In a precedent-setting ruling, the Maryland Public Service Commission has rejected a Potomac Elecric Power Co. request to raise elecricity rates by $24 million and instead ordered Pepco to cut customers' bills by $248,000.
Maryland officials said it was the first time in 34 years - and probably the first time ever - that a utility company's request to raise rates was answered with an order to lower them.
For Pepco's 273,000 customers in Montgomery and Prince George's counties, the decision means the average electric bill may go down a few pennies rather than increasing $3.25 to $3.75 a month, as Pepco had asked.
More important to consumers than the few cents it will save, however, is the signal by the decision that the Maryland PSC is taking a tougher stance on utilities' attempts to raise rates.
The commission found, basically, that there was no justification for granting Pepco's request for an increase in its future rate of return and that, for the previous 12-month period through February, Pepco made more money than it should have.
"The commission has become more issue-oriented, a little more sophisticated" in studying rate cases, said Jack Keane, Maryland people's counsel. As the consumer's advocate in the case, Keane fought Pepco's bid for a 7.6 percent increase in rates.
Pepco had asked the commission to raise its authorized rate of return from about 9.16 percent to nearly 10 percent. It said that profit should be based on projections for the current fiscal year, through June 30, to reflect the rising costs of inflation, rather than on past performance figures.
The Maryland PSC said "no" to both requests.
Pepco officials said the extra profits through the 12-month period ending in February, came because of the unusually cold winter, which dramatically increased power consumption. "Over the next 12 months, with no rate increase and with inflation continuing and normal weather, we will not be able to continue to earn the authorized rate of return," said Pepco Chairman W. Reid Thompson.
Pepco officials said yeaterday they will have to see the commission's writen order, which has not yet been released, before deciding to ask for another rate increase.
The order to cut electric bills came after the PSC added up the economic impact of its decisions on 30 different issues involved in the case.
Keane estimated that basing Pepco's profits on past years ruled out about $10 million of the $24 million rate increase that was requested. He said refusing to increase the company's rate of return accounted for most of the rest.
The PSC also refused to allow Peoco to charge its customers for $183,000 worth of advertising, which the commission said was promotional and institutional and ought to be paid for by the stockholders rather than the customers.
How Pepco will cut rates by $248,000 has not yet been determined. The rollback is less than $1 per customer, and probably will amount to less than that for residential customers, since it will be based on the amount of electricity used, over the next year.
On Nov. 1, Pepco asked for a $27 million rate increase in Maryland, later scaling down the request to $24 million. Two weeks after the request was filed, the PSC ordered the company to cut rates by $3.6 million, saying Pepco was not entitled to charge its customers for money invested in the Douglas Point nuclear power plant, which Pepco decided not to finish. Pepco appealed that order in the courts and won.
Abandoning the plant produced substantial profits for Pepco, because the company was able to sell its contracts for nuclear fuel for more than it paid for them. Yesterday's decision said $34 million of those profits should be returned to Maryland consumers over the next 10 years in the form of reduced bills.
The commission decided in favor of Pepco on one of the most critical questions in the case - whether the company can continue to earn a cash return on power plants still under construction. Keane and PSC member William Badger argued unsuccessfully that Pepco customers should not be charged for plants until they are producing power.
The Pepco rate request turned into a major controversy the day the hearings opened. Pepco began its case by demanding that PSC member Michael Barnes be disqualified from the hearing because he was running for Congress. Following a ruling by the State Board of Ethics, Barnes, an outspoken consumer advocate, withdrew.
The rejection of Pepco's rate increase request and the accompanying rollback order brought to Maryland a trend toward tough utility regualtion that is spreading across the country.
Maryland is one of several states that now have a public official - such as people's counsel Keane - whose job is to question utility rate requests. Although Keane and his consultants opposed the Pepco request, there was less opposition from consumer groups than in past cases, PSC officials said.