Maryland Regulators Cut Pepco Rate Increase by More Than Half
Maryland regulators approved roughly $50.9 million of Pepco's requested annual revenue increase, less than half the utility sought, while disallowing $164.9 million in White Flint infrastructure costs from the rate base at this time.
Published · 3 min read
The Maryland Public Service Commission on August 28 approved a substantially reduced Pepco rate increase for the utility’s roughly 610,000 Maryland customers, authorizing approximately $50.9 million in additional annual revenue instead of the nearly $120 million Pepco sought. The decision matters because regulators also rejected recovery of major infrastructure costs while balancing electric-system investment against rapidly growing affordability concerns.
The authorized increase is expected to add about $3.94 per month, or roughly 2.2%, to an average residential bill in Montgomery and Prince George’s counties. Pepco had sought an increase of approximately $10.24 per month, or about 5.8%, according to the Maryland Public Service Commission’s August 28 decision summary. The new rates took effect the same day.
Regulators rejected $164.9 million in White Flint infrastructure costs
One of the most consequential portions of the decision concerns capital investment associated with Pepco’s White Flint infrastructure projects.
The commission agreed with arguments from the Maryland Office of People’s Counsel, Maryland Energy Administration and Apartment and Office Building Association that the relevant spending had not been shown to be prudent for recovery in the current case. Regulators therefore disallowed approximately $164.9 million in those capital costs at this time.
The decision does not mean utilities can avoid distribution investment. It addresses a different question: which investments and expenses can be recovered from customers through regulated rates, and at what return.
That distinction is increasingly important as utilities nationwide spend more on resilience, capacity and modernization. Microgrid Media has tracked the physical side of that trend through projects such as Entergy Louisiana’s grid-hardening program in Jefferson Parish, where hundreds of millions of dollars are being directed toward stronger poles and storm-resistant infrastructure.
Pepco received a lower return on equity than it requested
Maryland regulators established an adjusted rate base of $2.994 billion and approved an overall rate of return of 7.22%.
The commission authorized a 9.40% return on equity, slightly below Pepco’s existing 9.50% ROE and well below the company’s requested 10.5%.
Regulators also rejected Pepco’s request to recover some projected post-test-year costs associated with expectations for future inflation, labor expenses and capital spending.
Earlier in the case, the Maryland PSC outlined Pepco’s rate proposal and public-review process, including evidentiary proceedings and multiple hearings for customers and other stakeholders.
Electricity affordability remains part of the regulatory debate
The case arrives as electricity affordability has become increasingly intertwined with decisions about grid investment, energy supply and distributed resources.
The Maryland Office of People’s Counsel currently lists separate distribution, supply, transmission and program charges for Pepco customers, illustrating why changes to base distribution rates represent only one part of a household’s total electricity bill.
Microgrid Media has previously examined the broader affordability pressure driving interest in customer-side options such as lower-cost plug-in solar and other distributed-energy alternatives, including policy activity in Maryland and other states.
Distributed energy does not remove the need to pay for utility poles, substations, wires and system operations. It can, however, change customer consumption and the way regulators think about allocating fixed grid costs as more households generate or store some of their own electricity.
A second proceeding will examine additional costs
The August 28 order is not the final regulatory issue connected to Pepco’s cost recovery.
The commission said it will initiate a Phase II proceeding to determine whether certain costs should be removed from rates under Maryland’s recently enacted Utility RELIEF Act.
That means the immediate Pepco rate increase is now effective, but regulators will continue reviewing the treatment of particular utility costs under the state’s changing statutory framework.
What happens next
For residential customers, the most immediate consequence is the approximately $3.94 estimated monthly increase rather than the $10.24 increase Pepco originally sought.
For Pepco, the decision creates a more important long-term issue: how future capital projects are documented and justified if the utility expects customers to repay those investments through regulated rates.
The White Flint disallowance is particularly relevant because grid modernization increasingly requires large upfront capital expenditures. Regulatory approval of construction or a utility’s decision to spend money does not automatically guarantee that every dollar will later be placed into the customer-funded rate base.
The next phase will clarify whether Maryland’s newer affordability legislation results in additional changes to the costs currently recovered from Pepco customers.
Jonas Muthoni is Editor-in-Chief of Microgrid Media, where he oversees reporting and analysis on microgrids, energy storage, distributed energy resources, data center power demand, grid modernization, resilience, renewable energy, and electricity policy and markets. His work focuses on the infrastructure, technologies, and regulatory developments reshaping the power system.
As Editor-in-Chief, Jonas leads Microgrid Media’s editorial strategy and standards, including story selection, source verification, technical accuracy, and the development of original reporting and analysis. His coverage draws on regulatory filings, government records, utility and company disclosures, technical documentation, and independent industry sources to explain significant developments across the evolving energy system.
