If a private company blamed its failure to meet industry performance standards on customers who weren't paying enough for its services, that company would soon have no customers. Unfortunately, Pepco's long-suffering customers in D.C. and suburban Maryland don't have the luxury of leaving.
After Maryland regulators shot down most of Pepco's request for a $68 million rate hike in July, local residents were justifiably angry when Pepco Holdings President and CEO Joseph Rigby announced his intention to file for another rate hike later this fall. Even though it took Pepco more than a week to restore power to all 450,000 customers after the June 29 derecho, the utility still got an $18.1 million rate increase -- and will be coming back for more.
Rigby warned that unless Pepco receives "a fair and reasonable outcome" -- allowing it to charge customers upfront for future system upgrades -- the "pace of investments in Maryland" would slow even further. He's apparently taken a page from the Metro school of management, which views customer complaints about shoddy service and lack of maintenance not as a wake-up call to improve operations, but as the perfect opportunity to ask for more money.
Pepco also has a $42.5 million rate hike request pending in D.C., which is vociferously opposed by the Office of the People's Counsel. The OPC correctly notes that "District ratepayers should not be required to reward a company that has provided service so subpar that in terms of service quality, the company ranks in the lowest quartile when compared to its peers."
Unearned rate hikes are even more unwarranted given the fact that the government-guaranteed rate of return for Pepco shareholders is 9.31 percent, reduced from 9.83 percent in July by the Maryland Public Service Commission. That's three times more than the interest being paid on 30-year Treasury bonds, which just hit their four-month high of 3.05 percent last Friday.
In the business world, companies that cut corners and fail to meet customer expectations are punished financially, not rewarded. But government-protected monopolies like Pepco and Metro don't have to worry about keeping customers happy -- and they obviously don't. It's time for regulators in Maryland and D.C. to change the incentives and to inform Pepco officials that any future rate hikes will come only after measurable improvements in safety and reliability.