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DC regulators OK settlement to cut Pepco rates, pass on tax savings

Potomac Electric Power Co., or Pepco, will reduce its electric distribution revenue by $24.1 million under a settlement agreement unanimously approved by the Public Service Commission of the District of Columbia.

The DC PSC on Aug. 8 approved a non-unanimous full settlement agreement and stipulation tied to Pepco's distribution base rates and the reduction in corporate tax rates. The official order was issued Aug. 9.

The settlement agreement reached between Pepco and several intervenors, including the Office of the People's Counsel for the District of Columbia, calls for the utility to reduce its distribution rates by $24.1 million and to return to ratepayers its excess deferred income tax, or EDIT, savings as a result of the reduction in corporate tax rates.

Based on savings from federal tax reform enacted in December 2017 and effective for the 2018 tax year, Pepco will flow back savings to ratepayers based on varied accounting measures. Pepco will return to ratepayers $137.5 million of nonprotected, property-related EDIT over a 10-year amortization period and $20.1 million of nonprotected, nonproperty-related EDIT will be returned over a five-year amortization period.

Pepco is to flow back protected property-related EDIT using the average rate assumption method.

The settlement agreement also provides for a return of at least $19.25 million in deferred taxes that accrue from Jan. 1, 2018, when the Tax Cuts and Jobs Act went into effect, up until the new rates go into effect.

In addition, the approved stipulation establishes a rate case moratorium until May 1, 2019. The rate reduction reflects a 9.525% return on equity, based on a capital structure of 50.44% equity and 49.56% debt, and a 7.45% rate of return.

Pepco is a subsidiary of Pepco Holdings LLC, which is a subsidiary of Exelon Corp.

(DC PSC dockets FC1150 and FC1151)