Regulatory Vision Reliability Abigail Ross Hopper, Esq. Director, Maryland Energy Administration Energy Advisor, Governor O’Malley.

Regulatory VisionReliabilityAbigail Ross Hopper, Esq.Director, Maryland Energy AdministrationEnergy Advisor, Governor O’Malley

Social ExpectationsSafe & Reliable Service

2

• Marylanders expect reliable electric service, during both blue sky days and major storms, at a low cost.

• However, a significant disconnect exists between the public’s expectation of reliability and the ability of the present-day electric distribution system and utility business model to meet those expectations.

Major Storms in MarylandThe Cost of Unreliable Service

• “Snowmageddon” (2010)Interruptions: BGE: 142,228; Pepco: 251,769; PE: 12,478

• Hurricane Irene (2011)Interruptions: BGE: 756,395; Pepco: 410,313; PE: 19,702

• Derecho (2012)Interruptions: BGE: 762,781; Pepco: 958,563; PE: 90,467

Estimated cost of three storms to customers:

$1.1 billion3

Regulatory OptionsTo Increase Grid Resiliency

• Option 1: Specify changes from top down (i.e., trim trees in a particular way; address worst performing feeders).

• Option 2: Set reliability “floor” and require utilities to meet it.

• Option 3: Create financial incentives for utilities to improve reliability (i.e., performance based ratemaking).

4

Grid Resiliency Task ForceRecommendations

• Accelerate existing vegetation management program from four to two years.

• Improve and accelerate existing worst performing feeders program.

• Accelerate existing reliability requirements.

5

But what about cost?Cost Recovery

• Maryland needs a compromise between the social expectation of low cost and reliable service and utility constraints.

• Asking the utilities to exceed their regulatory requirements comes with additional costs in an era of financial pressure.

• As such, the Task Force recommended authorization of a tracker-like mechanism exclusively for accelerated and incremental investments and with appropriate ratepayer safeguards.

6

Long Term AssessmentsThe Cost of Resiliency

7

• In the “Derecho Order,” the PSC required the utilities to submit studies addressing long term investments and staffing levels that would shorten restoration times in different outage scenarios.

• The utilities submitted final reports on September 3, 2013.

Long Term AssessmentsThe Cost of Resiliency

8

• Utilities concluded that significantly shortening restoration times would require billions of dollars of investments – doubling or even tripling residential rates.

• Similarly, substantially increased staffing levels is not cost effective.

• This suggests States should focus on cost-effective investments that keep the power from going off in the first place.

Regulatory VisionReliabilityAbigail Ross Hopper, Esq.Director, Maryland Energy AdministrationEnergy Advisor, Governor O’Malley

Thank you.