Guest Commentary: Why Pepco Should Not Be Allowed Another Rate Increase
By Roger Berliner
Pepco is, once again, asking state utility regulators for a rate increase. This latest request for $68.6 million would raise the typical residential bill in Montgomery and Prince George’s counties by more than $7 a month. It comes on the heels of a rate increase approved by the state’s Public Service Commission (PSC) last November that has already cost ratepayers $7 more per month. This happened not long after Pepco’s sale to Exelon – a merger I argued from the beginning was not in the public interest.
The PSC will be deciding this fall whether to grant Pepco’s latest rate increase request. I urge them to say no. This rate request is not justified. No way. No how.
Pepco is asking for a rate of return that is too high. Pepco is also asking to recover costs for reliability improvements it hasn’t yet made – contrary to well-established rules of utility ratemaking. But most importantly, Pepco is making this request after failing to honor a fundamental requirement of the Exelon merger.
One of the biggest selling points of the merger, an argument I never bought, was that Exelon would significantly improve Pepco’s historically abysmal reliability. And to bolster their case, they pledged to meet certain reliability metrics right away. The PSC agreed to the merger on this basis.
In January, not more than three months after the last rate increase went into effect, Pepco reported to the PSC that it failed to meet its System Average Interruption Frequency Index target for 2016. In real terms, this means Pepco customers in Montgomery and Prince George’s counties suffered approximately 20,000 more outages than they would have had Pepco met the target.
A deal is a deal. And Pepco did not do what it pledged to do and what the PSC ordered it to do. It should face financial consequences for failing to honor this basic commitment. Instead, the company has requested rate increases to cover costs that aren’t typically part of the ratemaking process. It is not entitled to special treatment. Far from it.
More broadly, this latest rate hike request once again demonstrates that the traditional manner in which utilities are compensated by ratepayers is utterly broken. No other industry in America is compensated on the basis how much it invests. Instead, business earnings are keyed to how well they meet the needs of their customers. I have urged the PSC to move toward performance-based ratemaking, which will go a long way to ensure that ratepayers are finally treated fairly.
That is a fundamental part of the PSC’s responsibility. In this case, it means rejecting Pepco’s rate hike request and moving beyond the way utilities such as Pepco have historically been compensated.
Roger Berliner, a Democrat, is president of the Montgomery County Council and a former energy attorney. He is currently running for Montgomery County executive.