PSC staff flags Pepco RY3 cost overruns, recommends disallowing some expenditures

Public Service Commission staff engineer Roger Austin told commissioners at an evidentiary hearing that he could not verify the prudence of several Pepco capital expenditures for rate year 3 and recommended disallowing some costs unless the company produces further information.

Austin said staff’s review identified areas where company filings gave projected costs but not the detail needed to judge whether remediation or capital projects were cost-beneficial. He specifically recommended disallowing expenditures tied to remediation of three feeders (ITNs referenced in the record as feeders 14229, 14233 and 14206) and questioned recovery for the Livingston Road battery energy storage project pending more documentation from the utility.

Why it matters: The commission’s reconciliation of Pepco’s rate year 3 (RY3) capital spending determines what portion of the utility’s costs ratepayers will be allowed to recover. Staff’s recommendations could reduce the revenue Pepco is permitted to collect unless the company supplies the missing documentation and explanations staff asks for.

Austin testified that his review emphasized searching for evidence of imprudence rather than attempting to prove prudence in every instance. “I try to avoid examining these projects for the fourth year prudence. I try to interrogate them for any evidence of imprudence. Prudence is a nebulous idea in my mind. So it's easier to determine imprudence than to prove prudence,” he said on the record.

On specific projects, Austin questioned the documentation underpinning Pepco’s claimed remedial work under the miscellaneous reliability improvements program and the priority feeder improvements program. He said Pepco supplied raw remediation costs for some feeders but did not provide the customer-outage and interruption data staff needs to calculate cost-per-interruption and compare that with remediation costs. Without that comparison, staff said it could not conclude the expenditures were cost-beneficial.

White Oak switchgear (ITN 73102) drew close scrutiny during cross-examination. Austin noted Pepco’s earlier forecast that the project would complete in 2020 at about $2.1 million, while later filings showed a 2022 project listing with a $2.579 million entry for 2022 and $197,000 projected for 2023 (a $2.776 million combined forecast). Separately, schedules in the RY3 filings showed an actual 2023 spend of $1.393 million. Austin said the record does not clearly show how much was spent in 2020–2022 and that he did not inquire further into certain variance explanations, leaving uncertainty about the project’s total actual cost.

Austin also highlighted Pepco’s mobile dispatch mapping program (ITN 71558), which staff records show had a planned multi-year budget of roughly $7.4 million and reported actual spending of about $14.7 million over the 2021–2023 period. He recommended the commission require Pepco to report project completion, the final allocated cost, and explanations for any significant overruns for that and at least 15 other projects or project groups in the RY3 record.

On aggregate results, Austin said many individual projects overspent and underspent relative to budgets in ways that can offset each other; staff calculated an overall variance of approximately 5.8% between Pepco’s budgeted and reported 2023 capital expenditures. Austin told commissioners staff considers variances of about plus-or-minus 10% routinely and has in recent years used a tolerance up to about 15% in evaluating reasonableness, though he said each project requires case-by-case review.

Commission members pressed Austin on scope and methods. Several commissioners and counsel noted that staff’s review focused on engineering and project-level analyses rather than a holistic review of the multi-year plan’s budgetary discipline. Austin said that his role was to review capital projects for signs of imprudence, while other staff and processes address broader revenue-recovery and compliance questions.

No final commission decision was reached during the hearing. Staff asked Pepco to supply additional documentation and clarifications for multiple projects; commissioners set a post-hearing briefing schedule. Counsel reported agreed briefing dates: opening briefs due April 8 and reply briefs due April 22.

The record shows staff’s recommendations and the company responses will determine whether the commission permits recovery of the questioned costs in rates going forward.