[BETA] Fortnightly

The District of Columbia Public Service Commission (PSC)

has allowed Potomac Electric Power Co. rate recovery of costs associated with the development of electric vehicles for fleet use under alternate-fuel vehicle requirements imposed under the Energy Policy Act of 1992. The PSC rejected a request by the Greater Washington Petroleum Committee, an oil industry trade group, to deny funding because electric vehicle technology had not evolved to a point that promotes consumer acceptance of a competitively priced vehicle. The trade group argued that the utility had failed to show that it had examined lower-cost alternatives, such as vehicles that use other nonpetroleum fuels like natural gas alcohol or liquified petroleum gases.

The PSC also authorized Potomac Electric to continue using its automatic adjustment mechanism for fuel costs despite claims that the mechanism should be modified to shift some of the risk of fuel procurement from ratepayers to shareholders. The PSC accepted Potomac Electric's evidence that fuel costs were optimized, generating facilities were operating efficiently, fuel price and interchange cost volatility remained a concern, and that removal of the fuel clause would adversely impact the utility and its customers by driving up operating costs over the long term.

The PSC further permitted Potomac Electric to begin phasing out its current discount for residential "all electric" service. It criticized the utility, however, for failing to implement conservation programs designed to mitigate the effects of the change on ratepayers. In a move to soften the effect of the shift, the PSC halved the utility's proposed .05-cent reduction in the existing 1.725-cent winter heating discount for all-electric ratepayers.

While approving a rate increase of $27.887 million, the PSC also redesigned rates to move all rate classes toward marginal cost of service. The utility had requested a 1-percent increase in residential over commercial rates to reallocate revenue requirements; the PSC reduced the differential to 0.42 percent to temper the effect on residential ratepayers. The PSC rejected a proposal by the D.C. Office of the People's Counsel (OPC) for an across-the-board distribution of the approved increase, based on analysis of its socioeconomic impact on the residential class. The PSC found that the OPC failed to substantiate its underlying claim that commercial customers could pass on increased energy costs to their customers. It also ruled that targeted discounts were the most efficient means of providing assistance to needy customers.

At the same time, the PSC lowered the utility's return on common equity from 11.3 to 11.1 percent. The PSC based its reduction on regulatory changes allowing utilities to recover environmental compliance costs through a Clean Air Act (CAA) surcharge and capacity-purchase costs through the fuel-adjustment charge. The PSC found alleged risks associated with the emerging competitive marketplace "too speculative and futuristic" to support a counterbalancing upward adjustment proposed by the utility. The PSC also rejected, however, a proposal to reduce the

equity return further to account for an alleged lowering of risk associated with a proposed demand-side management cost-recovery surcharge. Re Potomac Electric Power Co., Formal Case No. 939, Order No. 10646, June 30, 1995 (D.C.P.S.C.).

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