An objection to an electricity rate increase, like the one made by Montgomery County against Pepco, could be valid if it meets the satisfaction of the regulating agency, according to an expert in utility regulation.
Tom Stanton, principal expert in electricity research and policy with the National Regulatory Research Institute, said the kind of objection made by the county, which is based on prudency, is viable — should the Maryland Public Service Commission agree.
Montgomery County objected to Pepco’s proposed rate increase in December, saying the company was imprudent when it came to reliability, or that it had not done what it should have done, said County Council President Roger Berliner (D-Dist. 1) of Potomac. Berliner is a former energy attorney.
It is a long-standing practice in utility regulation to evaluate all the utility’s expenditures to ensure the company was prudent in its spending, Stanton said. That evaluation often involves aking if, based on what was known at the time, whether the utility made a wise investment.
Pepco is asking for a $68.4 million increase in its electric rates — about $5.56 per month on the typical bill in Maryland — beginning in July 2012.
Berliner said the utility is asking to recover from its customers the money it has spent improving how reliable it is in delivering power to its customers. Given its past performance, shareholders of the company should bear some of that cost, as the company should not be allowed to recover money from customers for doing what it should have done in the first place, Berliner said.
In opposing the increase, county officials stated that rate should be reduced rather than increased. Pepco’s profitability should be tied to its performance, Berliner said and based on that, its rate of return should decrease, he said.
The PSC had imposed a fine of $1 million on Pepco after it ruled the utility failed to maintain its system properly, resulting in customers facing excessively high numbers of outages and for long durations during storms and even on fair-weather days.
Earlier in 2011, the Office of the People’s Counsel, which represents the interests of electric and gas utility customers, urged the PSC to fine Pepco between $10 million and $14.67 million.
Stanton said a public service commission likely would take reliability into account when considering a rate increase. The utility might have to prove it is meeting reliability standards and that the rate increase is just and reasonable.
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