D.C. Regulators Evaluate Alternative Ratemaking Mechanism for Potomac Electric

The Public Service Commission of the District of Columbia is scheduled to discuss a framework for evaluating alternative ratemaking proposals following a request by Potomac Electric Power Company to boost its electric rates, according to a September 18 notice.

In May, Pepco filed an application to increase rates for its electric distribution service in the District of Columbia under two different rate-setting methodologies. A Multiyear Rate Plan proposal and associated performance incentive mechanisms and more traditional cost-of-service plan.

To establish a foundation for assessing Pepco’s proposal, the commission has scheduled a two-day technical conference on October 7 and 8. The regulator wants to develop metrics that will further the district’s broader energy and climate goals, such as such as electrification, renewable development, pipeline replacement, development of new consumer solutions, grid resiliency and others laid out in the Clean Energy DC Plan.

The conventional cost-of-service ratemaking approach relies on calculations of revenue required for utilities to provide services while earning a rate of return on investment. Performance-based ratemaking (PBR) fundamentally changes utility incentives and has been more frequently explored and used by state utility commissions in recent years. What sets PBR apart from conventional ratemaking is the shift to reward and penalize utilities based on performance, rather than focusing on evaluating capital investments and costs of service.