Office of People’s Counsel responds to BGE’s arguments related to Baltimore City conduit agreement
BALTIMORE – Baltimore Gas and Electric Company’s arguments about its internal accounting memo—in support of its proposal to earn a profit on what customers pay for improvements to Baltimore City’s conduit system—mischaracterize what the memo actually says, the Office of People’s Counsel said in a filing today with the Public Service Commission.
OPC’s filing related to a memo BGE had designated as confidential but that the Commission ruled must be disclosed in response to an OPC motion to make it public. The company released the full memo without redactions in a filing with the Commission last week. BGE used that filing to advance its arguments for its rate case proposal on Baltimore City’s conduit system—the city’s underground network that houses electrical and telecommunications wires.
BGE’s filing claims that “general accounting principles” support its proposal to put costs for conduit improvements into its rate base where it can earn a profit from customers. But the accounting memo states that its conclusion—that the conduit costs may be included in rate base—depends partly on BGE’s “ability to include these expenditures in rate base.” And that “ability” is an issue the Commission will decide in its upcoming rate-case decision.
“BGE’s accounting memo says that Commission approval of its conduit cost recovery proposal justifies the very same approval it is seeking from the Commission,” Maryland People’s Counsel David S. Lapp said. “That rationale is circular and does not support its proposed cost recovery.”
Capitalizing BGE’s expenditures on conduit improvements over the investments’ lifespan would result in customers ultimately paying more than $800 million for the $212 million in improvements, OPC’s filing said. OPC’s filing further explains that the memo finds the agreement “meets the definition of a lease” and how BGE’s proposal deviates from accounting standards that require improvements to leased assets be treated as “leasehold improvements”—not like investments in assets the utility actually owns, as the company proposes.
(The calculation of more than $800 million in costs is based on BGE’s proposed amortization schedule and its current rate of return, taxes, and depreciation rates. While those could vary over time, they do not vary significantly.)
In the rate case, BGE did not dispute OPC’s expert’s calculation of the full costs to customers of BGE’s plan to capitalize $212 million of conduit improvements over 50 years, although it disputed how OPC translated those costs to present dollars. BGE did no analysis of its own to determine the costs that customers would bear beyond 2026, OPC’s filing noted.
Once BGE’s agreement with Baltimore City expires at the end of 2026 or 2029—depending on whether either the city or BGE opt to end the deal in 2026—BGE will need a new lease arrangement with Baltimore City that will result in customer costs in addition to any recovery approved under BGE’s proposal.
“There are no circumstances where BGE’s profit-increasing proposal will save customers money except in the very near term,” Lapp said. “BGE’s claim regarding ‘benefits’ to customers is misleading. Its proposal would saddle customers with significant long-term costs—the full extent of which even BGE does not know.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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