Electric industry restructuring is coming to the District of Columbia. The D.C. Council, with the leadership of committee chair Sharon Ambrose, adopted the parameters of electricity reform, and the D.C. Public Service Commission (PSC) authorized the Potomac Electric Power Company (Pepco) to sell most of its generating plants. What does all of this mean for consumers?

Generation will be largely deregulated. Consumers will no longer have to buy electricity generated exclusively by Pepco. They can buy from anyone they like at market prices. President Clinton projects $20 billion in savings per year in the United States, as market efficiencies replace state-by-state regulatory price-setting.
Transmission of power will remain unchanged. Transmission reliability will continue to be managed by an independent systems operator that is regulated by the Federal Energy Regulatory Commission and closely monitored by a coalition of states in this region, including the District. This assures that no generator gains an advantage in moving electricity over the transmission grid.
Distribution of electricity over the local lines will still be a regulated monopoly. The PSC will set the prices and design programs for consumer protection, low-income assistance and energy efficiency.

Making It Work for Everybody
To ensure that D.C. can continue its low-income subsidies and make electric power affordable to all, the D.C. Council provided for a Reliable Energy Trust Fund. To support the fund, the PSC will require all customers to pay a small distribution charge of up to $.0008 per unit of electricity starting in 2002-the equivalent of about 56 cents a month for the average D.C. resident. The PSC also will be working to lower consumer bills and protect the environment by promoting energy efficiency and encouraging the use of renewables such as solar power.

But what about electric rates? What will be the impact of electric restructuring on your monthly bill? Here's what to expect:

Residential rate payers will receive a guaranteed 7-percent rate reduction. A 2-percent reduction already is in effect, and an additional 1.5-percent reduction will take place this July, with the rest of the reduction coming after Pepco sells its generating plants.
Commercial rate payers will receive a 6.5-percent rate reduction, under a similar schedule.
Rates paid by all D.C. Pepco customers will be capped for four years at the reduced levels.
Lower-income D.C. consumers will have their rates capped for six years.
D.C. commercial and residential rate payers may receive additional reductions if the savings on energy purchased by Pepco exceed agreed-upon levels.

In another piece of possible good news for consumers, D.C. customers also will receive a substantial majority (from 60 to 85 percent) of leftover proceeds from the sale of Pepco's generating plants, if the sale covers certain agreed-upon costs. Generating facilities have been selling for well above book value across the country, so some kind of leftover proceeds is at least possible, if not likely. However, if the plants are sold below their book value, D.C. consumers will have to pay for what the industry calls a stranded investment.

Why Restructure?
At a PSC public hearing in D.C.'s Ward 8 in October 1999, a member of the D.C. Consumer Utility Board made the point that restructuring meant the dismantlement of the entire system that has served D.C. well for almost a century that is, a regulated monopoly which is providing, by and large, a safe, adequate, reliable supply of electricity to the people who depend on it. During the many hearings we held on this subject, D.C. residents regularly cited the District's low electricity rates, minimal consumer confusion, and freedom from telemarketers as positive aspects of the present system.

So if the system was not broken, why did we fix it? The answer is because generation in this region and around the nation is no longer a natural monopoly. Maryland, Virginia, Pennsylvania, Delaware, New Jersey, New York and many other states have adopted the competitive model. Congress is likely to act nationally as well. As a result, it was important for the D.C. Council and the PSC to act now and to structure the market parameters ourselves rather than having Congress or some other entity impose a less favorable deal on us than the one we achieved.

Edward M. Meyers
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