Citing a lack of customer benefits, Public Service Commission ends current multi-year rate pilot program
BALTIMORE – The Maryland Public Service Commission (PSC) issued an order today ending its multi-year rate plan (MRP) pilot program after finding that the pilot’s intended goals were “largely unachieved” and the utilities failed to sufficiently show “customer benefits” of their capital infrastructure project spending.
“We applaud the PSC for putting an end to the current pilot program,” said Maryland People’s Counsel David S. Lapp. “As the PSC’s order confirms, MRPs have made rate cases more complex, increased administrative burdens, and frustrated regulatory oversight. Our experience also shows that customers paid much more under MRPs than under standard ratemaking that uses actual costs.”
Under MRPs, utility rates are set based on a utility’s forecast of projects and anticipated spending rather than on actual investments that the utility has proven reasonable and prudent and that are providing real value to customers. An earlier OPC analysis found that electric distribution charges increased about three times as much for Baltimore Gas and Electric during six years of MRPs as during the preceding six years under standard ratemaking.
The PSC’s findings in today’s order confirm many of the concerns OPC has raised with MRPs, including that:
- Accelerated cost recovery—or reduced “regulatory lag”—was “a financial benefit to the utility,” but the Commission found it “unclear if or how that translated into a financial benefit to ratepayers”;
- The value of any insight gained into future utility planning and spending was “diminished” by “the lack of transparency and subsequent modifications to such plans”;
- The Commission “has not observed that the MRP construct has advanced any of Maryland’s key energy State policy goals” and found that it was no better a venue for implementing major policy initiatives than a dedicated proceeding;
- The MRP pilot “had the effect of increasing the level of complexity involved in a rate case proceeding” and was “more resource- and time-intensive” than standard ratemaking;
- The reconciliation process had the effect of “shifting the prudency-burden away from the utility,” even though utilities must retain the affirmative burden of demonstrating that the expenditures they seek to recover are prudent and just and reasonable; and
- While the utilities received a more predictable and steady revenue stream once rates were set, customer rates under MRPs were “anything but predictable.”
Today’s order ends the Commission-established pilot program, which was initially established for one utility, BGE. Potomac Electric Power Company (Pepco) and Delmarva Power & Light Company later filed MRPs under the same framework. BGE and Pepco each filed applications for second three-year MRPs in 2023, and in both proceedings, OPC raised significant concerns with the continued use of MRPs. In 2024, the Commission began a “lessons learned” proceeding that had been contemplated when the pilot was originally established to review the results of the MRP pilot program and evaluate whether multi-year ratemaking is consistent with the public interest. Today’s decision follows multiple rounds of stakeholder comments and a legislative-style hearing, where OPC characterized MRPs as a failed solution in search of a problem.
“Today’s order makes clear that MRPs have failed to deliver for customers,” Lapp said. “Unfortunately, despite the PSC's findings, new ratemaking practices based on utility forecasts are still possible in the future, which will require putting more resources into a fundamentally flawed approach.”
Although it sunsets the current pilot program, the PSC’s order does not conclude the evaluation of alternative forms of ratemaking. The Utility RELIEF Act requires the PSC to submit a report by April 1, 2027, evaluating whether forecasted test year ratemaking, standard ratemaking, or a hybrid model is in the best interests of and protects ratepayers. The PSC’s order provides additional guidance for the work group established in Public Conference 83, which will develop recommendations for the PSC’s review. The work group’s first-phase recommendations are due by February 1, 2027. A second phase will examine possible changes that the PSC’s order says could produce a “more refined and substantially reformed” forward-looking MRP framework, with a report due June 30, 2027.
To read more about OPC’s advocacy on MRPs and other forms of ratemaking based on utility forecasts, visit OPC’s website.
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers in electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies, and the courts.
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