Statement from People’s Counsel on BGE’s proposed Baltimore City conduit surcharge
Maryland People’s Counsel David S. Lapp issued the following statement on BGE’s proposal to the Public Service Commission to establish a surcharge to recover costs associated with use of Baltimore City’s underground conduit system:
While we are still reviewing BGE’s filing, it is highly unusual to exempt customers in one part of a utility service territory from paying for utility costs necessary to serve customers within the utility service territory. Utilities routinely incur costs to benefit discrete customers but not others, including when constructing, maintaining, and replacing utility-owned poles, wires, and substations, or securing a right-of-way to use private property to deliver utility service. Allocating costs only to “the customers most closely associated with the infrastructure at issue”—as BGE proposes to do with the costs it incurs to use the Baltimore City conduit system—is a significant change to how system improvement costs are allocated today and must be carefully evaluated.
The underlying problem relates to BGE’s 2023 agreement with the City that committed customers to 50 years of costs but only guaranteed three years of access to the conduit. Without Commission intervention, BGE customers will pay for BGE’s capital improvements to the City-owned conduit system over 50 years, including a return for investors, while also now paying for a new lease agreement so that BGE can access the conduit and the very improvements that BGE committed customers to pay for.
BGE did not file its request for the surcharge as part of its current rate case, but the request directly informs the prudence of BGE’s 2023 decision to enter into an agreement with Baltimore City that replaced lease payments with capital spending on the conduit. In BGE’s current rate case, the Commission must evaluate the prudence of that decision. At issue in the case is $80.5 million of a total of about $120 million in capital spending; with Commission approval, customers will pay that amount and substantially more to cover the utility’s return, including its profits.
Although spreading the costs over an extended period reduces the monthly bill impact for BGE’s customers in the very near term, it significantly increases the total cost to customers. In an analysis completed in 2023, OPC showed that the initial deal—which consisted of a potential six years of capital expenditures totaling $212 million—would cost customers an estimated $860 million over the 50 years of cost recovery. With capital expenditures of $120 million over 2023-2026 rather than $212 million over six years (because the City is not continuing the 2023 agreement through 2029), the 50-year total cost to customers will be in excess of $400 million.
As our office has pointed out, BGE’s decision in 2023 forces future customers to pay for two conduit contracts at once: BGE’s capital expenditures and BGE’s return on those expenditures, plus starting in 2027, a new lease agreement so it can continue to access the conduit—all costs that BGE never evaluated or considered when it asked the Commission to approve the deal as part of its last multiyear rate plan.
BGE’s filing and announcement also appear premature. As a conduit user, BGE can negotiate new rates with the City, as it has in the past. But BGE’s filing refers only to an announcement of the City’s newly approved charge, and it is unclear whether BGE has sought to negotiate the terms or entered into a new lease agreement with the City prior to making its filing. BGE can seek to recover the costs from customers in a future rate case if it executes a new agreement and establishes that the costs have been incurred or are known and measurable future costs.
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers in 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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