District of Columbia Public Service Commissioner Wesley Long has come up with a novel proposal for deregulating part of the utility business.
Deregulate street lighting services, Long suggests.
Though few D.C. residents realize it, it is not the District government that runs the city's street lighting system; it is Potomac Electric Power Co.
Pepco also maintains the District's traffic lights, probably the only private power company in the country that's in the stop-and-go sign business, says Pepco Vice President John Derrick Jr.
Like electric utilities all over the country, Pepco provides the power for both street lights and traffic signals.
But while other cities build and maintain their municipal lighting systems, the District turns the job over to the utility company.
When a traffic light burns out on Connecticut Avenue, it's not the D.C. Department of Transportation that replaces the bulb; it's Pepco.
Not only does Pepco run the lighting system for the city, but also it does so at rates that are regulated by the Public Service Commission.
Street and traffic lighting is one monopoly franchise that Pepco would just as soon not have, and PSC member Long has become the first city official to endorse the idea.
Long is hardly a shill for Pepco. In the latest rate hearing, Long was the commissioner who took the toughest stand with the utility, urging the PSC to force Pepco to convert its latest oil-burning power plant to burn coal because it would save consumers money.
In a dissenting opinion on the Pepco electric rate increase approved by the PSC just before Christmas, Long said that instead of setting a new rate for street light services, the PSC ought to deregulate the business.
Competition rather than regulators ought to determine how much the District pays for street lighting services, Long argued. The city could do the job itself or put it up for competitive bids and let private contractors vie for the multi-million dollar contract.
Under the newly approved rates, the D.C. government will pay Pepco about $11.4 million this year for street and traffic light services.
Roughly $3.25 million of that is for the electricity burned by thousands of bulbs; Pepco is really the only source of that power. The rest of the money--some $8 million--goes to pay Pepco for operating and maintaining lights and to reimburse the utility for its investment in street lights.
Most companies would relish an exclusive $8 million a year non-competitive contract from the government, but not Pepco. Because the rates set by the PSC are so low and the hassles involved in servicing the lighting system so bad, Pepco "would love to get out of this business," says Derrick.
The utility, in fact, asked in its last rate application to be relieved of part of the lighting job and proposed a change that would reduce the city's street light bills.
At present, when a new street light is needed, the District buys a pole and light fixture and Pepco puts them in. The cost of the installation goes into Pepco's rate base--the amount of invested capital upon which Pepco's rates are based. Once the street light is in the rate base, Pepco is entitled to collect an annual fee for the amount it has invested in installing the light.
Things don't work that way in Montgomery County. Outside incorporated cities, the county government pays the full cost of installing new street lights.
By paying up front, Montgomery County avoids the need for paying what amounts to an annual rental to the power company. That's cheaper in the long run for the county and better for Pepco, because the company doesn't have to raise the capital to finance street light construction.
Pepco proposed a similar system for the District, but the PSC said no.
The power company has repeatedly offered to turn the entire street and traffic lighting services work back to the District government, but the answer to that proposal has always been "no thanks."
One obvious snag in a D.C. takeover of the street lighting system is the cost of buying out Pepco. The company has millions invested and would expect the city to reimburse it.
Another question is whether the District government could do the job. How would the wonderful people who turned the D.C. water bill system into a version of economic Russian roulette do at keeping the lamps lighted? Could an operation that can't get welfare checks out on time assure the traffic lights will work?
Pepco's management and work force have a far better reputation for efficient delivery of services than the District government has.
Because of that difference in efficiency, a city takeover of lighting services would probably cost the taxpayers money. What would happen if the job were opened for competitive bidding, only a request for bids could tell. Pepco, in all probability, wouldn't be interested in bidding.
The cost of the service is now artificially held down by the rates set by the PSC; the return Pepco is allowed to earn on its investment in street lighting services is lower than what the utility gets for its facilities used to provide other services. That lower return amounts to an indirect subsidy that has to be made up in charges to other customers.
Virginia utility regulators recently have followed a philosophy of requiring all types of electricity customers to share equally in costs. As a result, suburban street lighting costs on that side of the Potomac are going up.
The D.C. PSC appears to be moving a little in that direction. In the recent Pepco rate decision, the commission raised electric rates for the Metro subway system, bringing them closer to what other customers pay.
If the District council and the PSC aren't willing to go as far as Commissioner Long suggests in deregulating street lighting services, they might start with the traffic lights.
The city pays Pepco roughly $450,000 a year for electricity for traffic lights and another $700,000 for servicing lights. The city already pays for the traffic lights up front and services the computerized controllers that turn the signals from red to green.
If a traffic light is out because of a controller failure, a city truck is dispatched to fix it; if the light fails because of other electrical trouble, Pepco is called. The divided responsibility is hard to justify.
"We are unique in the United States in our involvement with traffic signals," says Pepco's Derrick. "It doesn't make any sense at all for a utility to be responsible for traffic signals."