Dive Brief:

• The Public Service Commission (PSC) of Washington, D.C., on Dec. 20 approved Phase II of Pepco's Capital Grid Project, adding a new $143 million substation, despite cost concerns from consumer advocates.
• Combined with Phase I of of Pepco's Capital Grid Project, approved in August, the utility will spend about $1 billion on new infrastructure, according to the ratepayer advocate. Pepco says a new substation will also allow for greater integration of distributed energy resources (DERs) on the system.
• The PSC also approved a framework to review and consider utility requests for alternative forms of regulation, which could mean performance goals and increased efficiencies would be considered when setting Pepco's rates, according to the utility. In May, Pepco proposed a multiyear rate plan that included raising distribution rates by $162 million for the years 2020 through 2022.

Dive Insight:

The Office of the People's Counsel (OPC) remain concerned about the substation costs, as well as the unknown costs of Pepco's multiyear rate plan.

Regulators concluded that without the new Mount Vernon Substation, contingency capacity margins would decline and leave Pepco's distribution system at risk of overloading during extreme weather.

"OPC is concerned that the commission has accepted Pepco's decision to utilize expensive construction projects to the exclusion of non-wires alternatives to provide what Pepco contends is needed capacity," OPC told Utility Dive in an email. Distributed energy resources and other demand reduction programs "could delay the need for the Mt. Vernon Substation at a considerable savings to District ratepayers."

"The Commission's decision appears to run counter to the District's goals of reducing the carbon footprint and increasing energy sustainability," OPC said.

The combined Capital Grid projects are essential to providing reliable service "and to meeting the growing energy demands that rapid residential and commercial development are placing on the energy grid in the District of Columbia," Pepco said in a statement to Utility Dive. The utility's "plan will strengthen the local energy grid through "innovative technologies, smarter equipment and strategic investments, making it more resilient, and enabling further deployment of DERs."

Both Pepco and D.C. regulators say alternative ratemaking methods can help the city meet its environmental goals, but consumer advocates are less sure--though there is a general optimism about the change from all sides.

Despite perceived "shortcomings" in the decision, OPC said the other order from the commission "lays out an important framework for evaluating alternative ratemaking proposals."

The commission's order on a new framework "fails to examine whether Pepco's current ratemaking methodology could be used" to achieve the the city's goals of reaching, the OPC said.

However, Pepco and D.C. regulators both said alternative ratemaking could help the city meet its environmental goals of 100% renewable energy by 2032.

"We view alternative forms of regulation as a potential tool in assisting the District achieve its clean energy and environmental goals, and potentially avoid the millions of dollars in expenses to litigate a full rate case," PSC Chairman Willie Phillips said in a statement.

The advocate said it would continue evaluating Pepco's alternative ratemaking proposal to ensure it does not harm ratepayers and will meet the district's goals.

Under the utility's proposed plan, Pepco would be measured by reliability, customer service and interconnection of distributed resources, but specific metrics have not been determined.

Alternative ratemaking "is a complicated issue, and if not designed appropriately, can have severe negative impacts on ratepayers, including on the quality of their service and the affordability of their rates," said OPC.

The PSC's order directed Pepco, the city government, OPC and other parties to continue discussions on what are achievable performance incentive mechanisms. The meetings will take place between Jan. 15 and March 31.

Pepco said it was "pleased" with the decision and plans to file supplemental testimony by Jan. 21.