Baltimore Gas and Electric Co. asked Friday for a monthly surcharge on gas customers to cover part of the cost of replacing old pipes, a request that comes in addition to the rate increase and electric surcharge it is seeking.
BGE said it asked state regulators for permission to charge residential gas customers 32 cents a month and business customers $1.87 a month, starting in February.
The utility intends to ask for higher monthly surcharges in each of the following four years — effectively topping out at $2 for residents and $11.55 for businesses, though some of that amount ultimately could be pushed into base rates. Those amounts are the maximum that utilities can request.
BGE's is the first such request in Maryland since a new law took effect in June allowing for gas surcharges. Critics worry that allowing surcharges will make it easier for utilities to prevail in such cases.
BGE officials said they need a surcharge to pay for part of about $400 million they plan to spend in the next five years to replace old and leaky pipes — including cast-iron ones installed as far back as the early 1900s.
"We feel very confident that we operate a safe and reliable gas system today but that we need to increase the level of investment," said Rob Biagiotti, BGE's vice president of gas distribution.
BGE officials argue that they can more easily and cost-effectively accelerate infrastructure work if they get some money flowing in from the start, rather than waiting for state regulators to allow reimbursement afterward.
But opponents of surcharges contend the fees increase the chances that consumers will overpay. Utilities aren't subject to the same level of profit and expense scrutiny in a surcharge case as in a rate case, when all financials are on the table.
"I understand why it's cost-effective for the utility because they basically get a separate income stream," said Hank Greenberg, director of AARP Maryland, which advocates for the interests of older residents. "It is not cost effective for the consumer."
He and other advocates, including the state Office of People's Counsel, worry that surcharges — sometimes called trackers — are poised to multiply.
State legislators sent a supportive signal about gas surcharges when they approved the utility-backed legislation this year, aimed at accelerating pipeline replacement. Gov. Martin O'Malley's grid reliability task force, convened last year after high-outage storms, recommended surcharges to pay for a faster pace of electrical upgrades.
And last month, Maryland's Public Service Commission approved the first-ever infrastructure surcharge, a portion of what Pepco requested for electrical grid work in Montgomery and Prince George's counties. The majority of commissioners said a "properly defined" surcharge can be appropriate to improve customer reliability, but one commissioner warned of the precedent.
"Today we are letting the tracker genie out of the bottle, and I fear it will continue granting the wishes of Maryland utilities for many years and we may never get it back in the bottle," said Commissioner Harold D. Williams, a former BGE official, in his dissenting opinion.
The fight is playing out against a backdrop of aging infrastructure. Maryland is behind only four states and the District of Columbia for the percentage of gas main miles made of cast and wrought iron. Utilities used those materials in the 19th century and the first few decades of the 20th, switching later to steel and plastic.
BGE said it was cost-effective for years to repair the older pipes when needed, but that's no longer true. Twenty percent of the utility's gas infrastructure accounts for more than 70 percent of leak repairs, Biagiotti said.
BGE plans to spend about $400 million in the next five years, double what it spent in the previous five, to replace pipes made of cast iron, copper, uncoated steel and even plastic in some cases. The utility wants to get $90 million of that amount through surcharges. BGE said it would request reimbursement for the rest of the work in a later rate case.
What customers pay in rates is based on the amount of electricity or gas they use. The gas surcharge would be a flat fee, with small businesses paying the same as big customers.
Ned Atwater, owner of the Atwater's restaurants in Baltimore and Baltimore County, said he'd prefer a charge that takes usage into account, but he thinks infrastructure replacement is worth paying for. He also thinks BGE should be willing to eat into profits to cover some of the needed work, in addition to asking customers to pay.
"We would be happy to chip in," he said. "We would be a lot happier about it if we would [also] see that from the other side."
BGE's request comes on the heels of its May request to increase monthly distribution rates — by $4.41 on the typical residential electric bill and $2.50 on the typical residential gas bill. BGE also asked for a five-year surcharge to accelerate work on electrical infrastructure. The typical residential charge would begin at about 34 cents a month.
The utility last received a rate increase in February, and it's feeling a boost as a result.
BGE's net income in the three months ending in June was $22 million — nearly 70 percent more than it was a year earlier. Parent Exelon Corp. said the increase was "primarily due to higher electric and gas distribution rates."
"That's remarkable," AARP's Greenberg said. "And they can thank their customers for that."