Exelon's Pepco nets partial rate increase from Maryland regulators

Dive Brief:

Maryland customers of Potomac Electric Power Co. (Pepco) will still see bills increase immediately, largely to pay for reliability improvements on the utility's system, but regulators last week reduced the total rate hike significantly.
Pepco had requested to increase distribution rates by $68.6 million, but the Maryland Public Service Commission allowed just $33.9 million.
Pepco has spent more than $900 million on performance and reliability improvements in the last four years, and regulators say it is paying off: Customers saw a 22% improvement in the frequency of outages and a 35% improvement to duration from 2012 to 2016. The new rates took effect Oct. 20.

Dive Insight:

While customers will still be paying more, it was not a successful ratecase for Pepco. In addition to seeing its request slashed, the utility's return on equity was also reduced slightly.

Average customer bills will rise about $4/month according to the PSC, compared with $7.37/month under the utility's proposal. It amounts to about a 3% increase in bills. The fixed monthly charge portion of residential customers' bills would increase $0.20/month, from the current $7.60 to $7.80/month.

Pepco had requested a return on equity of 10.10%, but regulators instead lowered the ROE from 9.55% to 9.5%. The commission determined that level "is both adequate and appropriate for Pepco, considering the low level of risk associated with its electric distribution service in Maryland and the current capital market environment.”

The PSC also denied a portion of Pepco’s request to recover costs for an employee incentive program aimed at improving reliability. The commission noted that the utility did not meet the service reliability benchmark it committed to during the 2015 merger of its parent company, PHI Holdings. Inc., with Exelon Corp. As a result, the PSC reduced Pepco’s revenue request by $1.1 million.

The PSC also denied an $18 million request related to changes in income tax accounting and allocation for older system assets. And regulators say they adjusted how customers will benefit from synergies resulting from 2015 merger, and "although this will result in a one-time rate increase in this case, it should result in significant savings to ratepayers over the next several years."

The PSC approved a modified version of Pepco’s streetlight tariff, which the company says will encourage future conversions to the more energy efficient LED streetlights.