Baltimore Gas and Electric Co. will pay Baltimore about $24 million a year to use the city's underground conduit system, an expense the utility signaled Wednesday it could pass on to customers.
The company and city officials agreed this week to settle a lawsuit BGE filed last year over fees to use the century-old system. The utility will pay more than twice what it pays now for use of the subterranean pipes, which carry utility lines.
Mayor Stephanie Rawlings-Blake's administration tripled the original rate last year, prompting the lawsuit.
The settlement, approved Wednesday by the city Board of Estimates, sets the rate for BGE and other uses at up to $2.20 a foot per year. The utility had paid 98 cents per foot to use the 741-mile conduit system.
Acting City Solicitor David Ralph said the city and BGE will go before the Maryland Public Service Commission to advocate for any resulting electricity rate hike for customers. The increase would be charged to all BGE users, not solely Baltimoreans.
Any proposed rate hike for energy customers would require the commission's approval.
"The city and BGE are now on the same side in going before the PSC, convincing them that this is something that should be shared by all rate-users, not just the city of Baltimore," Ralph said.
It was unclear how much BGE would seek to offset the higher fees. After the city tripled the rate last year, the utility proposed charging Baltimore residents about $8 more per month.
With the settlement, BGE spokesman Justin Mulcahy said, the company would need "substantially less" money now.
"Costs such as the conduit fee are recovered through electric rates," Mulcahy wrote in a statement Wednesday. "Ultimately, it will be up to the Maryland Public Service Commission to determine how BGE should recover this expense in rates."
Paula Carmody, head of the Office of People's Counsel, said the consumer advocacy agency would examine such a proposal when it comes.
The terra cotta conduit system, which carries wires for electricity, telephone service, fiber optics, and street and traffic lights, was built in the 1890s. It covers most of the city and is accessible from more than 14,000 manholes.
BGE, which has rented space in the conduit system for more than 100 years, is its largest user, accounting for more than 75 percent of the capacity.
The Board of Estimates, which is controlled by Rawlings-Blake, voted last year to approve increasing BGE's rate to $3.33 per foot each year.
City officials argued last year that they had to raise the rate because BGE received a "sweetheart deal" more than a decade ago.
"We came to the conclusion the rate was simply too low to cover the cost of upkeep, maintenance and upgrades," Rawlings-Blake said at the time. "Due to the low amount of money we collect, we've had to have a reactive, instead of proactive, maintenance system."
BGE sued. The utility alleged the city was trying to generate revenue with the rate increase, not use the money to maintain the conduit system.
Ralph said Wednesday those allegations were false.
"This is not revenue producing," he said. "This is to maintain a system. It's not money that can be used for Rec and Parks or other things."
The new rate means BGE will pay the city about $17 million less than it would have paid under the higher rate proposed last year.
BGE offered this year to buy the city's conduit system for $100 million. City officials said that price was too low. The agreement announced Wednesday included no additional offer to buy the system.
Some city officials and analysts have said the rates are too low. But BGE has consistently objected to proposals to raise them.
In a 2000 report on government efficiency, The Greater Baltimore Committee and the Presidents' Roundtable called the conduits an untapped source of revenue.
The business groups noted a 1996 study that found that increasing rates could add $3 million to $25 million to Baltimore's general fund.
Researchers learned that cities across the country charged an average of $2 per foot. Atlanta charged $5 per foot.
Under the agreement announced Wednesday, BGE and other users will pay $2 per foot for the next three years, and then $2.20 per foot after that.
BGE said the lower rate agreement will allow the city to better keep up with maintenance of its conduit system.
"We are pleased that as a result of the agreement reached between BGE and the City of Baltimore, BGE electric customers will benefit from lower costs and a safer, more reliable and efficient underground conduit system," Mulcahy said. "This is a win for BGE's customers and for the City, which has the revenue it needs to modernize this important piece of infrastructure."