Is BGE’s Multi-Year Rate Plan Pilot bad for ratepayers?

Rate Hikes and the Multi-year Rate Plan Pilot

In 2020, the Maryland Public Service Commission (PSC), which oversees utilities, approved a new way for utilities to increase rates for customers. BGE, the largest utility in Maryland, was approved to raise rates through the multi-year rate plan (MYP) pilot program. 

The first multi-year rate plan was for the years 2021, 2022, and 2023. In 2023, Maryland PIRG Foundation argued that the PSC should not approve another BGE multi-year rate plan  until the first iteration was evaluated. But, in December 2023, the PSC approved a $400 million rate increase for BGE through the multi-year rate plan pilot program for the years 2024, 2025, and 2026.

Under traditional utility regulation, rates are set at a static level until the utility chooses to propose a rate increase – often years later. While imperfect, this process provides regulators with important tools to moderate rate hikes as well as important incentives for utility companies to keep costs down.

Multi-year rate plans allow for annual rate hikes over the course of the plan. Maryland PIRG, along with other consumer advocates, have been concerned that the pilot program incentivized excessive infrastructure spending, shifted financial risk from utilities to ratepayers, lacked accountability, and increased rates overall.

Reviewing the Multi-Year Rate Plan Pilot

Now that the first multi-year rate plan has concluded, the Commission has asked for feedback on the proposal from stakeholders and the public.

A range of stakeholders have issued comments with concerns about the multi-year rate plan pilot program and its impacts on ratepayers, some asking for it to end:

The Office of People’s Counsel, an independent state agency which advocates for utility customers, opens their comments by stating, “After four years, five rate cases, billions of dollars in net plant additions, and double-digit rate increases, the results of Maryland’s experiment with multi-year rate plans (“MRPs”) are obvious: MRPs have failed Maryland customers.” 

In their comments, the Apartment and Office Building Association of Metropolitan Washington (AOBA) which represents multi-family apartment units and commercial office space in the Maryland said, “AOBA does not support the continued use of MRPs.” And further expressed, “substantial concern regarding the incentives MRPs in Maryland have created for aggressive capital spending, the loss of important ratepayer protections, and the erosion of the affordability of rates for all sizes and types of customers in Maryland.”

The Maryland Energy Administration (MEA), the State’s energy office, concludes that,  “MYPs have apparently not met their stated goals of providing rate stability and reducing administrative burdens. They also seem to unfairly shift risk to ratepayers since the annual reconciliation process reportedly lacks the detail required for a thorough prudency review. Should the Commission choose to proceed with MYPs, MEA would recommend ratepayer safeguards such as a percentage cap on allowable variations in expenditures and a requirement for more detailed explanations to support the reconciliation process.”

What’s next for the Multi-Year Rate Plan Pilot?

Public comments on the Multi-Year Rate Plan Pilot Program are due to the PSC by September 30th and the Commission will hold hearings on the pilot program starting on October 15th.