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BGE reaches settlement to reduce rate hike request

The average monthly bill for Baltimore Gas and Electric Co. customers receiving both electric and gas services would jump by about $4 under a settlement the utility provider reached this month with state regulatory staff and other stakeholders.
The average monthly bill for Baltimore Gas and Electric Co. customers receiving both electric and gas services would jump by about $4 under a settlement the utility provider reached this month with state regulatory staff and other stakeholders. (Algerina Perna / Baltimore Sun)

The average monthly bill for Baltimore Gas and Electric Co. customers receiving both electric and gas services would jump by about $4 under a settlement the utility reached this month with state regulatory staff and other stakeholders.

The settlement would increase BGE distribution rates by less than a third of what the utility sought in July. If approved by the Public Service Commission, the new rates would take effect in mid-December.

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BGE has sought to increase distribution rates each year for the last four years, adding $6.80 more in distribution charges on the average electric bill and $4.28 more on the average gas bill. The utility provider said it has invested $3 billion in infrastructure upgrades in the last five years and plans to invest $3 billion more through 2018.

The upgrades will reduce the frequency and length of power outages, said BGE, which is allowed to recoup its costs through rate increases.

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BGE has not previously used a settlement agreement to increase rates in at least three decades, said Mark D. Case, BGE's vice president of strategy and regulatory affairs.

But the outcome — a significantly smaller rate hike than BGE initially sought — is not unusual. In past years, the Maryland Public Service Commission approved rate increases that were lower than what the utility sought.

"It's rare that a utility is awarded the full amount of the increase that it's seeking," Case said. "By and large, there just really were not as many big controversial issues in this case, so we were able to get to a position where we could get a fair return and recovery of our costs."

The parties to the settlement, which was filed Oct. 17, include PSC staff, the Office of the People's Counsel, federal agencies including the Department of Defense, Wal-Mart Stores Inc., and Columbia-based specialty chemicals and materials company W. R. Grace and Co.

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"We are very aware that any increase has a real-world impact on our gas and electric customers," said Paula Carmody, who heads the Maryland Office of People's Counsel, an agency that represents residential utility customers. "I would not have authorized my attorneys to settle the case if I did not think it was a reasonable settlement based on all the facts that we know."

Carmody called BGE's agreement to reduce the electricity rate a "significant concession."

The average residential electric consumer, with a monthly bill of about $135 a month, would pay an additional 96 cents a month. The average residential gas consumer, with a bill of about $71 a month, would see an increase of $3.41. Customers with both services would pay less than the sum of the two increases, about $4 a month.

BGE — Maryland's largest utility provider with more than 1.2 million electric and 655,000 gas customers — originally sought increases of $6.57 a month for the average residential electric bill and $8.53 a month for the average residential gas bill, or about $15 a month for customers getting both services.

Utility providers often do infrastructure upgrades on a "boom and bust" cycle as systems age, and many providers across the country are in a boom period, said Rob Thormeyer, a spokesman for the National Association of Regulatory Utility Commissioners.

"It's just the nature of the industry," Thormeyer said. "You build a power plant or a power line, and it has a life expectancy. If the utility feels like it has to build more, they may feel it requires a rate increase."

Thormeyer said that many utility providers, including in New York and in the Mid-Atlantic region, are trying to make their infrastructure more resilient to climate change. The 2012 derecho storm, in which 1.6 million customers lost power, was one wake-up call amid an increasing frequency of severe storms, Thormeyer said.

"Is the status quo — when you have a storm that knocks out power for eight days — is that acceptable?" he said.

The infrastructure upgrades BGE is undertaking include tree trimming and new gas mains. Case said reliability has improved, with power outages dropping by 30 percent in 2013 compared to the previous three years, with the outage duration dropping by 60 percent.

Case said the commodity prices for natural gas and electricity production have declined in recent years, and coupled with the energy efficiency reward programs the utility offers, "a customer's bill even with these increases is still going to be $15 a month lower than it was five years ago."

BGE will need to seek to recover costs for its ongoing upgrade to smart meters, scheduled to end next year, Case said. He couldn't say when it will seek that rate increase.

"We are in definitely in a very difficult cycle, not only with BGE but with all our gas and electric utilities in the state," Carmody said. "Across the country, utilities are requesting rate increases every year. … We do expect this trend of them coming and seeking rate increases to continue."

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