BGE customers may not be thrilled with the news of the last two weeks. On Dec. 13, the Public Service Commission approved not only gas and electric distribution rate increases for the utility but it also took the unprecedented step of allowing the company to add a surcharge to residents' bills to cover future grid reliability initiatives. And on Tuesday, the Obama administration announced plans to auction the rights to build offshore wind turbines off the Ocean City coast, a project that would add yet another surcharge to Marylander's monthly electric bills.
What may increase ratepayers' anger is that the surcharges are, directly or indirectly, the result of policy decisions by the administration of Gov. Martin O'Malley, who came to office seven years ago largely on a promise to hold down energy costs for BGE customers. Change Maryland, a group headed by Republican gubernatorial candidate Larry Hogan, made much of that evident contradiction in a report it issued this week. Mr. Hogan said the governor's environmental policies and a complacent PSC were to blame for higher energy costs in Maryland.
But that sort of criticism misses the big picture. The rate increase the PSC approved, though unpleasant, is part of the normal order of business. The two surcharges amount to modest investments by consumers to hedge against the unpredictable consequences of climate change.
The way utility regulation has always worked in this state is that companies like BGE make investments in maintaining the power grid and then apply to the PSC for a rate increase to cover their legitimate costs. That's part of what happened here, and for the record, the commission cut BGE's proposed electric distribution charge increase by 59 percent and its proposed gas distribution increase by 42 percent.
The reliability surcharge is new, and although Governor O'Malley isn't directly responsible for it, his support likely made it happen. Consumer advocates are nervous about the precedent, but it should have become clear to Marylanders in the last few years that the efforts by BGE (not to speak of other utilities whose records are worse) have been inadequate to cope with the extreme weather events that are increasingly common. Funding grid improvements through a surcharge rather than the traditional reimbursement model will allow the company to significantly speed the pace of its work on things like re-routing or remediating failure-prone feeder and distribution lines, adding new technology to limit the frequency and duration of outages and burying selected lines underground. The cost is modest — 8 cents a month for the average customer in 2014, rising to 36 cents in 2018. And if the work can even mitigate the kind of massive disruption and expense Marylanders experienced after events like the 2012 derecho and Hurricane Irene, the benefits could be tremendous.
The potential surcharge for an offshore wind farm is a similar story. Building 1,000 megawatts of generating capacity off Maryland's Atlantic coast is not, by itself, going to stop global warming. But it does give Maryland a head start in preparing for energy policies that are an almost certain consequence of climate change. Republicans in Congress may still be fighting the idea that the nation will put a price on carbon emissions, but as the New York Times reported this month many of America's biggest businesses — including all five major oil companies — are making their long-range financial plans on the assumption that it is inevitable.
The O'Malley administration has focused its pitch for off-shore wind largely on the economic benefits associated with sparking the development of a new industry in Maryland. They are certainly substantial. But consumers who are skeptical should consider the surcharge that would help make a wind farm possible as an insurance policy against the likelihood that energy from sources like natural gas and coal could soon be much more expensive. If anything, the worry should be that the $1.50 a month that could go on residential customers' bills won't be enough to attract a bidder, particularly considering the uncertainty surrounding federal incentives for off-shore wind development.
(Also worth noting: If the project doesn't happen, neither does the surcharge.)
Meanwhile, the commodity portion of customers' bills — generally, the biggest share — is going down, largely as a result of low prices for natural gas. BGE officials say in June that bills will drop by about $12 a month for the average customer. That makes it an ideal time for modest investments like these. Consumers may not like them now, but they set the stage for a better future.
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