For the second time in two years, the Maryland Public Service Commission (PSC) authorized Potomac Electric Power Company (Pepco) to raise its rates. Like the utility’s 2012 rate increase, parts of the latest rate hike are made contingent upon continued improvements in service reliability. Granting “only what we find necessary to enable the Company to continue – and even accelerate – the pace of its improvement in reliability and resiliency of its electric distribution system,” the commission awarded PEPCO $27.9 million in rate relief, and raised its allowed rate of return on equity (ROE) from 9.31% to 9.36%. It also permitted the utility to recover $24 million through a special Grid Resiliency Charge (GRC). The utility had originally sought a base increase of $60.8 million, an increase in its ROE to 10.25%, and a GRC totaling $192 million. Looking at the utility’s suggested ROE allowance of 10.25%, the commission noted that Pepco’s expert witness had focused on the fact that since the financial crisis in 2008, Treasury bond yields have been low, sometimes below the level of inflation, leading him to attest that “both debt and equity investors have required increased risk premiums as long-term Treasury yields have fallen.” But the commission found more credible an analysis presented by its staff which set the utility’s ROE at 9.36%, based in large part on a review of the returns of 15 proxy domestic utility companies that derive 80% of their revenue from regulated utility operations. (Case No. 9311, Order No. 85724, Md.P.S.C.) For more analysis, subscribe to URN. http://www.fortnightly.com/utility-regulatory-news-0
