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Pepco: Rate Increase Necessary To Keep Up With Improvement Costs

by Aaron Kraut — December 5, 2013 at 9:15 am 0

Photo via Abigail ReidPepco says a requested $43 million rate increase, its third rate hike request in two years, is necessary to pay for infrastructure improvements that have led to fewer power outages and shorter outage durations.

Pepco critics say the privately held electric company shouldn’t get more money for fulfilling its basic duty of providing reliable electric service.

The most recent request, filed Wednesday with the Maryland Public Service Commission, includes records of the $238.5 million the company says it spent from October 2012 to September 2013 to improve infrastructure. The company claims it plans to spend an additional $234 million in 2014.

Pepco says it has done vegetation management on 5,600 miles of overhead wire, upgraded more than 130 overhead distribution feeders and installed new or upgraded more than 860 miles of underground home distribution lines since 2010.

Those improvements, Pepco says, have led to a 38.5 percent improvement in its Average Interruption Frequency Index and 40 percent improvement in its System Average Interruption Duration Index.

“The Company’s present electric base rates are not just and reasonable and do not provide an opportunity for the Company to earn a reasonable return on the fair value of Pepco’s property devoted to electric delivery service,” attorney Peter E. Meier wrote in Pepco’s application.

Pepco Holdings, Inc., which includes two other power companies, posted $110 million in net income in the third quarter of 2013, up from $87 million in the third quarter of 2012.

“The base rates are going to pay for those improvements and that’s where Pepco needs to get their money from,” said Pepco critic and Powerupmontco organizer Abbe Milstein. “And if they don’t have it, they need to go to their shareholders to get that money from them.”

In the filing, Pepco also asked for an increase in its return on equity — the allowable return on investment to its shareholders — from 9.36 percent to 10.25 percent.

“I continue to believe that Pepco’s financial returns should be based on its performance. While the number and duration of outages has improved since 2010 and their recent investments and actions have raised them from the lowest quartile nationally, in my view, its overall performance has not risen to the level that justifies an increase in its return on equity,” Councilmember Roger Berliner (D-Bethesda) said in a statement. “It is still a utility that ranks in the bottom half of all utilities in terms of performance. That is not good enough for the residents of Montgomery County and it should not be good enough for the Commission.”

The rate increase would mean an increase of $4.80 a month for the average residential customer, according to Pepco’s filing.

In July, the PSC approved part of Pepco’s last rate hike request, a decision that is being challenged in court. In a Nov. 6 earnings call, Pepco Chairman Joseph Rigby told investors the decision to grant $27.9 million of its $60.8 million rate hike meant the company must make another rate hike request.

In the filing, Pepco said it met or exceeded all of the quality and reliability standards set by the PSC for 2012 and is on track to meet those standards in 2013.

At a forum sponsored by Powerupmontco and the AARP last month, energy attorney Stanley Balis, who represented Montgomery County in a past rate case, argued Pepco shrewdly lobbied its way to rules that allow different standards for different electric companies in the state to account for “existing infrastructure.”

Balis claimed Pepco has effectively been rewarded for having a dilapidated infrastructure. In 2011, the PSC fined Pepco $1 million for poor reliability and poor management decisions in the wake of three severe storms in July and August of 2010.

The PSC’s standards for 2012-2015 give Pepco more leniency with regard to the frequency of power outages than the state’s other five major electric companies in each year. Pepco’s prescribed standards for the duration of power outages are generally stricter than the other five companies.

PDF: Pepco application for rate increase

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