Potomac Electric Power Company (Pepco) on Dec. 4 filed an application with Maryland state regulators seeking an approximate $43.3m increase in its Maryland distribution rates and an authorized rate of return on equity (ROE) of 10.25%.
At current rates, the company’s adjusted ROE is 6.69%, which the company said is a level far below its authorized rate of ROE as set by the state Public Service Commission (PSC).
The impact of the requested rate increase on the typical residential standard offer service customer using 1,000 kWh per month is $4.80 per month, or 16 cents per day in increased electric rates, Pepco added.
The proposed effective date for the rate increase is July 4, 2014.
Pepco said it is seeking the increase because its revenue growth has not kept pace with the growth in operating costs and rate base, adding, “This disparity will only increase as Pepco continues its investments to enhance the reliability of the distribution system.”
Noting that it is a transmission and distribution company, Pepco said that in order to continue to meet its obligation to provide safe and adequate service, it must continuously replace and enhance the distribution system infrastructure.
While this work is ongoing, more work needs to be done, Pepco said, adding that new technology is available that will allow it to provide more reliable service in a cost-effective manner.
“However, in order to maintain and enhance its infrastructure and implement cost-effective distribution technologies, Pepco must continue to make substantial investments in infrastructure and must have a reasonable opportunity to recover its costs,” the company said.
From October 2012 through September, Pepco has spent $238.5m for its Maryland distribution construction program, and plans to spend an additional $234m in 2014.
The work it has undertaken to its distribution infrastructure has shown positive results, the company said, noting that in 2012, Pepco met or exceeded all of the service quality and reliability standards prescribed by the PSC and the company is on track to meet or exceed those standards this year.
Pepco also noted that it is entitled to an operating income yielding, after a deduction of necessary and proper expenses, a reasonable return upon the fair value of its property. The return must be adequate to assure confidence in the financial soundness of the company, to maintain and support its credit and to enable it to raise capital necessary for the proper discharge of its duties as a public company.
“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,” Pepco added.
In August, Joseph Rigby, chairman, president and CEO of Pepco Holdings (NYSE:POM), of which Pepco is a subsidiary, said that the company is challenging in court the PSC’s July 12 decision to grant Pepco an electric distribution rate increase of about $28m, which is less than half of what the company had requested.
“On July 26, we filed an appeal of the commission’s order with the Circuit Court for the city of Baltimore and we expect to file Pepco’s next rate case in Maryland by the end of the year,” Rigby said during the company’s 2Q13 earnings webcast.
In direct testimony filed with the Dec. 4 application, Rigby said that the requested increase will allow the company to continue improving reliability, including activities such as upgrading underperforming feeder lines, installing distribution automation systems and vegetation management.
As the company continues to focus on reliability, Pepco’s customers are experiencing significantly improved service due to reliability enhancements, he said, noting that improvements include upgrades to existing infrastructure, enhancement of the distribution system, construction of new facilities and continued tree trimming to meet future customer needs.
Rigby also noted that the company is not proposing any changes to the grid resiliency charge previously approved for Pepco, adding that the company believes the PSC’s approval of accelerating the hardening of an additional 24 feeders over two years is a good first step.