Potomac Electric Power Co. asked the Maryland Public Service Commission yesterday to lower the fuel charge that Maryland customers pay by 14.9 percent, a reduction large enough to offset a 4 percent increase in basic electric rates taking effect in this month's bills.
The immediate causes of the proposed fuel charge reductions are lower demand among Pepco customers, a decline in the cost of coal and Pepco's ability to benefit from economic distress in the industrial Midwest by buying relatively cheap electricity from underutilized power companies there.
Fuel charges have been listed separately in consumers' electric bills in most places since the late 1970s and go up or down with the cost of fuel to utilities, depending on formulas set by state regulatory bodies. In Maryland, fuel charges amount to about 40 percent of the average bill.
Where fuel charges are going down, it demonstrates the stabilizing of electrical costs along with other energy costs. Nationally, peak summer electrical use--a key measure of power demand--dropped last year for the first time in nearly 40 years, and analysts predict that the cost of electricity for the next decade will rise at less than half the rate at which it soared from 1973 to 1981.
The fuel billing charge reduction in Maryland will come on top of a 5 percent cut in that charge approved last December and follows the granting of the basic rate increase in February. The basic electric rate is the rate of return allowed to the utility for its capital investments and its provision of services.
In the District of Columbia, Pepco's fuel charges also have been reduced--by 14.4 percent between January and February and 9.15 percent between February and March.
Pepco also has filed an application to reduce fuel charges to its customers in Virginia.
Virginia Electric & Power Co., which supplies most Virginia customers, filed for an increase in fuel costs of $3.73 per 1,000 kilowat hours, but in March asked that the increase be dropped to $2.53. The January application was the first time Vepco had sought an increase in three years and is in contrast to an overall decrease in the fuel charge in that period of $9.89.
The factors that have led to stabilizing electricity costs are both reduced demand and reduced energy costs. Utilities have found lower prices for oil, which accounts for approximately 10 percent of all power generation, and stable or lower prices for coal, which accounts for slightly more than 50 percent.
"Most of the forecasts of electricity prices for the balance of the decade shows a zero to 2 percent increase above the rate of inflation," said Bruce Humphrey, director of energy modeling and economic research for the Edison Electric Institute.
Humphrey noted that from 1973, the year of the first oil shock, to 1981 the cost of electricity rose at a rate of nearly 4 percentage points above the rate of inflation.
The request filed yesterday with the Maryland PSC would be effective with April bills. It would reduce the current fuel billing rate from 2.604 cents to 2.215 cents per kilowatt hour, taking it back to the rate charged in May 1981. The charge has been relatively constant since about the end of 1980, Pepco representative Nancy Moses said.
Since the fuel billing rate was established in Maryland in 1978, Pepco has filed for seven increases and seven decreases, counting yesterday's filing. The net impact of those ups and downs, which are triggered in Maryland by a 5 percent change in fuel costs, has been an overall increase of 19 percent in fuel charges. Moses said that was less than the increase in the cost of living over a comparable period.
The proposed rate reduction, if it is approved, will mean a savings of approximately $3.30 a month on an average residential bill for 840 kilowatt hours. The December reduction amounted to $1.17 savings on the same average bill.
Although the effect of the reduction is to offset the increase in the basic service charge, that might not have been the case if Pepco had gotten the increase it sought in base rates. Pepco had asked for an increase of $88.5 million, but the PSC granted less than a third of that amount.