Most of Pepco rate increase denied for lack of reliability

Citing Pepco’s lack of reliability and failure to invest in improving its infrastructure, the Maryland Public Service Commission denied most of a requested rate increase for the utility and decreased its rate of return to investors on Friday.

Pepco had requested a 4 percent increase, which would have brought it $68 million in new revenues.

Instead, the PSC only granted the utility a 1.7 percent increase — increasing the average monthly bill by $2.02 and bringing the utility $18.1 million more. The new funds will cover verified expenses needed to provide service and meet new reliability standards and costs to comply with new statewide regulations related to contact voltage detection and prevention.

According to a press release from the commission, Pepco was unable to substantiate the rate increase it wanted.

“The Commission considered instead its longer history of substandard performance, and, balancing that with the Company’s responsibility to invest in improving its infrastructure, made a number of key decisions,” the release said.

The utility also hoped the PSC would grant a near 1 percent increase in its rate of return to shareholders, bumping it up from 9.8 percent to 10.75 percent. The Commission instead decreased the rate of return to investors to 9.3 percent, calling Pepco’s request to give shareholders more money “before Pepco corrects its sub-par performance” as “backwards.”

Pepco wanted nearly $8 million of the rate increase to go toward tree-trimming costs and to cover costs for outside experts and counsel in a reliability investigation the PSC conducted last year. The commission determined that this was all work Pepco was doing to “catch up” in preventative measures, and denied the funds.

The utility also asked the commission to create a new infrastructure pre-payment surcharge. That was denied because the commission found it would burden ratepayers with financial risks that Pepco should be taking.

Although Pepco has come under fire for reliability and slow power restoration after last month’s destructive derecho storm, which left millions of customers in the dark for up to a week, the PSC wrote that its decision has nothing to do with the utility’s storm performance. The record used to decide on the rate increase closed on June 25, four days before the storm.

“Although the outages resulting from the June 29 ‘derecho’ storm and Pepco’s response to them are not, and cannot be, part of the record or our decision-making process in this case, we recognize that the statutory deadline for this decision comes at an unfortunate time,” the commission wrote.

In a written statement, Pepco declined to comment until it had a chance to digest the commission’s 162-page order, released late Friday afternoon.

Some critics were unhappy with the commission’s decision to raise rates at all.

“Shame, shame, shame. Pepco fails to restore power for days — and the Maryland PSC raises their rates,” said state Sen. James Rosapepe in a written statement. Rosapepe, a Prince George’s Democrat, has called for the commission to fine the utility $100 million. Proceeds from the fine would be used to implement a local relief corps for power outages.

“What don’t they understand about economics 101?” Rosapepe asked. “In a market economy, failure is supposed to be punished, not rewarded. What incentive is there for Pepco to keep the lights on if they get paid for power failures?”

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