By Steve Kilar, The Baltimore Sun
9:45 PM EDT, July 27, 2012
Baltimore Gas and Electric Co. is seeking to raise distribution rates for electricity and natural gas, a move that would add about $11.80 a month to the median residential bill.
The rate increase is needed to pay for updated infrastructure, utility officials said Friday. If the proposal is approved by the Public Service Commission, the median bill would rise each billing cycle by about $7.20 for electricity and $4.60 for natural gas.
It's a particularly tricky time to seek a rate increase, as BGE faces consumer backlash and a regulatory probe stemming from its response to a powerful derecho storm last month. High winds knocked out power for hundreds of thousands of customers in broad swaths of Central Maryland, and critics said BGE and other utilities weren't prepared and failed to repair lines quickly.
"There's never a good time for a rate increase," said Mark D. Case, BGE's vice president for strategy and regulatory affairs. "We are trying to deliver on higher customer expectations."
But consumer advocates balked. Companies such as BGE should find other sources of income to strengthen their grid and invest in cost-cutting technologies before requesting rate increases, said Jenny Levin, state advocate for the Maryland Public Interest Research Foundation, a consumer advocacy group.
"If they want rate increases, they need to show they can provide reliable energy," Levin said. "They need to be looking at alternatives ... before they come asking for more money from ratepayers."
Even if the increases are approved, BGE's rates would still be lower than those of most regional peers, Case said. And the company offers a number of ways to help keep customer costs down, including energy efficiency programs, he said.
A bill stabilization adjustment, which makes up for revenue lost to such efficiency programs, raised the ire of customers this month when they learned they would be charged the small fee even though many were without power after the storm.
The rate increase proposed Friday would enable the utility to recover money already spent on updating aging poles and wires, Case said. Last year, BGE spent $594 million on construction investments.
The company projects that the rate increases would bring in $204.2 million per year, according to the application with the commission. That money also would help BGE leverage the money to cover about $3 billion in updates to its electricity and gas distribution system over the next five years.
BGE serves about 1.2 million electricity customers and 650,000 natural gas customers in Maryland. The proposed rate increase relates only to the cost of distribution, not commodity costs. Distribution charges typically make up about a quarter of a residential bill.
The company's last distribution rate increase took effect in December 2010, raising the typical residential customer's monthly bill by $1.34 for electricity and 85 cents for natural gas. BGE has asked for electricity distribution increases only twice in nearly two decades; gas delivery rates have gone up five times in that period, Case said.
"We've been looking at this closely over the last year or so," Case said. The increase is not a reaction to recent weather-related outages, he said.
In early June, executives of the local utility's new owner, Chicago-based Exelon Corp., told stock analysts during a meeting in New York that BGE had delayed filing the rate increase request. BGE wanted to wait until its former parent company, Constellation Energy Group, finalized its merger with Exelon.
The $7.9 billion deal, which closed in March, included a rate increase as part of the merger plans.
"It's pretty startling that they think the filing of a rate case is a sign of a successful merger," said People's Counsel Paula M. Carmody, whose office is an independent state agency that advocates for consumers on utility issues. Her office plans to "vigorously challenge" the rate increase request, she said.
Though her office knew the request was coming, Carmody said, she was surprised at the submission's timing. Her office and the Public Service Commission have launched investigations into BGE's performance in the aftermath of the June 29 storm.
Gov. Martin O'Malley, also in response to the storm, set up a work group this week to come up with ways to improve the ability of the state's electrical grid to withstand storms. O'Malley asked for recommendations within 60 days.
The Public Service Commission could choose to approve only a portion of BGE's proposed rate increase. Last week, the commission rejected the full requests submitted by Pepco, the utility that serves the Washington region, and Delmarva Power & Light Co.
The commission approved $18 million of the $68 million distribution rate increase requested by Pepco and less than half of the $25 million rate increase sought by Delmarva Power. Both utilities, subsidiaries of Pepco Holdings Inc., filed their requests in mid-December.
Case said he expects that the regulators will examine BGE's request independent of the other utilities' applications and that BGE is confident that the evidence submitted to support it will prove the need for a rate increase.
"The PSC really needs to balance the public interest and what the real needs of industry are," said Marceline White, executive director for the Maryland Consumer Rights Coalition.
Still, she said, BGE should pay for its upgrades without passing the costs on to consumers. White said she hopes the commission will reject or at least substantially limit any rate increase.
As in all rate cases, the PSC will accept written testimony and hold public comment and evidentiary hearings before rendering a decision, said spokeswoman Regina L. Davis. The commission does not discuss pending cases, she said.
The regulator is not expected to make a final decision on the requested increase before February.
AARP Maryland will likely intervene in BGE's rate case, just as the organization did with Pepco and Delmarva Power's cases, said Tammy Bresnahan, the organization's director of advocacy.
"People who have worked their whole lives should be able to count on at least their power being reliable and their power rates being stable," Bresnahan said. Retirees on fixed incomes could be harmed by a rate increase that does not seem to be justified, she said.
The Public Service Commission was not persuaded by some of the evidence that Pepco and Delmarva Power provided to bolster their rate requests.
The regulator told Pepco, which has been criticized in recent years for being too slow to restore power after widespread outages, that it would not approve rate increases the utility is seeking to " 'catch up' for past failures to maintain its electric system."
That means Pepco has to absorb $6.4 million in tree-trimming expenses and $1.5 million the company spent to defend itself during an investigation launched by the commission in 2010 after several extensive and prolonged outages.
The commission also prevented Pepco from raising rates to increase shareholder returns. It was "backward" for the company to request a rate increase on shareholders' behalf before customer service improved, the regulator said.
BGE is not requesting an increase specifically tied to paying shareholders. About 1 percent of a customer's bill goes to repaying investors, Case said.
BGE rate request
If approved by regulators, the rate increases would not go into effect before early 2013.
Typical monthly residential electric bill increase: $7.22, a 6.6 percent increase
Typical monthly residential natural gas bill increase: $4.62, a 7.9 percent increase
Source: Baltimore Gas and Electric Co.
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