The Pennsylvania Public Utility Commission (PUC) has reduced PECO Energy Co.’s electric distribution rate request by 33%, approving a settlement that would allow a $127 million annual increase for its customers, rather than the $190 million increase it had filed for earlier this year.

PECO, a subsidiary of the publicly-traded power generation and distribution company Exelon Corp., is the state’s largest electric and natural gas utility. It serves more than 1.6 million electric customers and about 490,000 gas customers in Southeast Pennsylvania.

Under the settlement, a typical PECO bill for a residential customer would increase by about $4.17 per month, or 3.8%. Under PECO’s request, average bills would have increased by $6.55. Earlier this year, the PUC approved the Philadelphia-based company’s plan to implement a distribution system improvement charge that would help it fund a $534.4 million upgrade of its aging natural gas distribution system by 2022 (see Daily GPI, Sept. 11). But the agency has been less inclined to approve steep rate increase requests this year. Earlier this month, it reduced Columbia Gas of Pennsylvania’s rate request by 39% (see Daily GPI, Dec. 8).

Under the PECO settlement, the company is required to seek input from stakeholders regarding revenue decoupling, or the relationship between retail sales, revenue and profitability. While PECO’s settlement was supported by the Philadelphia Area Industrial Energy Users Group, the Coalition for Affordable Utility Services and Energy Efficiency in Pennsylvania, among several others, PUC Commissioner Robert Powelson said it’s time for utilities to explore different ways to structure their rates.

“The time has come to better align rate structures in a way that equally benefits all stakeholders, including ratepayers, utilities and the environmental community,” he said.

The PUC is set to hold a hearing on alternative ratemaking early next year. Powelson also currently serves on the National Association of Regulatory Utility Commissioners, which recently passed a resolution to discuss and review rate designs nationwide.