“Innovative Plan, Historic Financing Expected to Boost Electric Reliability by 95 Percent”

Photo by PoPville flickr user UrsulaAntares

From the Mayor’s office:

Mayor Vincent C. Gray accepted the recommendations of his Power Line Undergrounding Task Force, which he established in August 2012 to address the significant power outages that District residents and businesses suffered as a result of the severe derecho thunderstorm system that left extensive wind damage across the region in June.

The co-chairs of the 15-member task force — City Administrator Allen Y. Lew and Joseph M. Rigby, Chairman, President and CEO of Pepco Holdings, Inc. — presented an interim report to Mayor Gray that calls for a multi-year program estimated at nearly $1 billion in a first phase to selectively underground up to 60 high-voltage lines that are most affected by storms and overhead-related outages. The move is expected to improve service for Pepco customers on those feeders by 95 percent.

The task force includes government officials, regulators, local utility-industry executives, public advocates, and residents of neighborhoods most frequently affected by power outages.

“This proposal is a win for the District. I asked these task force members to find a solution to this problem worthy of the nation’s capital, and it appears they have been successful at that,” Mayor Gray said. “I thank them for their months of work and dedication to finding a way to deal with the devastation caused by severe storms.”

The task force is recommending a unique financing arrangement through a combination of about 50-50 of District and Pepco financing. The funds will be obtained through a combination of traditional Pepco funding of debt and equity for $500 million, $375 million in District-securitized bonds, and between $62 million and $125 million in District Department of Transportation (DDOT) street-paving funds that will be leveraged to support undergrounding.

“This financing arrangement is the first of its kind,” Lew said. “It speaks to the partnership between the District and Pepco to improve the quality of service for District residents and businesses.”

“We are meeting and even exceeding service reliability standards in the District, but this work will help our system better withstand severe weather events,” Pepco CEO Rigby said.

For residential customers, the rate impact will start at about $1.50 per month and will increase to a maximum of $3.25 after seven years, or about a 3.23 percent increase in rates. Low-income customers will be exempt from the rate impact. For commercial customers, the rate impact will vary by the class of service and will generally average between 5 and 9.25 percent.

Continues after the jump.

In its role on the task force, Pepco has developed a detailed model that will evaluate the cost and benefits from undergrounding each overhead line in the District. Pepco will develop a plan and submit it to the Public Service Commission (PSC) for review and approval. No work will be performed until the PSC has the opportunity to review the selection criteria and receive public comments on the plan.

The areas identified will include the high-voltage feeders most affected by overhead-related outages in Wards 3, 4, 5, 7 and 8, where overhead distribution lines currently exist. About half of the District is already served by underground lines. There will still be secondary and service lines running overhead on the existing poles. Typically, these facilities are a small factor in outage events. Historically, outages on these circuits are not prolonged. Restoration time for these low-voltage lines normally is much shorter than restoring the high-voltage primary lines, which can require several hours for repair.

The proposal will require legislation to approve the undergrounding plan and authorize the PSC to approve a financing order for recovery of the costs associated with the District-issued bonds and for Pepco’s costs.

In order to implement the recommendations, the PSC will need to issue a financing order that authorizes the establishment of a surcharge for the recovery of the cost of bond repayment and of Pepco’s capital costs and expenses associated with the undergrounding effort. The PSC also will then approve the selection of the overhead lines to be undergrounded based on the selection process recommended by the task force.

“I want to thank Mayor Gray for creating the task force on power-line undergrounding and for bringing together the key players who can address this important issue,” said PSC Chairman Betty Ann Kane. “The task force report builds on the findings of a Public Service Commission study that strategic undergrounding can make a significant difference in electricity reliability. The recommendations also provide for accountability and transparency, both of which are important goals for the Public Service Commission.”

The construction work also will bring other benefits, including an estimate of about 950 new jobs each year of the project.

“This is the ‘game change’ that will finally allow District electricity consumers to come out of the dark and get the reliable service they deserve at an affordable rate,” said D.C. People’s Counsel Sandra Mattavous-Frye. “As People’s Counsel, I was committed to finding a solution to a seemingly insoluble problem of power outages that has plagued our city for over a decade. The Task Force plan is responsive to our citizens’ calls for action and goes a long way toward achieving our reliability goals.”