BGE’s Conduit Memo – what does it mean?

On Monday, the Maryland Public Service Commission (PSC), which regulates public utilities, ordered BGE to release a memo on the financing of a deal with Baltimore City to make improvements to the City’s conduit system. BGE released the letter on Thursday.

The memo is part of BGE’s proposed $602.4 million multi-year rate hike proposal before the PSC. 

According to the Office of the People’s Counsel (OPC), if approved, BGE’s proposed rate hike would increase customers’ annual gas and electric bills by an average of $810 more by 2026.

What’s in the memo?

According to the memo, the company plans to capitalize the conduit expenses. If approved, this accounting decision means ratepayers will pay back BGE’s investment over the projected lifetime of the system, with interest to the company. This increases shareholder profits, but anyone with a credit card knows “buy now, pay later” costs customers much more long term when interest is involved.  But instead of acknowledging this, BGE continues to claim capitalizing the costs saves customers money, highlighting the upfront savings. You can read more about the memo and it’s implications in this story from The Baltimore Banner.

BGE’s original refusal to release this memo exacerbates customer opinion that the company is operating in a black-box away from public scrutiny. As a state granted monopoly, regulated utilities are in a unique position where profits are tied directly to regulators’ decisions.

This is why it is so important that these decisions be made in a way that is transparent and accessible to the public. It’s great news that the PSC is operating in such a way and frustrating that BGE engaged in so much hand wringing over the request.

Sometimes it makes sense to capitalize expenses, sometimes it doesn’t.

What else is in the rate hike?

So what else is included in BGE’s rate proposal other than the conduit?

A key component is the company’s proposal to increase spending on new gas infrastructure by $1.8 billion. This capital spending goes well beyond ensuring safety and reliability and customers will be paying for the investment for decades to come.

Analysis from the OPC finds that BGE is already spending more than $6,000 per home on their gas equipment replacement program, and plans to recover that investment – with profit for its investors – at an average per-house cost of at least $19,000.

We’re counting on the PSC to give tough scrutiny to BGE’s rate proposal, particularly related to the capital expense on both the conduit and gas infrastructure spending.

The PSC will make a final decision on BGE’s multi-year rate hike in the next couple of weeks.

More on the BGE rate case