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

2. Social Expectations Safe & 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.

3. Major Storms in Maryland The 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 billion 3

4. Regulatory Options To 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

5. Grid Resiliency Task Force Recommendations Accelerate existing vegetation management program from four to two years. Improve and accelerate existing worst performing feeders program. Accelerate existing reliability requirements. 5

6. 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

7. Long Term Assessments The 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.

8. Long Term Assessments The 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.

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