food could apply as customers with aggregated accounts. Under the City’s, State-wide approach, similar customers in different utility service territories will pay different amounts because the distribution rates upon which the fee is calculated vary among the utilities.

The Joint Utilities note that within BGE’s service territory, potential aggregated account customers include

over 3000 accounts that would contribute an estimated $734,000 toward the USP . . . these accounts would contribute only $340,000 and the cost responsibilities would be shifted from the larger, multi-location electric users to the remaining C&I accounts, predominantly smaller customers, to offset the exemptions offered under the aggregated account cap.

(Joint Utilities Initial Comments, p. 9.)

With respect to the Baltimore City proposal for the C&I surcharge, Staff agrees with both MIG and the Joint Utilities. As explained by MIG, the Baltimore City proposal creates uncertainty as to what amount of USP revenues will be collected from the C&I customers when USP charges are subject to a “per customer” cap and utilities bill by metered account. (MIG Initial Comments, p. 7.) And, as the Joint Utilities discuss, since the proposal requires customers to self report their eligibility for the aggregated account cap, there will be no basis for determining the C&I fee applicable to other customers until the multiple account customers furnish this information to the utilities. (Joint Utilities Initial Comments, pp.8-9.) This may make it impossible for any C&I rates to be known with certainty prior to July 1, 2000. The Baltimore City proposal would also impose a potentially significant burden on the Commission to determine which specific accounts are eligible for account aggregation, and on the utilities to individually code possibly thousands of accounts as aggregated accounts.

The Joint Utilities’ Proposal

Staff continues to support the Joint Utilities two step allocation process described in the Joint Utilities Comments of June 30, September 15, and September 27. The first step allocates the $24.4 million USP requirement among the collecting utilities in recognition of each utility’s peculiar customer population and rate structures. The second step allocates a percent of distribution revenue for the customers of each utility. As Staff noted in its Initial Comments, while similar customers in neighboring utilities may, in fact, pay slightly different percent fees, the fees are based on the individual utility rates, and total USP charges should therefore be reasonably comparable and equitable. Finally, a flat percent fee will be no more confusing than a sales tax.

DHR’s Weatherization Proposal

Mr. Robert Adams correctly asserts that the low-income weatherization design submitted by DHR lacks detail and as a consequence that it is difficult to render an informed judgement about the design. (Robert Adams Initial Comments, p. 2.) Mr. Adams recommends that the Commission reject the DHR plan until additional work is done to answer questions about how this program will operate. Additionally, Mr. Adams provides a partial list of questions concerning basic program development that are not addressed in the DHR proposal.

Staff agrees with this assessment and Mr. Adams' recommendations. There is insufficient detail provided to justify the expenditure of any funds. The DHR/MEAP proposal ignores recommendations made by Staff in its Comments on the Final Report of the Universal Service Working Group. Specifically, Staff recommended that DHR in its proposal address each concern expressed by the Low-Income DSM Subgroup, as part of the Roundtable process. Staff strongly urges the Commission to adopt this recommendation and reject the DHR weatherization plan until additional work is done to answer questions about how this program will operate.

The City of Baltimore, Department of Housing and Community Development (“DHCD”) expresses concern that most of the USP will be spent on non-conservation types of assistance. This is a Universal Service Program. Section 7-512 of the Act provides that the Commission establish a Universal Service Program for low-income customers in Maryland. The Universal Service Program is to consist of three components: 1) arrearage forgiveness, 2) bill assistance, and 3) low-income weatherization.

DHCD fails to recognize two important factors. First, this is a three-year program and the allocation of funds between the three specified USP components reflect what DHR/MEAP believes it can address during this first year. Second, as discussed in Staff’s Initial Comments, DHCD fails to recognize that spending the $3 million during the first year will be difficult given the need to prepare a Request For Proposal, and select the contractors who have the capacity to deliver these services. In contrast, arrearage retirement can, and must, be addressed immediately. The proposed allocation reflects that DHR/MEAP is managing its resources to make the best use of them. Staff expects the allocation of funding for weatherization to increase in the second and third years of this program.

DHCD appears to recommend that the Commission should transform this program from an electricity program to an all fuels program. They contend that program design constraints limit the applicability of this program in the City of Baltimore. As a remedy, DHCD recommends the transfer of LIHEAP funds to the Weatherization Assistance Program. They contend that LIHEAP has fewer constraints and can be used for low-income dwellings regardless of heating source.

Staff recommends that the Commission reject these recommendations. First, in Staff's opinion, the Commission has no authority to act on the recommendation to transfer federal funds as proposed by Baltimore City. Second, many parties have strongly expressed their opinion to the Commission that the USP is a program intended to address the burden of electric service, not energy in general, for low income customers. The designation of high-use and low-use customers provides opportunities for all customers to participate in the Universal Service Program. The benefits any participant can receive are related to their electricity use. It is unfair to expect electricity customers to shoulder the burden of providing full weatherization treatment to homes that do not use electricity as their primary fuel for heating. If carried to its logical conclusion, this proposition would result in electric customers paying for the retirement of arrearages and bill assistance for low-income gas, oil and propane customers. Staff believes that the Act simply cannot reasonably be interpreted in this way.

Program Administration

The Joint Utilities discuss their recommendation for an informal process by which the Commission can direct DHR/MEAP in performing its administrative duties for the USP which is less limiting on the Commission’s oversight authority and audit responsibility in contrast to the DHR/MEAP. (Joint Utilities Initial Comments, p. 3.) Staff intends and expects to continue working with DHR/MEAP as the USP is established to ensure that the Commission's directives are incorporated into the administrative framework of the program.

Program Name

The Joint Utilities argue that the program should be named the Universal Service Program (“USP”), and not the Electric Service Program (“ESP”) as DHR/MEAP has done in its Proposal. (Joint Utilities Initial Comments, p. 2.) Staff agrees with the Joint Utilities. Universal Service is the term used in the Act. It is a widely known and understood term that has been used within public service industries, including telecommunications. Finally, the name Electric Service Program or ESP is ambiguous.

Conclusion

Staff respectfully requests that the Commission adopt its recommendations as detailed in its Initial and Reply Comments.

Respectfully submitted,

Calvin Timmerman

Aurora Watson

Craig McDonnell

Public Service Commission of Maryland

William Donald Schaefer Tower

6 St. Paul Street, 17th Floor

Baltimore, Maryland 21202

CERTIFICATE OF SERVICE

I HEREBY CERTIFY on this the 4th day of October, 1999, that a copy of the foregoing Reply Comments of the Staff of the Public Service Commission of Maryland Regarding Universal Service Program Design was sent, first class, postage pre-paid to all parties of record for Case No. 8738.

Tracey L. Stokes

Assistant Staff Counsel

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[1] Mr. Adams filed his comments as a private citizen of Maryland.

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