Soon after Brian Lederer was sworn in as D.C. people's counsel last year, he ordered Potomac Electric Power Co. to pay $310,000 to hire experts to testify against the company's $45 million rate increase request.
Stunned, Pepco lawyers immediately filed a motion to quash this "extravagant" order and called on the District of Columbia's three-member Public Service Commission, which sets utility rates, to "reassert control over the investigation of the utilities under its jurisdiction."
"The company went crazy," said Lederer, the 33-year-old lawyer appointed by the mayor and confirmed by the City Council to represent consumers in utility rate cases."They have been very hysterical about this . . . They routinely spend (large sums in rate cases). If I spend it, it's somehow a problem."
The commission ruled in favor of Lederer, who then presented his high-priced engineering, accounting and other consultants during long rate hearings. "It's the first time the public had its case presented on anywhere near an equal basis to the company," said Lederer.
As a result, the utility faces the possibility that it will be ordered to cut rather than raise rates for its 136,000 Washington customers. The commission's decision is pending.
In Maryland, the state's first fulltime people's counsel, John K. Keane Jr., presented a vigorous case that led to a surprise Maryland Public Service Commission decision in May rejecting Pepco's $24 million rate increase request and ordering the company to cut rates by $248,000 for its 276,000 Maryland customers.
In Virginia, Attorney General J. Marshall Coleman, who assumes the role of people's counsel in utility cases, has beefed up his staff to fight a $246 million rate increase request by Virginia Electric and Power Co. that would increase bills 20 percent for 12 million customers. This promises to be the first test of how aggressively Coleman will act in utility cases.
The kind of vitality that Lederer and other people's counsels have brought to their jobs signals a new era in the complex utility rate-making process and a potentially significant shift in the balance of power among utility customers, the commissions that regulate rates and powerful companies with vast resources.
People's counsels, often backed by strong new legislation as they are in the District and Maryland, are springing up all over the country. The utilities are finding their inner workings exposed to public scrutiny as never before.
The decades before the 1973 energy crisis were sleepy, profitable ones for big utilities. Rate decreases were not unusual in those earlier times of cheap energy. But since the 1970s rate increases became common, Pepco, for example, has had five in the past eight years in the District. The public began to demand action.
Pepco is not happy about Lederer. Company attorney Alan Kirk said that discussing Lederer and his high-priced consultants is "a little delicate," but one of Kirk's briefs in the rate case makes the company's position clear:
". . . People's counsel has taken positions so extreme as to assure, if it were to be adopted, not only destruction of the company's recent recovery but also permanent, long-term damage to its credit and financial standing."
In another brief, Kirk said Lederer's argument that the company should cut rates by $20.5 million is "incredible . . . unreasonable and unrealistic."
"It's pretty emotional language for a $1.8 billion (in assets) company," said Lederer. "How can I destroy the company?"
Lederer frankly describes himself as a "political animal." Trained at Harvard and the London School of Economics, he worked in the McGovern and Carter presidential campaigns. Then he actively campaigned for the people's counsel job among local consumer groups, finally coming to the attention of Mayor Walter E. Washington and the City Council.
"We're trying to make sure the people of the District have something to say about an issue that profoundly affects their lives, their finances and the economy of the District," said Lederer. "We're trying to remove the myths from regulation - the idea that It's some obscure technical process whose purpose is to give money to the utilities."
Since only experts can penetrate the vast data and expertise that the companies possess, Lederer said that adequate funds are essential to hiring high-priced witnesses and preparing a strong case.
"The companies make it appear so complicated, so difficult, beyond the average person's understanding," said Lederer. "That's precisely why we had to hire independent people."
In the rate case, Lederer challenged the test period during which company performance was evaluated to generate data that laid the basis for setting rates, saying that the company had chosen an adventgeous rather than a typical period.
He charged that the company has overbuilt and that it already has energy-producing reserves far in excess of anything that will be needed.This may be pleasing to the investment community in New York, he said, but all these costs are charged to rate payers.
He also challenged Pepco's practice of charging current rate payers for construction work in progress (CWIP) even though they are not receiving any benefit from it. Many commissions around the country oppose this practice and try to limit the amount of CWIP charged to current customers. Pepco is one of only a few companies that have been allowed consistently to charge current customers for all of its CWIP.
He also challenged Pepco's practice of charging current rate payers for construction work in progress (CWIP) even though they are not receiving any benefit from it. Commissions around the country generally oppose this practice. Pepco is one of only a few companies that have done it without challenge.
In 1974 Congress created the new independent D.C. people's counsel office with power to assess large sums - millions of dollars if necessary - from the utilities to hire expert witnesses.
Lederer spent nearly $400,000 in the current Pepco rate case. While the company unsuccessfully protested this as "extravagant," it spent $352,000 for outside experts to present its side of the case, not counting the costs of preparation and testimony by Pepco employes.
Lederer said he wants to "put the pressure back on the company to find alternative ways to do business rather than raise rates. The utilities forget they're monopolies. They're sloppy in presenting their cases, they make a lot of untested assertions . . . We expect them to have a much higher standard of proof and to be more straightforward with the public."
Unless something is done to dampen growing public anger about utility rates, Lederer said, "Something drastic could happen. It could lead to public ownership of the utilities."
Keane, a lawyer from Prince George's County, won his case against Pepco by successfully challenging the company's test period. This ruled out $10 million of the $24 million increase request. The commission's refusal to increase the company's rate of return on its investment accounted for the rest.
Keane lost on the CWIP issue, though he says he "fought it like mad."
Keane has a million-dollar budget although he lacks Lederer's power to assess money from the companies. He serves at the pleasure of the governor and can be removed at any time. The 1976 legislation that made his office full-time also gave Maryland its first full-time public service commissioners and provided for beefing up the PSC staff.
Keane has made a major issue of the monthly fuel cost adjustments that electric companies have been passing through to customers, and he wrote a new law that sharply controls such pass-throughs in the state.
The fuel adjustment charge on monthly electricity bills represents what the company has to pay in increased costs for coal and oil that it burns to generate electricity. These costs have risen sharply, and unpredictably.
Starting Oct. 1, under the new Maryland law, the companies are prohibited from passing on increases in fuel adjustment costs when the increases are less than 5 percent. Increases of more than 5 percent will be granted only after the companies justify the fuel adjustments in hearings. So far they have been able to pass on these costs freely with little monitoring by the commission.
In Virginia, Coleman has what he describes as a tight budget and a belief that "a great degree of imagination" rather than money is what is needed to fight rate increases. As a practical matter, he draws on his overall staff of 90 lawyers for help and has three of them working full-time on utility cases.
Seven months after taking office, Coleman is faced with the job of fighting the largest rate increase pending before any public service commission in the country.
"How do you get behind a balance sheet?" he asked. "How do you fathom all this density of documentation? My idea is you get some really smart people." Coleman has put together an energy advisory committee of academics and other experts that he hopes will study the utilities and make recommendations in rate cases.
The situation in Virginia, however, differs from that in the District and Maryland. The Virginia State Corporation Commission, which sets utility rates there, has a comparatively large and more knowledgeable staff that has traditionally thought of itself as representing consumers in rate cases.
By comparison, the public service commissions in the District and Maryland have been weak and poorly staffed, according to Lederer and Keane.
"The commission ought to be at least as good as we are, and they're not," said Keane. He said this is changing under the new legislation, but he added that the change is going to take years.
In the District, the commission's staff of 25 is "clearly insufficient," said Lederer. "I feel an obligation to build a record for the commission so they can have something to work with. We can give them, an opportunity for leadership."
Typically, the commissions regulate a wide variety of matters besides utility rates. In Virginia, for example, the commission also regulates insurance, banks and motor transportation among other things.
In addition, the notion that commission staffs can adequately represent consumers is dying amid the tough new consumer politics of the 70s - and commissioners are not necessarily pleased with the resulting adjustment in the power balance.
Earle J. Lester, president of the Great Lakes Conference of Public Utilities Commissioners and vice chairman of the Delaware PSC, said the new people's counsel in his state will mean "a big expense . . . We have always acted as the public's counsel, and I always thought we were doing a good job."
Lester recently presided at the conference's annual five-day meeting at the Greenbrier Hotel in White Sulphur Springs, W. Va., where - in large part at public expense - commissioners met, drank, dined and partied with officers of the utilities they regulate.
Commissioners from Virginia and Maryland, though not the District, were among them. So was Keane, who could be seen gambling for worthless chips on "Monte Carlo Night" at the hotel and enjoying himself around the pool. He said it is "silly" to think such activity has an effect on the way he argues a rate case.He added that he learned a lot from the seminars that were held.
Lederer said he purposefully did not attend because he doesn't want to "lose my edge" by fraternizing with those he must deal with in the rate cases. CAPTION: Picture 1, D.C. People's Counsel Brian Lederer successfully ordered Pepco to pay $310,000 for the testimony of hostile witnesses in rate increase case. By Larry Morris - The Washington Post; Picture 2, Maryland People's Counsel John Keane Jr. persuaded PSC to lower electricity rates. By James M. Thresher - The Washington Post