Distribution rates may rise in Md. for first time since 1998

Daily Record, The (Baltimore), Apr 11, 2007 by Andy Rosen

Several Maryland utility companies are looking to increase their rates for the delivery of power in hopes of boosting revenue in what is now supposed to be their primary line of business.

Delmarva Power and Potomac Electric Power Co., both owned by Pepco Holdings Inc., have cases before the Maryland Public Service Commission asking to increase the price they charge for bringing electricity to customers. Baltimore Gas & Electric's parent company, Constellation Energy Group Inc., said in February that it would seek a similar rate increase.

If awarded, the rate increases would be the first allowed by the PSC since the state began to deregulate the power supply business.

Pepco spokesman Robert Dobkin said the company derives some "nominal" revenue from supplying power to customers, but the company's profits primarily come from distributing that power.

"We're a wires company," he said. "We buy power for our customers who choose not to purchase power from another supplier."

Dobkin said the company needs to increase its rates to cover costs that have risen in the past decade. Delmarva last raised distribution rates in 1993, while Pepco got its last increase in 1998.

BGE's last increase in distribution rates also came in 1993. The state's other major utility, Allegheny Energy Inc. is not planning any immediate change in its distribution rates, a spokesman said.

Though there have been several high-profile battles over how utilities structure costs for the electricity they still provide to customers, the goal of deregulation remains to allow customers to choose their power provider. Customers who do not choose an alternative provider continue to get default service from their utilities, and the provision of that service is still supervised by the PSC.

The delivery of electricity, through infrastructure like transformers and power lines, is still the exclusive purview of regulated utilities. The cost of delivery is usually the second- largest component of an electric bill, after generation and before transmission, which refers to higher-voltage power lines.

In separate applications before the PSC, Delmarva and Pepco both state that the returns they are getting on their power distribution are too low. Delmarva is asking to increase its distribution rates to the point where it can grow its revenue by $20.3 million. The cost increase would affect all classes of customers differently, but amounts to a 3.4 percent increase, which would cost about $4.48 per month, on a typical residential electric bill.

Pepco wants to increase its revenue by $55.7 million, which would likely cost about $5.33 a month for an average subscriber, a 3.9 percent increase on a monthly bill. BGE has not provided details on its planned rate request, but all three utilities have pointed out that distribution rates have not changed in more than nearly a decade.

Until deregulation began to take effect, customers paid one price for their electricity, which encompassed both the cost of producing and delivering power. Then, utilities owned generation, transmission and distribution facilities. Utilities have since sold most of their generating assets, and depend on revenue from distribution.

For the state's Office of the People's Counsel, which advocates for consumer interests before the PSC, the distribution cases are more familiar than the discussion over default power prices.

Deputy People's Counsel Theresa Czarski said the primary difference is that while cases about power supply require an examination of prices and how they compare to market rates, distribution rate cases look at whether a company is getting a fair return on its investment in infrastructure.

She said the traditional rate cases give regulators and advocates more to look at.

"None of us get to look at anything other than if it's a fair market rate," Czarski said of the power costs. "At least for me, my comfort level is much better with a distribution case."