The Pennsylvania Public Utility Commission on Thursday approved a $127 million electric-rate increase for Peco Energy Co.

The utility said monthly bills for its 1.6 million Philadelphia regional customers will go up by about 4 percent Jan. 1.

The PUC unanimously approved a settlement reached among Peco, the PUC staff, and advocates for various customer classes. Peco had initially sought a $190 million increase.

The hike, Peco's first in five years, would boost its annual distribution revenue 10.9 percent. The distribution charge is less than half of the price, so actual bills will rise by a smaller percentage. The generation charge - the cost of the electricity itself - is the largest component of the bill, and customers can buy from competitive suppliers.

Peco said the monthly cost for a typical residential customer who uses 700 kilowatt-hours of electricity would increase $4.24. The typical bill for a small-business customer would increase by about $17.02 a month, and monthly bills for a large industrial customer would increase, on average, by $432.32.

Commissioners focused on several aspects of the Peco settlement that address issues facing utilities in an era of changing power consumption and supply patterns.

The settlement includes a provision for Peco to explore "revenue decoupling," a rate structure that is less reliant on volume sales and more dependent on flat charges based on a customer's size.

Decoupling is seen as a way to more fairly compensate utilities to cover the costs of maintaining their distribution networks when public policy is encouraging customers to reduce demand to curb greenhouse-gas emissions.

"The time has come to better align rate structures in a way that equally benefit all stakeholders, including ratepayers, utilities, and environmental community advocates," PUC Commissioner Robert F. Powelson said.

The PUC has scheduled a hearing March 3 to explore utility-rate decoupling across the state.

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