The PSC allows Pepco to engage in “retroactive ratemaking” by adjusting Pepco’s rate of return for 2024

In a recent, quiet filing to the PSC, Pepco was allowed to change their prior authorized rate of return for CY 2024 from 7.17% to 7.28%. A utility’s rate of return (ROR) is the weighted average cost of debt, preferred equity, and common stock a utility has issued to finance its utility capital investments. This number directly influences Pepco’s reconciliation and prudency review process, which impacts how much Pepco spends on projects and how much they are allowed to charge in rates.

Commissioner Richard Beverly dissented to the PSC’s decision to bump Pepco’s ROR to 7.28%, citing confusion around the unexplained change. Beverly leans on the Office of thePeople’s Counsel’s statement that “the higher percentage for CY 2024 results in higher revenues for Pepco which skews the numbers and undermines the accuracy of the reconciliation and prudency review.”

While the majority on the Commission state that the change to 7.28% doesn’t matter, it begs the question as to why they approved the bump in the first place. If the percentage doesn’t matter, then they should keep it at the original rate.

It’s also worth noting that retroactive ratemaking, which this appears to be, is often considered to be illegal. The Commission’s approval of this ROR change is sure to be re-litigated in court, which wastes more time and taxpayer resources: a problem that could have been avoided if the PSC simply regulated Pepco properly as their job expects.