Dive Brief:

• The Maryland Public Service Commission on Tuesday approved a pilot process to allow a single electric or gas utility to request a rate plan using a multi-year period, a move regulators say will provide more predictable revenues for energy providers and greater bill certainty for customers.
• The first utility to request use of a multi-year rate plan (MRP) will become the test case for the pilot process, though the commission also said other utilities are not precluded from proposing an MRP or may continue to file traditional rate cases or instead.
• Currently in Maryland, rate cases are backward-looking and based on a historic test year that examines 12 months of expenditures. A multi-year rate plan under the pilot will be based on forecasting of expenditures and will set rates for a three-year period.

Dive Insight:

Experts say MRPs do present some risks to consumers, so the Maryland commission has taken a cautious approach.

The PSC adopted the MRP process last summer and directed the commission's Public Utility Law Division to convene a working group and develop an implementation report on the process. The commission's Feb. 4 order approved the working group report, though it noted "various levels of consensus" had been reached.

"The Commission believes additional experience and lessons learned will better inform our effort to adopt regulations," regulators said in their order. "Accordingly, the Commission uses the Report as a starting point for forming a Pilot for one Maryland utility."

Multi-year plans "seem simple in concept, but there are a lot of underlying issues that need to be addressed," utility consultant Ken Costello, formerly a researcher at National Regulatory Research Institute, told Utility Dive. 

States like California, Arizona, Georgia, Washington and several northeastern states have all applied the model to electric utilities, and Costello said there has also been success with the model in Canada.

"You have to distinguish between good and bad plans," Costello said. "Like anything else, if you don't get the details right it could have an adverse impact on consumers."

One issue, said Costello, is that MRPs "tend to reduce the risk to utilities and investors rather than customers. That is always a balancing act."

Among concerns, Costello said poorly-crafted MRPs can give utilities few incentives to control costs; set too many restrictions on utilities, hindering them from pricing flexibly; allocate excessive benefits to shareholders; and fail to identify the long-term welfare of customers as its primary objective.

"It's not easy to do," said Costello. "It is harder than you think to ensure customers will benefit."

Exelon subsidiary Baltimore Gas & Electric told Utility Dive it has been working closely with the commission and other members of the MRP workgroup "to provide input throughout this comprehensive process."

"Multi-year rate plans can provide customers with more transparency and regulators with more information in advance about the investments and projects that utilities undertake to improve service for customers," the utility said in an emailed statement.

According to the commission, the MRP approach allows for more predictable rates and revenues by spreading forecasted rate changes over multiple years, while also decreasing the administrative burden.

The Maryland PSC said it recognizes that "changes are rapidly occurring in the utility sector" and cost recovery can be better-aligned with improvements to utility planning, while retaining transparency and accountability.

Regulators will ensure that rates remain just and reasonable by "holding the utility accountable for meeting its budgetary and performance goals over this multi-year period," PSC Chairman Jason Stanek said in a statement.  At the end of the pilot, the commission will conduct a review and identify lessons learned.

Maryland regulators say they will also continue to evaluate the use of performance-based metrics in utility rate case proceedings. A stakeholder workgroup is scheduled to provide a report on performance-based metrics to the PSC by April 1.