Pepco wants rehearing of distribution rate increase order in Maryland

Potomac Electric Power Co. (Pepco), in a July 31 petition, requested a rehearing of a July 2 order in which Maryland state regulators denied the company’s request to increase electric distribution rates by about $37.4 million.

Instead, the state Public Service Commission (PSC) authorized Pepco to file base rate tariffs for the distribution of electric power, increasing rates by no more than $8.75 million.

Pepco requested that the PSC grant rehearing on these issues: Case No. 9311 appeal expenses; House Bill 1090 compliance expenses; and rate case expenses. The PSC’s decision not to allow those expenses was based on an unlawful procedure, is arbitrary and capricious and is unsupported by any competent evidence in the record, the company said.

Case No. 9311 involved Pepco’s application for an increase in its retail rates for the distribution of electric power filed in November 2012, according to TransmissionHub.

Regarding the appeal expenses in that case, Pepco noted that in the July 2 order, the PSC sua sponte disallowed recovery of $76,000 in outside legal support incurred during the test year by Pepco for the appeal of Order No. 85724 issued in July 2013 in Case No. 9311.

The stated basis for the PSC’s decision was that “[b]ecause the company’s appeal seeks to increase the rates paid by its customers beyond what was found to be just and reasonable, the appeal cannot be said to benefit them ” [and] we find the appeal unfounded and the associated expenses imprudent and unnecessary.”

The PSC’s decision to disallow the appeal costs included in the test year was arrived at using an unlawful procedure that violated Pepco’s due process rights guaranteed under the Maryland Declaration of Rights and the United States Constitution, the company claimed.

“The company did not have any notice that an adjustment was being considered for the appeal costs incurred by the company in Case No. 9311, nor did it have any opportunity to be heard on this issue,” according to the company.

Pepco said that it was only when the PSC issued its order that it became aware that it was subject to a disallowance of costs related to its appeal of Case No. 9311.

The company also said that only when some other participant in the proceeding creates a serious doubt as to the prudence of the expenditure does the utility have the burden of proving the questioned expenditure to have been prudent. In this proceeding, Pepco said, no party raised any claim that its appellate costs were imprudently incurred.

Regarding the House Bill 1090 compliance expenses, Pepco noted that the bill, which became effective on Jan. 1, requires utilities to send termination notices by first-class mail to an account’s service address if the billing address is different.

The bill was codified as PUA Section 7-309, Pepco said, adding that Subsection (h) provides that the PSC “shall authorize the full and timely cost recovery of a utility service provider’s prudently incurred costs arising from its obligation.”

The PSC denied the company any recovery of costs related to its compliance with the bill “on the mistaken belief that all of the costs the company sought to recover were estimated costs,” Pepco said.

Once again, the company claimed, the PSC based the conclusion on a single question posed by the chairman of the commission. Because the PSC’s practice does not allow a party to conduct redirect or re-cross examination of a witness based on questions from the PSC, Pepco did not have a reasonable opportunity to respond to the question asked by the chairman that serves as the sole basis for the disallowance, the company said.

On rate case expenses, Pepco noted that in the July 2 order, the PSC allowed the company $421,000 for rate case expenses, substantially less than the requested amount of $634,000. The majority of the reduction stems from the PSC’s disallowance of $125,000 for outside counsel costs, the company added, noting that the basis of that disallowance is that Pepco failed to provide sufficient justification or support for the costs, and that the services provided by Loeb & Loeb constitute “core fundamental functions” in a rate case.

The company said that there is no finding that the services provided by Loeb & Loeb were not prudent, adding that it provided invoices that established that Loeb & Loeb had provided legal services to Pepco for the tasks outlined in the PSC’s order.

Among other things, Pepco said that in order to keep rate case costs as low as possible, it does not engage legal counsel until it has exhausted its in-house resources.

Pepco is a unit of Pepco Holdings.

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