Good News: Further Increases in Pepco's Maryland Distribution Rates Rejected by MD Public Service Commission in Phase II Proceeding
Pepco's distribution rates implemented summer 2007 are now permanent

In a recent “win” for AOBA, the Maryland Public Service Commission agreed with AOBA and denied Pepco's request to increase the temporary rates that were implemented in August of 2007.

How We Got Here: A Brief Background

Back in November of 2006, Pepco filed a $55.67 million distribution rate increase request in Maryland, reflecting an overall increase in distribution charges of 16.8%. For customers taking Standard Offer Service, this amounted to an average increase in total electric service costs of approximately 3.9%. A large percentage of AOBA members with buildings in Pepco's Maryland service territory, however, purchase competitive electricity supplies and do not pay Pepco's Standard Offer Service (“SOS”) rates. For large (Rate Schedules GT-LV) and medium (Rate Schedule MGT-LV) commercial customers who obtain their electricity supplies through the competitive market, the initial proposed increases in distribution charges were 8.7% and 14.2% respectively.

On July 19, 2007, the PSC issued a final order in Phase I of this proceeding that allowed Pepco to implement temporary rates reflecting a $10.6 million rate increase. The temporary rates approved by the Commission granted Pepco less than 20% of its initial rate increase request, and provided even greater percentage reductions in the increases that Pepco had sought for commercial customers. Large commercial accounts' average annual increases (in distribution charges) were only 0.5%. Medium and small commercial accounts averaged annual increases in their distribution charges of 1.5% to 2.5%. These commercial customer increases in distribution charges were below the Company's initial overall rate increase and also below the current inflation rate. However, as part of the July 2007 order, the Commission also directed the establishment of a Phase II proceeding. This proceeding was intended to provide further investigation of the costs charged to Pepco by the PHI Service Company and to determine the extent, if any, of further adjustments to Pepco's rates that may be appropriate based on those costs.

AOBA's Perspective: Maryland PSC Listened and Heard

AOBA vigorously challenged any additional increase for Pepco. At the same time, AOBA argued against any changes in the reallocation of the Phase I approved rate increase which would be more costly to AOBA members. With the assistance of the consulting firm Revilo Hill Associates, Inc., AOBA provided testimony on the following two key issues:

Service Company Charges

In the initial phase of this proceeding AOBA was able raise substantial concerns regarding the inappropriate efforts of PHI to shift responsibility for non-distribution utility costs to its Pepco customers in Maryland. Given that these costs are not directly incurred by Pepco, but rather, reflect allocations of costs through PHI's service company, the appropriateness of these costs was challenged by AOBA. Pepco argued that all of its claimed service company charges are appropriate for inclusion in rates, but the Commission determined that it did not have enough information to make a final determination. AOBA was successful in defeating any further rate increases based on Pepco's claimed service company charges.

Erosion of Favorable Rate Distribution

As noted in the Background above, AOBA was able to achieve a distribution rate increase in the initial phase of this proceeding that was quite favorable for commercial customers. In Pepco's Phase II testimony, however, the Company proposed a method of distributing its further increase in a manner that would erode much of the favorable results that AOBA achieved in the Commission's initial decision. AOBA presented testimony demonstrating that the Company's rate allocation proposal was inconsistent with the principles inherent in the Commission's Phase I order. The PSC agreed with AOBA and made no further changes in rate allocation. For detailed Pepco rate increases by customer class, see At Issue – Utility Update, January 2008 or call AOBA.