State regulators agree to another BGE rate increase, though less than utility sought

The increase will boost the average residential customer's bill by about $7.53.

Baltimore Gas and Electric Co. won approval from state regulators Friday for its fifth rate increase since 2010 — albeit one that is about half what the utility initially requested for its residential customers.

The increase granted by the state Public Service Commission is expected to boost the average residential customer's monthly bill by about $7.53. The new rates go into effect immediately.

The decision satisfied neither BGE nor its opponents, who have maintained that customers should be seeing lower bills, given low inflation rates and lower energy costs.

"It tells me that they didn't need it all," said the Rev. Dr. Alvin Gwynn Sr. of the Interdenominational Ministerial Alliance of Baltimore, who testified against the increase.

BGE approached the commission last year with its request, which would have raised more than $200 million — about $15 on a typical monthly residential bill. Among other costs, the utility sought to recoup $140 million for smart meter investments and $30 million for increased fees to use Baltimore's underground conduit system.

Commissioners, describing the request as "unusually large," denied rate increases to pay for the higher conduit fees, noting that BGE's dispute with the city over the fees is ongoing.

The panel also ruled that the utility could not recover $48 million in costs related to smart meters. It also extended the timeline for BGE to recoup its investment from five years to 10 years.

"Although we find that BGE has shown the smart grid system to be cost-beneficial, we are extremely concerned about the level of increase that ratepayers will experience," the commission wrote in its order. "We believe it is appropriate to take steps to ease rate shock to the fullest extent possible."

The approved rate decision will allow the utility to collect an additional $90 million a year. It is expected to add $2.67 to the monthly electric bill of a typical residential customer and $4.86 to the monthly gas bill.

Paula M. Carmody, the People's Counsel for Maryland, said she was disappointed to see the rate increase go through but pleased it wasn't as high as the company requested.

Even commissioners supporting the increase expressed discomfort with the cumulative impact of the years of rate hikes, especially for residents of limited income.

Rate increases over the last six years have swelled the average customer's monthly bill by more than $15.

"We are concerned that we are reaching a tipping point," commissioners Harold D. Williams and Anne E. Hoskins wrote.

BGE maintains that the average bill has not grown since 2008, thanks in part to reduced energy use. It also says that its service has improved thanks to its infrastructure investments, which allow customers to participate in energy savings days and other incentive programs.

"We know we have delivered a modern, smarter grid that brings sustainable savings to customers. We're concerned that the investments we've made on behalf of customers have not been fully recognized by the Commission," BGE said in a statement. "However, we will continue to work with the Commission to ensure we are prepared to meet customers' needs now and in the future, and position Maryland at the forefront of energy innovation. "

Customers are right to question the increases, given the potential savings on labor costs thanks to the smart grid, said Roger Staiger, a senior instructor at the Johns Hopkins Carey Business School and former managing director of the retail commodity division at Constellation Energy, BGE's parent, now owned by Exelon Corp.

"I think they were very generous in giving them the 50 percent, but again, it goes back to the splitting of the baby," Staiger said. "What's the right percentage? 'Ah well, split it in half.'"

Commissioners, who are required to balance customer and company interests, in 2010 made BGE defer a rate increase to pay for the smart grid, saying the utility had to prove the system's cost-effectiveness.

In its application for a rate increase, BGE said customers have seen $2.50 in benefits for every $1 invested in the smart grid system.

The commission order said it believed the benefits to customers were closer to $1.28 per dollar invested — and some commissioners were unconvinced even by that.

In a partial dissent that called for a smaller rate increase, commissioners Williams and Michael T. Richard said proof customers were realizing savings should come in the form of rate reductions.

"We hope to be convinced that smart meters are, in fact, cost-effective and beneficial to ratepayers," they wrote. "In the future, we would expect to see BGE and all utilities come to the Commission to offer rate reductions to offset the very real and very significant costs of [advanced meter infrastructure]."

BGE provides electric service to more than 1.25 million customers and gas service to 650,000 in Baltimore and 10 counties in Maryland.

Anthony McCarthy, a spokesman for Mayor Stephanie Rawlings-Blake, said the city expects to reach a more definite agreement with BGE over the conduit rates that will allow the utility to return to the PSC with another request.

Williams and Hoskins said they would expect the impact of that agreement to be shared by all BGE customers, not solely those in Baltimore.

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