Op-Ed: Pepco Wants to Raise Rates. There’s a Cheaper, Greener Alternative

Power should be owned by, and run for, the people—not for profit, certainly not in a pandemic.

We Power DC
Dec 20, 2020 · 4 min read

by Jeff Stottlemyer | www.wepowerdc.org

Corporate executives from Pepco and Exelon cheer on DC Mayor Muriel Bowser. Photo via DC government.

Editor’s note: You can send a letter to the Public Service Commission about this rate hike here.

Washingtonians struggle with skyrocketing COVID-19 cases, an historic economic recession, and a worsening climate crisis, Pepco wants to raise electricity prices by almost $136 million over three years. Pepco’s heartless proposal reveals the danger of corporate control over our energy system — and shows why we need a community-run utility that prioritizes public good instead of corporate profits.

Residential bills could rise by more than $100 in the first year alone if Pepco gets its way, according to the Office of the People’s Counsel (OPC). This price hike would come as Pepco reports that 67,000 of its DC customers had fallen into debt on their energy bills as of October, and while Pepco’s allies in the City Council are trying to lift a moratorium on utility shutoffs put in place at the outset of the pandemic.

Pepco continues to pull in massive earnings even as its customers struggle. Pepco Holdings reported $220 million of profits in the third quarter, a 5% increase from the same period last year. Given that level of profit, pushing for an enormous price hike during a historic economic and health crisis displays a shocking level of contempt for working-class Washingtonians.

None of our higher energy payments would go toward meeting DC’s ambitious climate goals. When the OPC asked Pepco if the price hike would fund clean energy deployment, they said no. Pepco — which lobbied against DC’s groundbreaking climate bill — currently sources only about 6 percent of its energy from renewables. Its construction plan budget includes nothing related to clean energy technologies such as solar or battery storage.

Investor-owned utilities like Pepco are supposed to charge their customers rates that are “just and reasonable” to ensure that we can keep our lights on and our houses warm without breaking the bank. In practice, utilities themselves get to decide what this means, and the answer usually translates to hundreds of millions of dollars in profit for utility executives and shareholders.

How do they do this? Many people are surprised to learn that utility companies don’t actually profit from electricity sales. Instead, their profits come from capital expenditures associated with maintaining and upgrading energy system infrastructure — things like building power plants and pipelines.

Utilities are legally entitled to a “reasonable return” on these investments, which they negotiate directly with regulators. They do this through a process called a rate case, and Pepco’s proposed price hike is included in its latest rate case.

Rate cases are supposed to reflect costs that an investor-owned utility will incur to meet current and anticipated future demand. This process was originally intended to ensure that utilities had a moderate incentive to maintain our energy system, but in practice it has turned into a cesspool of corruption.

A 2017 analysis by the Rocky Mountain Institute found that over the preceding decade, utilities over-forecasted energy demand by 10%, which “translated to spending billions of dollars on power plants that no one needs.”

The same utilities that produced the inaccurate forecasts then turned around and made hundreds of millions of dollars in profit on the construction of these power plants. It’s corruption on a mind-boggling scale, hiding in plain sight. Furthermore, much of this spending went to fossil fuel projects, a significant and unnecessary setback in our fight against climate change.

Thankfully, there is a simple alternative to the predatory profit-driven utility model that too often produces unnecessary rate hikes like the one DC residents now face: public power. More than 2,000 publicly-owned utilities across the country provide reliable energy to communities of all shapes and sizes, from big cities like Los Angeles to small towns like Bristol, Tennessee.

Customers of publicly-owned utilities pay 11% less on average than those of investor-owned utilities, while public utilities re-invest 13% more of their revenues into the communities they serve. Public utilities also regularly outperform investor-owned utilities in renewable energy. In 2019, seven of the top 10 utilities with the highest percentage of customers purchasing renewable energy were publicly owned.

Replacing Pepco’s DC operations with a public utility would give control over the energy system back to the people, reduce our energy costs, and let us invest in climate progress. Rejecting Pepco’s price hike is just the first step toward building an equitable energy system. Washingtonians must deliver a clear message to the City Council and Public Service Commission: Pepco cannot be reformed, so it must be replaced.

Jeff Stottlemyer is a member of We Power DC, the public power coalition fighting for a clean, affordable, and equitable local energy system. Feedback is welcome at WePowerDC@gmail.com

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