In win for customers, State regulators reject Pepco plan for three years of rate increases
BALTIMORE – Sparing Pepco customers three consecutive years of rate increases, the Public Service Commission yesterday issued an order agreeing with the Office of People’s Counsel that the utility was not entitled to multiple years of rate increases under the Commission’s “multi-year rate plan” pilot program.
The Commission granted Pepco a single rate increase of $44.6 million, stating its intent to evaluate how customers are faring under multi-year plans in a general “lessons learned” proceeding. Pepco had proposed to increase rates by $213.6 million per year by the third year of its plan.
“We applaud the Commission’s decision to reject Pepco’s multi-year plan that would have led to extraordinary rate increases and higher bills for Pepco customers,” said Maryland People’s Counsel David Lapp. “Utilities have been using multi-year plans as vehicles for spending on unnecessary investments using customer dollars and benefitting their investors.”
In briefs and at hearings before the Commission, OPC explained that compared to standard ratemaking, customers have fared poorly under previously approved multi-year plans, which have yielded few reliability, public policy, or transparency benefits. The main beneficiaries of multi-year plans have been utility investors, OPC said.
“Multi-year plans mean advance approval of utility capital spending, which undermines regulatory review, and shifts risks to customers,” Lapp said. “They lead to excessive spending on capital investments, which inflate utility profits at customer expense.”
The order agreed with OPC that the Commission has discretion to reject Pepco’s proposed multi-year rate increases and instead approve a single rate increase that meets the legal requirements for just and reasonable rates and is in the public interest, including the interests of utility investors.
A 2020 Commission order initially approved a multi-year “pilot” program for one pilot utility, after which the Commission would evaluate whether multi-year plans are beneficial. But since that order, the Commission approved four multi-year plans for all of Maryland’s Exelon utilities—BGE (2020 and 2023), Pepco (2021), and Delmarva Power (2022)—without conducting the evaluation anticipated in the 2020 order. Each of those cases approved three consecutive years of rate increases. Yesterday’s order addressed Pepco’s request for a second multi-year plan.
Yesterday’s order also accepted several of OPC’s recommendations to reduce budgets related to spending projects Pepco proposed in its multi-year plan. The Commission agreed with OPC that Pepco had not adequately supported its proposed budgets, approving instead budgets based on the company’s historic performance and spending.
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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