4:24 PM EDT, July 27, 2012
Say this for Baltimore Gas & Electric Co., they have a curious sense of timing. Six years ago, they sought a 72 percent rate increase at the same time that their parent company was seeking approval for a merger — and in the middle of a gubernatorial election. That didn't go so well. Now the company is seeking a rate increase — albeit a much more modest one — just after hundreds of thousands of its customers were without power, some of them for more than a week, raising the ire of residents and politicians alike. The last thing those who were in the dark for several sweltering days likely want to hear is that they'll soon be paying more.
Nonetheless, this is precisely the right time for the Public Service Commission, elected officials and electric customers to begin having a conversation about electric rates and whether we as a state have been investing enough in strengthening the grid. BGE officials say the increases they're seeking in electric and gas rates — a total of just under $12 a month for a typical residential customer — are necessary to maintain a stepped-up pace of investment in infrastructure. The grid is aging, they say, and the price of repairing and replacing it — from wires to poles — has increased significantly.
The Public Service Commission will spend the next seven months investigating the company's rationale for the proposed increase, but as a state, we need to consider the question of cost versus reliability more broadly. To that end, it's fortuitous that BGE's request comes days after Gov.Martin O'Malleyordered his chief energy adviser to spend 60 days gathering information on what could be done to harden the state's electrical grid to prevent weather-related mass outages, what it would cost and how to pay for it. Within the last year, we suffered through two such events — Hurricane Irene and the recent derecho storm — and climate science suggests that they will only become more common in the years to come. It's time to recalibrate the balance between keeping rates low and investing enough in the grid to prevent the kind of economic losses we witnessed this month, from spoiled food to unexpected hotel stays.
In the immediate aftermath of the derecho, BGE officials dismissed the idea of burying the power lines, saying to do so throughout the system could cost as much as $9 billion. But there is a range of options below that point that could be cost effective. The governor's order spoke of evaluating strategic investments in undergrounding lines in places that have been subject to frequent outages, and the company has other options for hardening the system, including more aggressive tree trimming policies and the use of more heavily insulated (and stronger) wires.
But the important thing for BGE consumers to understand is that they, ultimately, will be the ones to bear the cost. No matter how much frustrated customers might wish that the cost of revamping the system could come out of the salaries of top Constellation executives like Mayo Shattuck, that's not the way it works. Maryland regulators have ensured that the finances of BGE and its parent company are insulated from one another; it's a key protection to guarantee the utility isn't imperiled by the risky energy trading operations of Constellation or its new owner, Chicago-based Exelon. But that cuts the other way, too.
BGE is a regulated utility. It's job is providing and maintaining the network that distributes electricity from power plants to homes and businesses in Central Maryland, and it is allowed to make a specified and relatively modest profit from that operation. If the state orders it to spend more on tree trimming or burying lines, it has to give the company the opportunity to recoup that cost through the rate structure.
Whether to do that is a difficult question for regulators. Some consumers might find it worthwhile to pay a bit more to ensure the reliability of their power, but others might not want to or be able to. And the electric grid is, for better or worse, a one-size-fits-all operation.
But it's a question we need to answer. BGE says its rate proposal is necessary to maintain the grid as it is. Governor O'Malley is asking about the costs to make it more resilient. The Public Service Commission, and ultimately the ratepayers, need to consider both issues together.
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