Pepco Holdings (NYSE:POM) subsidiaries Delmarva Power and Light and Potomac Electric Power Company (Pepco) are seeking approval in Maryland for increased rates, as well as grid resiliency charges that will allow the companies to accelerate investment in infrastructure.
Delmarva Power said in its March 29 filing that it requires an increase in its rates for electric distribution service to its customers in Maryland in order to recover its costs of providing service and to have an opportunity to earn a fair return on its investor-supplied capital (Case No. 9317).
The company said its current electric base rates are not just and reasonable and do not provide it an opportunity to earn a reasonable return on the fair value of Delmarva Power’s property devoted to electric delivery service.
Based on a test year ending December 2012, Delmarva Power is requesting an increase of about $23m in its Maryland distribution rates and an authorized rate of return on equity (ROE) of 10.25%. The impact of the requested rate increase on the typical residential standard offer service (SOS) customer using 1,000 kWh per month is $7.74 per month, or 25 cents per day in increased electric rates, the company added.
At current rates, Delmarva Power’s adjusted earned ROE is 7.00%, a level below its authorized rate of ROE as set by the PSC.
“Delmarva Power is now seeking an increase in distribution rates because its revenue growth has not kept pace with the growth in operating costs and rate base,” the company said.
Delmarva Power spent $53.6m on reliability improvements to its distribution infrastructure, and plans to spend an additional $114.6m in 2013 and 2014.
Separately from the requested adjustments to base rates, in response to the recommendations from the report of the grid resiliency task force, Delmarva Power is proposing to establish a grid resiliency charge, which will allow the company to accelerate investment in infrastructure in a condensed time frame consistent with the task force’s recommendation.
Maryland Gov. Martin O’Malley, in October 2012, released the task force’s report, which contains 11 recommendations, including a four-step implementation plan that would accelerate investment designed to strengthen the electric distribution grid, according to a statement from the governor. The report stems from an executive order that O’Malley issued in July 2012 to look into how to strengthen the electric distribution system.
Delmarva Power said it proposes to accelerate improvement to priority feeders and tree trimming. The costs that are proposed for inclusion in the grid resiliency charge include the specific capital and operations and maintenance investments related to the accelerated grid resiliency projects.
The company requested a mechanism that will be in place for about three years, plus any additional time required for reconciliation, and seeks to recover the accelerated costs of the grid resiliency projects under a surcharge mechanism. The surcharge will end once project costs are incorporated into base rates. The proposed grid resiliency charge includes a customer credit for failing to meet certain benchmarks and an incentive for achieving the benchmarks.
The impact of the proposed grid resiliency charge on a typical residential SOS customer using 1,000 kWh per month will be $1.06 per month in 2014; $1.13 per month in 2015; and 16 cents per month in 2016.
Frederick Boyle, senior vice president and CFO of Pepco Holdings, said in testimony that the company is proposing to accelerate its next four-year tree-trimming cycle and revise its poorest performing feeder program to address an additional five feeders a year for two years. These projects are accelerated from the existing service and reliability standards.
Delmarva Power said its revised rate schedules are submitted with a proposed effective date of April 28.
Pepco, in its November 2012 application, requested an increase of about $61m in its Maryland distribution rates and an authorized rate of ROE of 10.25% (Case No. 9311).
The impact of the requested rate increase on the typical residential SOS customer using 1,000 kWh per month is $7.13 per month, or 23 cents per day in increased electric rates.
Like Delmarva Power, Pepco proposed to establish a grid resiliency charge that will allow the company to accelerate investment in infrastructure in a condensed time frame consistent with the task force’s recommendation. Specifically, Pepco proposed to accelerate improvement to priority feeders and tree trimming and to start undergrounding existing overhead distribution feeders.
The company requested a mechanism that will be in place for about three years, plus any additional time for reconciliation, and seeks to recover the accelerated costs of the grid resiliency projects under a surcharge mechanism.
The impact of the proposed grid resiliency charge on a typical residential SOS customer using 1,000 kWh per month will be 96 cents per month in 2014; $1.70 per month in 2015 and $1.93 per month in 2016.
According to Boyle’s testimony, Pepco is proposing to accelerate its next four-year tree-trimming cycle; revise its poorest performing feeder program to address an additional 12 feeders a year for two years; and underground three distribution feeders in Montgomery County, Md., and three distribution feeders in Prince George’s County, Md.
In a March 25 filing, Boyle noted that with the exception of the Maryland Energy Administration and PSC staff, the parties in the proceeding opposed the grid resiliency charge proposal. For instance, the state Office of People’s Counsel opposes the proposal, testifying that if the PSC accepts the grid resiliency charge, the ROE for all of Pepco’s operations be reduced by 25 to 91 basis points due to an alleged reduction in overall risk.
Boyle said the grid resiliency charge does not affect the PSC’s ability or authority to conduct a prudence review of grid resiliency charge investments and expenses and ultimately determine to exclude or reduce recovery for any item that the PSC deems imprudent.
He said that if the PSC were to determine that additional time is needed to consider the grid resiliency charge, Pepco would not oppose a second phase of the proceeding to allow for that review as long as that review does not result in a delay in the PSC’s decision on the base rate application portion of the proceeding.
Among other things, he said that if the PSC reduces the company’s overall ROE as a condition of accepting the grid resiliency charge, “the company will be forced to abandon the accelerated projects.”