This story was updated at 5:30 p.m. July 15, 2013.
Maryland’s decision to let Pepco raise its rates has met with disappointment from both opponents and proponents.
“We are very disappointed in the Commission’s decision on our rate adjustment request,” Myra Oppel, vice president of regional communications for parent Pepco Holdings, said in an email.
“I know that Montgomery County ratepayers share my disappointment in this decision,” said Councilman Roger Berliner in a statement.
For the third time in four years, Maryland’s Public Service Commission denied the lion’s share of Pepco’s request to raise its rates, authorizing a smaller increase for the utility, which has more than 789,000 customers in Maryland and Washington.
The commission granted Pepco $27.9 million of a $60.8 million request, along with $24 million upfront to fix feeders, according to a news release from the commission issued Friday . Feeders are high-voltage lines that carry electricity from substations into neighborhoods.
Montgomery County opposed all but about $6 million of Pepco’s request and County Executive Isiah Leggett was among those displeased to see the utility get even more.
“I am disappointed with today’s ruling by the Maryland Public Service Commission approving a $27 million rate increase for Pepco and, on top of that, a ‘Grid Resiliency Charge’ that will allow Pepco to automatically pass along charges to customers every month without having to seek a rate increase with the Public Service Commission,” Leggett said in a statement provided by Executive Spokesman Patrick Lacefield.
Under the new rates, the monthly bill for the average customer will rise $2.41, and also include a graduated grid resiliency charge, which for 2014 will be an extra 6 cents. In 2015, the charge will be 19 cents per month and in 2016, it will be 27 cents per month. The new rates went into effect Friday , according to a release from the PSC.
Pepco requested $60.8 million more in higher rates, which would have meant a $7.13 increase on the average customer’s monthly bill.
Its request for the grid resiliency charge during the next three to four years would fund $192 million worth of improvements.
Intending to use the money to accelerate tree trimming, upgrade 12 more feeders each year and bury six others, Pepco asked for permission to charge its average customers 96 cents more a month in 2014, $1.70 more a month in 2015 and $1.93 more in 2016.
In its written order, the commissioners wrote that they granted Pepco “only what we find necessary to enable the Company to continue — and even accelerate — the pace of its improvement in reliability and resiliency of its electric distribution system.”
What the commission did not grant was a significantly higher return to Pepco’s investors.
The utility asked to increase its allowed rate of return from 9.31 percent to about 10.25 percent. The commission allowed a rate of return of 9.36 percent, a mere 0.05 percentage point more.
Oppel said the ruling fails to support adequately Pepco’s continued investments aimed at improving reliability for customers. It also hinders its plans to incorporate the recommendations of Gov. Martin O’Malley’s Grid Resiliency Task Force issued in response to the July 2012 derecho, she said.
In 2010, the utility started a five-year plan to improve reliability. Costing $1 billion, the plan involves infrastructure improvements and more vegetation management, or tree trimming.
Pepco operated with unacceptably low reliability for years, according to a commission investigation.
The average number of outages experienced by customers grew every year from 2004 to 2010, which the commission said in its report of the investigation, “speaks volumes about [Pepco’s] steadily deteriorating level of reliability.”
Pepco has yet to prove how much its plan has improved reliability, and granting it more money now is premature and unwise, Leggett said.
Even worse is the upfront Grid Resiliency Charge, he said.
“Even if limited to certain costs just now, it is a terrible precedent that ‘puts the camel’s nose under the tent’ and will be expanded on going forward,” Leggett said in the statement.
While the commission granted only a fraction of what Pepco sought, Abbe Milstein of Powerupmontco said it still gave the utility millions more. Powerupmontco was formed in reaction to Pepco’s performance after the June 2012 derecho and was party to Pepco’s rate case.
“Giving these companies these incremental rate increases without any real accountability creates the situation we have today,” she said.
Pepco has asked to raise its rates three of the last four years, according to the commission’s release. But each time, the commission has given Pepco less than half of what it wanted.
Events such as the June 2012 derecho and November’s Superstorm Sandy proved Pepco was still not up to the task, Milstein said.
Those same disasters convinced the commission that Pepco’s system needs more reliability and resiliency, so it gave the utility some grid resiliency money, the release said.
“We find that a properly defined tracker proposal, when aligned with specific and measurable milestones and expenditures, can be appropriate to support the projects that are required to address the immediate challenges to improving reliability in Maryland,” the order stated.
However, the commission placed accountability measures on the $24 million it gave Pepco.
Those measures include requiring a detailed description of the proposed work, milestones and estimated costs for each project. They also require Pepco to report on the status of each project, details of what was spent, how it over- or under-charged for the projects, and what the proposed rate will be for the following year.
Montgomery fought alongside the Office of People’s Counsel in the past, successfully opposing similar upfront charges for Pepco.
Allowing even a small surcharge is a major policy change for the PSC, said Paula M. Carmody, head of the People’s Counsel. The Office of People’s Counsel is an advocate for Maryland’s utility customers.
“Circumstances have not changed since last July, when the Commission soundly rejected Pepco’s surcharge request,” Carmody said, according to a People’s Counsel press release. “While the Commission expressly limits the surcharge ... it still allows Pepco to recover money over and above the increase granted in the order — before it files another rate case. It may not be a large monthly increase, but it is a big change in policy, and it is not fair to its customers. A surcharge is not needed for Pepco to deliver the highly reliable service that customers want and deserve.”
Montgomery’s goal will remain to push for more improvements as soon as possible from the utility and to base Pepco’s financial returns on their performance — not on the dollars they spend, Berliner (D-Dist. 1) of Bethesda said in a statement provided by County Council spokesman Neil Greenberger.