Proposal Seeks to Lessen Impact on Customers’ Bills
MAYS LANDING, N.J. – Falling wholesale power prices, driven by weakness in the economy, are both helping and hurting Atlantic City Electric (ACE) customers as the company today filed for rate adjustments that would result in an estimated 3 percent increase to customers’ bills effective July 1.
The company filed this proposal with the New Jersey Board of Public Utilities (BPU) after taking steps to lessen the potential impact to customers by proposing to speed up an existing BPU-approved give back that’s already reflected on each monthly bill. The filing is subject to regulatory review and approval.
These proposed adjustments apply to costs that are passed through to the customer and do not accrue to the company’s bottom line. They represent a reconciliation of charges, or a true up, that ACE must make periodically to ensure that it is not over-recovering or under-recovering costs from customers.
This proposal illustrates how the current decline in power prices is affecting ACE customers both positively and negatively. On the one hand, lower wholesale power prices, as reflected in the Basic Generation Service (BGS) rate – also referred to as the supply charge -- are expected to remain steady for residential customers this year because the economic recession has served to stabilize, and, at least temporarily, ease the upward pressure on the price customers pay for electricity. This supply charge represents the largest share of a typical residential customer’s electricity cost, about three-quarters of the monthly bill.
At the same time, however, lower wholesale prices, have widened the gap that Atlantic City Electric customers must pay to cover the cost of long-term power purchase contracts with non-utility generators. ACE does not deliver this power to its customers but sells it into the regional market. The company entered into these long-term agreements in the mid-to-late 1980s under governmental policies designed to promote the development of alternate energy producers other than traditional electric utility companies.
These agreements were established when forecasters expected long-term power prices to continue increasing, an assumption that did not hold true. Power prices, over time, proved to be subject to the same cyclical factors, such as supply and demand, that affect most commodities.
When the economy is strong and the market price for power is high, these contracts have been competitive. While the economy is weak and power prices are down, customers must make up the shortfall between what ACE pays for the power and what the utility receives when it sells it into the regional market. To cover this gap, the company today filed with the BPU to reconcile and adjust three charges that currently factor into each customer’s bill. The net effect of this reconciliation process will result in an overall increase to customer bills primarily due to an increase to the non-utility generation charge (NGC).
In its filing, the company proposed to lessen the impact of the increase to customers by speeding up an existing give back that was approved by the BPU in 2008 and has since been reflected each month on customers’ bills.
Under the terms of the 2008 order, an over-recovered balance was to be returned over a four-year period. Given that the BPU issued its order under a different economic forecast and under different market conditions than exist today, ACE is proposing to accelerate that give back by shortening the remaining BPU-authorized amortization period from three years to 23 months, which will help to offset a portion of this year’s potential NGC increase, keeping it at about 3 percent.
After accounting for lesser adjustments to other items on the bill, such as the Societal Benefits Charge and the System Control Charge, this accelerated amortization period will help reduce the overall proposed increase from approximately $80 million to $49 million.
Factoring in an estimated 72-cent increase that’s expected to take effect June 1 because of the expiration of the Fossil Asset Sale Credit (FASC) -- of which the company notified the BPU and announced publicly May 1 -- a customer’s total bill would increase by about 3.5 percent over today’s rates, effective July 1. For a residential customer using 1,000 kilowatt hours per month, the monthly bill would increase by $5.66 per month from $163.45 today to $169.11.
Atlantic City Electric, a public utility owned by Pepco Holdings, Inc. (NYSE: POM), provides safe, reliable and affordable regulated electric delivery services to more than 545,000 customers in southern New Jersey.