Pepco says improvements may not be sustainable after Md. rate hike decision

Pepco officials said Tuesday that the much-reduced rate increase they received in Maryland leaves them questioning whether they can sustain the investment needed to improve reliability for its 530,000 state customers.

Thomas Graham, Pepco region president, said in a statement that the electric provider “will have to find cuts in other spending categories.” He did not specify where those would come from.

“We will continue to move forward with our reliability enhancement program, but this decision is counterproductive to our goals to improve our customer experience,” Graham said in the statement.

Pepco did not say whether it intends to appeal the decision by the Maryland Public Service Commission to give Pepco $18.1 million of the $68 million increase it sought, a ruling that immediately raises average residential monthly bills by about $2, not $5.50.

“We are considering all of our options,” said spokesman Robert Hainey.

The increase is the first for Pepco in Maryland in three years. It has a rate case pending in which it seeks an additional $42.5 million from its District customers — or about $5.20 a month for average residential customers, consumer advocates calculate — and is raising some of the same issues to support its request.

Among those issues is a proposal — denied in the Maryland case — to allow the company to collect some charges up front for future system upgrades, a pre-payment type of plan that would save customers and shareholders time and the expense of rate case proceedings, Graham said in his statement.

In 2010, Pepco began a five-year, $910 million improvement program. It has widely promoted the program as the remedy for chronic reliability failings that ranked Pepco near the bottom nationally among electric companies in its ability to keep the power on and restore it even on blue-sky days, as a 2010 Washington Post investigation found.

Graham said Pepco shareholders have absorbed “$130 million in reliability investments and expenses” in the past two years that the company did not seek to recover from customers.

The Maryland ruling slightly reduced the company’s allowable return to shareholders to 9.31 percent, from 9.83 percent. Pepco had sought a requested return of 10.75 percent, and Graham said Pepco was “very disappointed” in that outcome.

The Maryland decision aligned more closely with consumer advocate groups’ wishes than those of the industry. The Office of People Counsel, for example, recommended that Pepco had a justified claim to an increase of just $13.6 million.

In the pending District case, the District Office of the People’s Counsel is urging regulators to reject $33.4 million of Pepco’s $42.5 million request.

Pepco serves 778,000 customers in the District and parts of Montgomery and Prince George’s counties.

The Maryland decision was not the first time recently that the commission denied most of Pepco’s rate request. In 2006 and 2009, regulators rejected more than 70 percent of what Pepco wanted.

Mary Pat Flaherty works on investigative and long-range stories. Her work has won numerous national awards, including the Pulitzer Prize.
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