Dive Brief:

• District of Columbia regulators on Friday approved Potomac Electric Power Company's (Pepco) multi-year rate plan (MRP), authorizing the utility to recover $108.6 million through higher rates over three years, from 2020 to 2022.
• The plan includes performance incentive mechanisms (PIMs) intended to incentivize the utility to stay aligned with the district's goal of reaching 100% renewable energy by 2032. The Public Service Commission (PSC) says the decision is a "first step in adopting an alternative form of regulation for Pepco."
• The utility says it is still waiting to review a final order. Multiple parties were critical of the rate hike and PIMs, and the District of Columbia Office of the People's Counsel (OPC) called the decision "appalling and harmful to ratepayers," pointing out that it "comes over the opposition of every active party in the case."

Dive Insight:

It's been five years since the D.C. PSC began considering alternative regulation and rate structure, including performance incentives, as a way to improve Pepco's service and meet the city's clean energy goals. But the process broke down almost a year ago, after a utility filing error, leading to calls to scrap the proposal.

"The PSC's action is both unprecedented and frustrating" People's Counsel Sandra Mattavous-Frye said in a statement. The decision — which marks the first time the commission has approved a rate increase over $100 million — is "excessive and unsupported by the record," the advocate said.

The rate hike also comes at a time when D.C. residents are struggling financially due to the COVID-19 pandemic, Mattavous-Frye said.

It is not yet clear when the PIMs will begin to take effect, according to OPC attorneys. The advocate said the PSC is expected to issue a final order Tuesday, which should add clarity.

The DC Consumer Utility Board, DC Chapter of Sierra Club, and other parties, called the process "fraught" in the groups' final comments last year encouraging regulators to reject the multi-year plan.

One advantage of a multiyear rate plan is that rate cases come before regulators less frequently, the groups said, but that rationale is "not reason enough to accept the multiple flaws in the Pepco proposal which will then launch a poorly designed MRP in a malformed trajectory." The performance incentives were "poorly designed," the groups said.

D.C.'s International Brotherhood of Electrical Workers also warned that proposed customer service incentives, which would track call response times and calls dropped from the queue, could adversely impact Pepco's workforce.

"Pepco's proposed customer service PIMs will directly affect call center workers and may encourage Pepco to degrade their working conditions to obtain future monetary incentives," the union said last year. The group said heightened standards "are cause for concern because Pepco’s call center workers already struggle to meet the company's current standards," and the incentives could lead to employee stress and lower levels of customer service.

Regulators began to consider alternative regulation for Pepco in 2016, as a way to encourage service improvements, operational efficiencies and to decrease the frequency of rate increase requests. Calls to reject Pepco's proposed multi-year plan came after July 2020, when the utility filed a 258-page errata to correct an error regarding demand billing issues.

The PSC says it approved Pepco's modified MRP on a "pilot basis" but that it will will eventually become "fully operational" and allow the utility to help the city achieve its 2050 carbon neutrality goal and 100% renewable energy goal by 2032.   

The decision includes a "stay-out" provision that prohibits Pepco from filing a new MRP until 2023, with rates to be effective no earlier than January 1, 2024. And, the approval also launches a $5 million small commercial customer energy efficiency program that includes rebates and loans, and tracks performance incentives related to reliability and clean energy.

The MRP "strikes the appropriate balance between Pepco and District ratepayers because the increase is spread over three years, there are various customer assistance programs to the tune of $11.4 million," PSC Chairman Willie Phillips said in a statement.

Pepco in a statement said the utility made "several enhancements to our multi-year plan to support our customers during this unprecedented time."

The MRP "provides greater transparency and predictability for customers and accountability for the company, while providing the mechanisms to help ensure affordability for all customers," the utility said.