Pepco’s proposed rate hike unjustified, experts say in testimony for Office of People’s Counsel
BALTIMORE – Pepco has failed to justify its request to significantly increase electric delivery rates, the Office of People’s Counsel told the Maryland Public Service Commission in expert testimony filed last Friday in Pepco’s pending multi-year rate case. OPC’s testimony is its first formal response to Pepco’s request last May for a rate hike that would add nearly $800 more in electricity distribution costs through 2027 for the average residential customer, one of its witnesses said.
“Pepco requests cost recovery for new investments that advance its shareholders’ interests but bring few if any benefits to its customers,” Maryland People’s Counsel David S. Lapp said. “Those investments would unfairly burden customers who have recently faced significant rate increases as a result of Pepco’s last rate case.”
Pepco’s proposal would increase electricity delivery rates in annual steps over the nearly four years of its requested rate plan. By 2027, residential customers using 1,000 kilowatt hours a month would experience a 46 percent increase in their electricity delivery costs above what they would have paid in 2023, according to a Consumer’s Guide to Pepco’s proposed rate increase OPC released in the fall. OPC’s guide shows that, for a customer using 1,000 kWh/month of electricity, Pepco’s proposal would increase monthly bills from $55 in 2020 (the year before its first multi-year rate case) to $95 in 2027.
Pepco itself recognizes that its requested annual increases “represent significant amounts for customers.” The company thus proposes to “smooth the rate increases” over for customers by accelerating its return of tax benefits it owes customers. Pepco’s proposal uses an alternative form of ratemaking called a “multi-year rate plan” that allows it to charge customers based on forecasted investments.
Pepco tries to justify much of its rate hike with purported “reliability” improvements, but its reliability is already within the top ten percent among U.S. investor-owned electric utilities, and its additional proposed reliability spending will have “little to no corresponding improvement in reliability,” one of OPC’s expert witnesses testified.
“Pepco is proposing to spend huge sums on reliability improvements—$180 million in 2027, nearly double what it spent ten years earlier in 2017,” Lapp said. “Yet it has failed to support that spending with data-driven analysis of the system’s needs and how the costs compare to any benefits they would bring customers.”
On a per-customer basis, Pepco already has the largest rate base of any investor-owned utility in the nation, OPC’s testimony pointed out. “Rate base” is the primary driver of profits for Pepco’s Illinois-based parent company, Exelon. Pepco’s request would grow that rate base by an additional $734 million.
OPC’s experts testified to numerous other points about Pepco’s proposal, such as:
- Alternative multi-year plan ratemaking has fared “abysmally for customers” but “extremely well” for utilities, one of OPC’s experts explained. The plans have not led to any appreciable improvement in utilities’ ability to achieve State policy objectives, nor in the ability to cost effectively meet reliability standards. The plans lead to excess spending relative to standard ratemaking because utilities bear little consequences from proposing projects that might be cost ineffective, premature, or unsupported. Further, multi-year proposals pose serious challenges for intervenors, like OPC and Commission technical staff, who lack the information to effectively review utility plans under constrained procedural schedules—increasing the likelihood that costly projects with limited or no customer benefits will be approved.
- Pepco’s proposed “performance incentive mechanisms” (PIMs) are poorly designed, unnecessary, and unlikely to result in customer benefits. A PIM theoretically is a financial incentive for a utility to better serve customers by creating a metric that a utility must achieve. Pepco proposed three PIMs. An OPC expert testified that Pepco’s proposed PIMs would provide financial rewards—paid by customers—for goals that the utility was already planning to meet, are unambitious, and used easy-to-accomplish targets. They do not conform to the Commission’s previously established PIM criteria.
- Pepco’s proposed electrification programs need substantial revisions to better serve customers and protect them from unnecessary and inappropriate costs, OPC experts said. In addition to lacking sufficient detail and supporting analysis to justify approval, an OPC expert said, Pepco’s $103 million building electrification plan does not properly align with existing electrification incentives offered by the federal and State government through the Inflation Reduction Act. Another OPC expert testified that Pepco’s proposed $43.6 million for new electric vehicle (EV) initiatives must be scaled back to ensure the programs are not duplicative of existing utility programs and generally align with the utility’s appropriate role in the EV marketplace. Last month, OPC filed a motion to remove the electrification projects from the rate case, explaining they enable new forms of utility profit-making and should not be part of a rate case. OPC’s motion is pending before the Commission.
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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