BGE rate case decision overall a disappointment for customers, according to Office of People’s Counsel preliminary analysis
BALTIMORE – Yesterday’s decision in the Baltimore Gas and Electric rate case largely reflects a continuation of high-cost policies harmful to customers, according to an initial review of the nearly 300-page order by the Office of People’s Counsel. While the order properly rejects some of BGE’s spending proposals, it allows excess spending to proceed and leaves the door open for BGE to re-propose projects in upcoming proceedings.
“The order is more detrimental than beneficial to utility customers,” Maryland People’s Counsel David S. Lapp said. “We welcome the Commission’s acknowledgement that we raised ‘important issues’ and that it will later consider whether alternative ratemaking is in the public interest, but that is no consolation for the deleterious impacts on customers of the past three—or next three—years of rate increases.”
The order largely fails to address the massive and risky fossil fuel investments that BGE has been making at a rate of more than $1.2 million a day. While the order denies pieces of BGE’s aggressive spending on fossil fuel infrastructure, it leaves most of the company’s spending largely intact. BGE asked for authorization to spend $1.4 billion on gas infrastructure over the three-year rate plan, which uses an alternative form of ratemaking that allows it to charge customers for forecasted investments. The Commission is allowing more than $1 billion of this spending, while also leaving the door open for BGE to come back and re-propose $145 million of the spending that was denied.
“These gas system investments are locked in for decades to come and pose significant risks to BGE’s customers—especially less affluent customers who will find it more challenging to electrify to avoid spiraling gas system costs,” Lapp said. “Unfortunately, business will continue as usual, exposing customers, taxpayers, and investors to the risk of stranded costs.”
The order authorizes revenue increases for gas spending in amounts greater than electric spending, despite BGE having about half as many gas as electric customers. This means that BGE will continue spending on its fossil fuel infrastructure at twice the per-customer rate than it spends for electric customers. BGE’s rates for delivering gas have already doubled over the past decade.
Regarding the Baltimore City conduit, the order correctly acknowledges that it is “unclear” that ratepayers will benefit from BGE’s proposal, but nevertheless approves it. OPC’s testimony established that BGE’s proposal involved a 50-year payback period—a fact not disputed by BGE—and the order admitted that customers will pay a “significant debt” over that period. The company failed to analyze any of the conduit costs beyond three years—but the order requires the company to do so now.
“BGE should not be rewarded with projected recovery of costs when it chose to stick its head in the sand by not performing any analysis of the impact of its proposal on customers beyond three years,” Lapp said. “Telling it to perform that analysis after the fact is unfair to customers who will be required to pay those costs in the meantime.”
Equally important, the order fails entirely to address OPC’s point that BGE’s proposal to profit from its conduit deal with Baltimore City is inconsistent with long-standing law that generally limits a utility to earning profits only from investments the utility owns and for which customers earn a corresponding benefit as they pay for the assets.
Although the order has its problems, it does appropriately address several issues. Among other rulings benefitting customers, the Commission:
- Rejected BGE’s proposed performance incentive mechanisms, agreeing with OPC and the parties in the case and expressing “deep” concern about their costs and how well they would advance state policies. Reversing an earlier order, the Commission also agreed that non-utilities will be allowed to propose incentives in the future.
- Denied BGE’s proposed costs for “phase two” of its electric vehicle and separately its proposed school bus pilot programs, finding, consistently with OPC’s recommendations, that the programs should be addressed in a separate proceeding.
- Rejected BGE’s proposed “contingency budget” of $46 million, refusing to reverse a previous decision concluding that ratepayers should not pay for a “cushion” for exceeding budgeted costs. OPC opposed such contingencies as unnecessary and inappropriate. The Commission deemed BGE’s proposal a “clever semantic argument.”
- Denied recovery “at this time” of $109 million for BGE’s “resilience” plan that OPC argued significantly overstated the reliability improvements; however, the Commission indicated it will allow BGE to propose the plan in a separate proceeding.
Yesterday's decision follows an order issued in August in which the Commission granted OPC’s motion to strike from the rate case BGE’s massive electrification plan, which the Commission agreed involved critical climate policy decisions best made in a proceeding that involves multiple stakeholders—not a single utility rate case. The plan would have, among other things, required customers to agree to retain their gas furnaces as “backup” in exchange for rebates to assist them in converting their homes to electricity.
The Maryland decision contrasts sharply with a decision by Illinois regulators this week that rejected in its entirety the multi-year alternative rate plan of BGE’s sister company, Commonwealth Edison, because it did not comply with Illinois’s minimum requirements for an MRP, including analysis to “ensure utility expenditures are cost-effective” and “minimize total system costs while maximizing benefits.” As OPC explained, Maryland law has no minimum requirements in place to evaluate whether customers are actually benefiting from MRP alternative ratemaking.
OPC is continuing to review the order.
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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