District of Columbia regulators approve lower-than-requested rate increase for Pepco

Electric retail rates and charges for electric distribution service for Potomac Electric Power Company (Pepco) that were authorized in a recent order by the Public Service Commission (PSC) of the District of Columbia were to become effective on Aug. 15, unless otherwise ordered by the commission, the PSC said recently.

The PSC noted that it denied Pepco’s requested $77.49m increase and reduced it by 52% to about $36.9m. The PSC said that it also reduced Pepco’s requested return on equity (ROE) from 10.6% to 9.5%.

The PSC said that normally, that would result in a $2.09 increase to the typical D.C. residential customer bill, but the PSC has decided to use funds from the $25.6m Customer Base Rate Credit (CBRC) obtained as a benefit in the Pepco/Exelon (NYSE:EXC) merger to temporarily reduce the bill increase to zero for the residential class and the master meter class (apartment building customers) for up to two years.

The PSC noted that none of the increases approved in its order will affect low-income District ratepayers who are enrolled in the PSC’s Residential Aid Discount (RAD) program, and that RAD customers will continue to receive distribution services for free due to the surcharge imposed on all other customers. This case involves only the cost and rates for distribution services, and only that portion of a customer’s distribution bill is under the jurisdiction of the PSC, the PSC said.

As noted in the July 25 order, Pepco in June 2016 filed a request to increase its rates for electricity in the amount of $85.5m; Pepco subsequently reduced its request to about $77.5m, representing an increase of about 21.44% in Pepco’s distribution revenues of $361.5m.

The company’s application for an increase is predominantly driven by the company’s continued reliability infrastructure investments directed by the commission, the PSC noted, adding that those investments were largely made to meet the increasingly stringent standards ordered by the PSC for reliability and resilience.

Of the reduced ROE, the PSC said that it “provides a fair and appropriate return, and will allow Pepco to obtain any necessary capital investment and maintain its investment-grade credit rating which is important because in deciding any rate case the commission must consider both the interests of ratepayers and the needs of a private investor-owned utility to attract investors and raise capital.”

The PSC said that it does not grant any increase lightly, and it recognizes that not all of Pepco’s customers will welcome the increase. The PSC noted that it has “applied the CBRC in a manner to completely offset residential customer increases for two years and decided to open a new proceeding to address how the commission can establish a mechanism to offer rate relief to disabled and senior citizens on fixed incomes using the remainder of the CBRC funds (approximately $6[m] to $7 million) in future Pepco rate proceedings.”

The PSC also noted that all residential customers received a $54.59 one-time credit on their electricity bills in April 2016, as a result of the merger – a credit which defrays the future effects of base rate increases for 256,454 residential customers in the District, amounting to $14m in upfront rate relief.

Overall, with the CBRC offset, the net impact for a customer’s bill would be a reduction this year, the PSC said.

The PSC also said that the public should be aware of other factors, including legislative initiatives and expected system reliability expenditures, that will increase customers’ bills in the near future. For instance, the PSC said, a significant new statutory development is that the costs of the D.C. PLUG undergrounding project, which aims to improve system reliability and resiliency by undergrounding the worst performing feeders in the District, will be allocated among Pepco customer classes under a statutory formula included in the law enacted by the Council of the District of Columbia, which authorized expenditures of up to $500m over six years.

While the D.C. PLUG costs have no rate impact in this proceeding, Pepco estimates that when the D.C. PLUG surcharge and rider go into effect in early 2018, the combined monthly impact will be $1.18 for the average residential customer in the first year, as reflected in the Pepco/District Department of Transportation joint application that was filed in July, the PSC said.

Furthermore, Pepco is expected to file another application to increase rates before the end of this year, with those new rates likely going into effect at the end of 2018, the PSC said.

Pepco’s response

In a statement provided to TransmissionHub on Aug. 15, Pepco noted that in June 2016, it asked the PSC to approve a rate adjustment in order to recoup investments already made over the prior three years to maintain and improve the electric distribution infrastructure and other costs.

The PSC awarded Pepco a 2.52 percentage increase for a typical residential customer, which is equal to an increase of $2.09 per month, Pepco said, noting that the new rates went into effect on Aug. 15. 

“However, the entire amount of the residential increase is being offset for approximately two years by a customer base rate credit that is a benefit of the merger with Exelon,” the company said. “Even with a rate adjustment, residential Pepco customers will not see their distribution bills increase because credits stemming from the merger will help offset the approved rate adjustment. In addition, small commercial customers in rate classes GSND, GSD-LV, GS-HV, and TN will receive a credit on their bills starting today. The credit ­will fully offset the identified commercial customers’ rate increases for approximately two years.”

The company also noted that as part of its merger commitments, Exelon contributed $25.6m to Pepco customers in the District to offset rate increases. The merger commitments also included a one-time $54 per residential customer credit, totaling $14m, which Exelon provided to customers in April 2016, Pepco said.

“We will continue to work with our customers to help them find ways to lower their energy usage and their bills,” the company said.

About Corina Rivera-Linares 3286 Articles
Corina Rivera-Linares was TransmissionHub’s chief editor until August 2021, as well as part of the team that established TransmissionHub in 2011. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial from 2005 to 2011. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines.