Regulators should reject Exelon utilities’ accounting maneuver that would deny customer refunds, OPC filing says
BALTIMORE – Recent changes by two Exelon utilities for how they account for taxes are inconsistent with their multi-year rate plans (MRPs), would deny customers millions in refunds, and potentially will result in tens of millions of dollars in rate hikes, the Office of People’s Counsel told the Maryland Public Service Commission in two filings yesterday in the multi-year rate cases for Baltimore Gas and Electric and Delmarva Power and Light, both owned by Exelon.
BGE and DPL are pursuing tax accounting changes that, if accepted, would be retroactive to the beginning of 2024 and would deny BGE gas customers and DPL electric customers refunds they are otherwise owed, OPC’s filing says. BGE’s accounting change increases its combined gas and electric rate base—which determines the size of its profits—by $167 million; Delmarva’s similar change increases its rate base by $49 million. The changes are unrelated to any new investments or additional utility costs.
“Exelon’s accounting changes violate long-established ratemaking principles that protect customers,” said Maryland People’s Counsel David S. Lapp. “The Commission cannot lawfully reset rates by changing an accounting methodology that was used to set 2024 rates for customers.”
The Exelon utility filings attempt to use the “Annual Information Filings” required under their MRPs to justify retroactive changes to their 2024 rates, according to OPC’s filing. But those filings are intended to track differences between projected and actual revenues and expenses—not to revise basic components used to set rates, like tax accounting practices. The informational reports, as OPC’s filings state, permit adjustments only for over-recoveries due to changes in forecasts of revenues and expenses—not to the basic components or methodologies used to set rates.
OPC’s filing on BGE’s request points out that BGE gas customers are actually entitled to a refund, because BGE over-recovered its gas revenues by $6.4 million compared to what was forecasted. Similarly, DPL customers are entitled to a $6.5 million refund.
Both BGE and DPL claim their accounting changes are compelled by recent IRS letters issued to unrelated entities that reflect a different tax accounting method than the Commission-approved method used to set the Exelon utilities’ rates. The methodology used to set BGE and DPL rates—that they now seek to change—is the same one long used and accepted by federal and state regulators and still followed by most utilities today.
As OPC’s filing points out, the IRS letters relied upon by the Exelon utilities are issued to individual taxpayers and interpret and apply tax laws to those taxpayers based on specific sets of facts, and the IRS expressly states that these letters “may not be used or cited as precedent.”
Further, both BGE and DPL currently have their own requests for letters pending before the IRS, each specific to their individual circumstances. As OPC’s filing explains, should the IRS rule in BGE’s and DPL’s favor regarding the accounting method, the utilities would only need to apply the change prospectively, subject to other potential ratemaking adjustments—at their next base rate proceeding—not retroactively as the utilities are requesting.
“The Exelon utilities are once again using multi-year rate plans to avoid basic rules about setting rates to the benefit of their investors and the detriment of their customers,” Lapp said. “There is simply no justification for denying customers the refunds they are owed. Even if the IRS eventually agrees with Exelon about the tax issues—which is far from certain—the Exelon utilities can only change their treatment and rates prospectively.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
* * *
|
