...Revenue Stability: Potomac Electric Power Co.'s (Pepco) regulated electric transmission and distribution operations have minimal commodity, volumetric and environmental exposure. Regulators in both Maryland and Washington, D.C., implemented revenue decoupling mechanisms to eliminate the revenue effect of weather and changes in usage patterns and permit full recovery of power procurement costs with a modest profit margin. Revenue stability is further enhanced by the significant presence of state and federal government customers, which tends to reduce economic volatility in the region. Significant Capital Program: Pepco is in the midst of a significant capital program of approximately $3.4 billion over 2015¡2019. A large portion is to address reliability issues that have been a point of contention with Maryland regulators. The large capex budget is particularly challenging given the rate lag issues and relatively low authorized return on equity (ROE). Challenging Regulatory Environment: Earnings...
