OPC appeals regulators’ decision allowing BGE to bill customers for profits on Baltimore City conduit system work
BALTIMORE – The Maryland Public Service Commission’s decision in Baltimore Gas and Electric Company’s most recent rate case committed errors of law by allowing the utility to charge its customers for profits on work it is performing on Baltimore City’s conduit system, the Office of People’s Counsel argued this week in an appeal before the Circuit Court for Baltimore City. OPC further argued that the decision unlawfully and arbitrarily allows BGE to recover all of the costs for its conduit work from BGE customers despite the fact that other conduit tenants will benefit from that work.
“The Commission erred by treating improvements that BGE agreed to make to the conduit system like improvements to something BGE owns,” said Maryland People’s Counsel David S. Lapp. “Baltimore City owns the conduit system—not BGE, which leases access to the underground conduit to house electric wires and other infrastructure—and the Commission should not have allowed BGE to earn profits off of the work that it promised as part of its lease agreement.”
OPC’s appeal challenges part of the Commission’s decision in BGE’s second multi-year rate case to approve increased gas and electric rates for BGE customers for 2024, 2025, and 2026. Days before BGE filed the case in February 2023, the company and the city entered into an amended conduit lease agreement under which BGE agreed to pay the city for its occupancy mainly by making $120 million in upgrades to the conduit system through 2026.
In the rate case, BGE proposed including the costs of its conduit work in its “rate base”—to be recovered from customers over 50 years with added profits, when the lease agreement’s terms guarantee BGE access to the conduit for just three years. The arrangement allows BGE to earn the same level of profit on the conduit work that it earns on electrical wires, poles, and other infrastructure BGE owns.
BGE’s conduit expenditures differ from costs normally placed into rate base because BGE’s ability to make use of the conduit improvements after the current lease expires depends on the company reaching new financial terms with the city at an unknown cost. Under previous conduit leases, BGE paid the city annual lease payments—and passed these costs along to customers without earning any profit.
In the rate case, OPC asked the Commission to deny BGE’s request to add the conduit spending to its rate base on which it anticipates earning profits for 50 years. In written testimony and in response to questions before the evidentiary hearing, BGE described the improvements as “leasehold improvements,” which would have barred including the costs in rate base for 50 years. At the evidentiary hearing, BGE’s executive reversed course, denying on the stand that its upgrades were leasehold improvements, OPC’s brief to the circuit court said.
In its decision on the rate case, the Commission found the evidentiary record “unclear as to whether the new conduit agreement will inure to the benefit of ratepayers or impose significant future burdens.” The Commission nevertheless approved BGE’s proposal, setting rates in place today based on that approval, with the condition that BGE later conduct a benefit-cost analysis of the arrangement.
The Commission’s decision also forces BGE’s customers to pay more than their fair share of BGE’s conduit improvements, OPC argued, noting that BGE is the system’s largest tenant, but other companies also lease conduit space from the city and are being subsidized by BGE customers. The Commission should not have approved BGE’s proposal without reducing the costs BGE customers must pay to reflect the benefits other tenants are receiving from the conduit work, OPC said.
“BGE negotiated an agreement with the city that will benefit BGE financially,” Lapp said. “But the BGE customers that are footing the bill were not at the bargaining table. It is up to the Commission to protect customers from BGE’s profit-making venture.”
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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