Potomac Electric Power Company (Pepco) on Jan. 15 filed with the Maryland Public Service Commission an application requesting an approximately $30m ($29.99m) increase in its Maryland distribution rates and an authorized rate of return on equity of 10.30%.
The impact of the requested rate increase on the typical residential standard offer service customer using 863 kWh per month is $3.51 per month, Pepco said.
The company said that at current rates, its adjusted return on equity for the test year is 8.18%, which is below its authorized rate of return on equity as set by the commission.
Pepco said that it 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. That disparity will only increase as Pepco continues its investments to enhance the reliability of the distribution system, the company said, adding that even if the commission granted Pepco the opportunity to earn a 10.30% return on equity, use of the historical test year and the company’s capital spending on the distribution system virtually guarantee the company will not earn a 10.30% return on equity during the rate effective period.
Pepco said that its revised rate schedules are submitted with a proposed effective date of Feb. 14, 2019.
According to the direct testimony on behalf of Pepco of Bryan Clark, director of the Utility of the Future at Pepco Holdings LLC, from 2014 to 2018, Pepco made capital investments of $1,087.9m in the company’s distribution system with the goal of improving system performance and reliability.
Over the period of Jan. 1, 2013 through Dec. 31, 2018, Pepco has experienced a 46% improvement in system average interruption frequency index (SAIFI) and a 59% improvement in system average interruption duration index (SAIDI), Clark said.
“Customers have deservedly benefited from the results of these efforts, and Pepco should receive full and timely recovery of the costs it has incurred to achieve these results,” Clark said.
As noted in a Jan. 15 company statement, Pepco projects in 2018 included:
- Upgrading 29 feeders
- Upgrading breakers, switchgear, and transformers at nine substations
- Replacing or installing 34.1 miles of underground cable
- Installing 175 trip savers and 303 advance reclosers, devices that automatically reduce the number of customers that may be impacted when an outage does occur
Discussing the company’s planned distribution capital investments from 2019 through 2023, Clark said that the company plans to invest:
- A total of $248.5m in the “customer driven” budget category: $71.3m in 2019; $60m in 2020; $41m in 2021; $39.6m in 2022; and $36.6m in 2023
- A total of $689.3m in the “reliability” budget category: $108m in 2019; $111.6m in 2020; $129.4m in 2021; $164.7m in 2022; and $175.6m in 2023
- A total of $380.2m in the “load” budget category: $61.6m in 2019; $60.8m in 2020; $79.7m in 2021; $105.7m in 2022; and $72.4m in 2023
The “customer driven” distribution category involves projects required by customers, including connecting them to the distribution system, and work performed at the direction of government agencies such as electric plant relocations that support highway construction projects.
Clark also said that the “reliability” distribution category involves projects to increase and maintain the reliability of the distribution system and electric facilities, including supporting communications facilities that provide service to the company’s customers. Those projects include replacement of existing infrastructure, upgrades to reduce outages and improve system performance, and cost of emergency replacement of failed equipment during storms and other events.
Clark added that “load projects” are proactive additions or upgrades to the system in order to meet all levels of customer load in advance of those load conditions developing on the system. Load projects assure that the system continues to meet design criteria, Clark said, adding that that category of work does not include projects that are solely for the connection of new customers to the electric system.
The commission, in a Jan. 16 order, said that the proposed rates filed by Pepco are suspended for a period of 150 days from Feb. 14 in order to "provide the commission with an opportunity to determine the justness and reasonableness of the proposed rates and charges."