Pepco and Baltimore Gas and Electric Co. are both making their case before the Maryland Public Service Commission for rate increases. The state’s two largest utilities, which have been much vilified in the recent past over power outages, say the rate hikes are necessary to make expensive infrastructure improvements demanded by consumers and public officials.
In Pepco’s case, typical residential customers would see an increase of $7.13 a month in their bills under the latest request. For BGE, the rate increase in electric service would average about $6.62 a month for residences. BGE also is seeking a rate hike for gas customers of about $4.26 a month for residential users. Small businesses would see an average increase of $10.74 for electric service and $60.23 for gas; the typical electric bill for large businesses would spike by $224.90 a month, while the gas bill would go up $145.82.
“We’ve been working for more than two years now to upgrade and modernize our system, and the work is benefiting our customers,” Thomas H. Graham, president of Pepco Region, said in a statement. He went on to say that customers are experiencing fewer outages — and for shorter durations — as a result of the utility’s efforts.
Of course, many customers and officials are keeping past outages, including the post-derecho nightmare, in mind as they build their opposition to the rate hike requests. The Montgomery County Council issued a statement recently saying, in part: “We oppose Pepco’s request for a rate hike. We believe Pepco’s financial fortunes should be directly tied to its performance and that performance does not justify an increase in its rate of return.” The council believes the utility’s shareholders, rather than ratepayers, should feel the sting.
The rate hike request would allow the return to Pepco’s investors to rise from about 9.31 percent to 10.25 percent. Pepco officials say a higher rate of return would let the utility pay less for capital to make improvements and boost reliability. BGE is seeking a rate of return of 7.96 percent from the current 5.24 percent, according to a company spokeswoman. The PSC authorizes a rate of return.
Pepco also is requesting that the PSC allow the utility to charge a graduated fee over the next three or so years so it can meet recommendations of the Governor’s Grid Resiliency Task Force, which was created in response to the June 29 derecho. With the surcharge would come stiffer performance rules and expedited resiliency work schedules.
As for BGE, the Maryland Office of People’s Counsel is asking the PSC to grant only a fraction of the utility’s rate hike request. A consultant hired by the office concluded that the utility spent much less on reliability investments last year than promised. BGE is disputing the analysis, according to The Baltimore Sun.
In any event, the region’s harried utility customers can take comfort in the response of the utilities to Hurricane Sandy. Officials for the utilities seemed much more on top of their game, being proactive in lining up crews, resources, etc. Of course, it helped that the giant storm brushed Maryland in comparison to what it did to the Northeast. Electric utilities in New Jersey and New York were pummeled by customers, politicians and the media for their slow response to massive and long outages. Sound familiar?
Over the past five years, the PSC has granted every utility increase request, but at a much lower level than sought. The same is likely to happen this time around. Just like with the budget arguments in Washington, D.C. — spending cuts, including to entitlements, or revenue increases? — it’s likely that all sides will have to contribute their share for substantially improved service.
Regulators should hold utilities accountable for performance lapses but at the same time not hobble their efforts to make improvements designed to bring greater reliability.