Legislation that provides for the implementation of a program to underground up to 60 high voltage lines and that was introduced last month in the Council of the District of Columbia, could move forward early next year, according to Pepco Holdings (NYSE:POM) Chairman, President and CEO Joseph Rigby.
“A vote is expected in the fourth quarter of this year and, if passed, could be final in the first quarter of 2014,” Rigby said during the company’s 2Q13 earnings webcast on Aug. 7. “The Public Service Commission [(PSC) of the District of Columbia] is expected to approve the financing and surcharge applications associated with the legislation in the second quarter of 2014.”
As reported previously, an interim report accepted by District of Columbia Mayor Vincent Gray on May 15 calls for a multi-year program estimated at almost $1bn in a first phase to selectively underground up to 60 high voltage lines that are most affected by storms and overhead-related storms.
The move is expected to improve service for Pepco’s Potomac Electric Power Company customers on those feeders, according to a statement from Gray’s office.
The areas identified will include the high-voltage feeders most affected by overhead-related outages in Wards 3, 4, 5, 7 and 8 of the city, which have existing overhead distribution lines. About half of the city is served by underground lines. There will still be secondary and service lines running overhead on the existing poles, the statement added, noting that typically, those facilities are a small factor in outage events. Historically, outages on these circuits are not prolonged.
Gray established his Power Line Undergrounding Task Force, which includes government officials, regulators, local utility executives, public advocates and residents, in August 2012 to address the power outages that District residents and businesses endured as a result of the derecho thunderstorm system that left extensive wind damage across the region in June 2012.
The statement also noted that the task force, which is co-chaired by Rigby, is recommending a financing arrangement through an approximately even split between the District and Pepco. Funds would be obtained through a combination of traditional Pepco funding of debt and equity for $500m, $375m in District-securitized bonds, and between $62m and $125m in District Department of Transportation (DDOT) street-paving funds that will be leveraged to support undergrounding.
“The mayor’s task force brought together key players including the utilities, the commission, the People’s Counsel and community leaders that were aligned in addressing the important issue of hardening the electric grid,” Rigby said on Aug. 7. “While Pepco is currently exceeding service reliability standards in the District, this work will enable our system to better withstand severe weather events while also stimulating economic growth.”
Rigby also noted that PSC hearings involving Pepco’s rate case in the District are scheduled to begin in early November, with a PSC decision expected in 1Q14.
According to the PSC’s website, Pepco filed an application on March 8 requesting, among other things, a revenue requirement increase of about $52m, with a return on equity of 10.25%.
Pepco Holdings on Aug. 7 reported net income (loss) from continuing operations (GAAP) of $38m for the three months ended June 30, compared with $53m over the same period in 2012.
The company also reported adjusted net income from continuing operations (Non-GAAP) of $53m for the three months ended June 30, compared with $46m over the same period last year.
The increase in adjusted net income from continuing operations (Non-GAAP) in 2Q13, as compared to 2Q12, was driven by higher electric distribution revenue – primarily due to higher rates from increased infrastructure investment – and lower operation and maintenance expense, Pepco said. Partially offsetting those positive factors were lower default electricity supply margins – mainly due to a favorable adjustment in 2012 – and lower unbilled revenue associated with Pepco’s Atlantic City Electric basic generation service.
Pepco also said that the primary driver of the increase in adjusted net income from continuing operations (Non-GAAP) for the six months ended June 30, as compared to the 2012 period, was higher electric distribution revenue, largely due to higher rates driven by increased infrastructure investment and higher weather-related sales in its service territories that do not have revenue decoupled from sales. Higher net interest expense, lower transmission revenue primarily due to a less favorable formula rate true-up, and lower default electricity supply margins partially offset the increase for the period, the company said.