The cost of BGE reliability

Baltimore Gas & Electric certainly isn't likely to win any popularity contests. It secured a rate increase from the Public Service Commission in February — its second in the last three years — and turned around and filed a request for another one on Friday. And at the same time, the utility is asking the PSC for what may be unprecedented in Maryland: a surcharge on customers' monthly bills to pay for improvements to the electrical grid in advance.

But as little as we may like it, the truth is that failing to make investments in maintaining the grid and improving its reliability is costing us dearly, too. It's just a harder cost to figure than the one that shows up at the bottom of our electric bills every month. How much do we lose in lost wages and productivity — not to mention groceries — every time the power gets knocked out by a storm for four or five days? How often can we expect that to happen? And how well can we target investments to make those outages rarer and shorter?


Gov. Martin O'Malley — who, it is worth remembering, won office in 2006 partly on the strength of an anti-BGE crusade — convened a task force after last year's derecho storm to try to figure out the answers to those questions. It concluded that derecho-related power outages cost Maryland's electric customers almost $600 million. Add in the damage from hurricanes Sandy and Irene and the blizzards of 2010, and you start to get a sense of how expensive our damage-prone electrical grid can be. Meanwhile, the most recent data on the level of carbon dioxide in the atmosphere suggests that climate change is occurring faster than we expected — and with it is likely to come more frequent and more intense storms.

Can we do anything about it? BGE says yes. It points to an aggressive tree-trimming effort in Pikesville between the derecho in June and Hurricane Sandy in October that drastically reduced the duration of outages in the latter storm. The utility estimates it has improved systemwide reliability by 20 percent in the last three years.


BGE and the state's other utilities are dealing with new PSC-mandated standards for tree-trimming and other maintenance projects, and that, combined with the age of the system, explains why it has gone so quickly from one rate increase request to the next. The way it works is that BGE incurs the expenses of these projects and then seeks rate increases after the fact to cover the cost. The PSC holds hearings to determine whether the expenditures were prudent and determines how much of the expense can be passed on to consumers. In the most recent case, the PSC granted BGE about two-thirds of what it was asking for.

The proposed surcharge is a different matter. The idea is that by collecting a small amount from consumers up-front — 34 cents a month for the average consumer, rising to 75 cents a month by the end of five years — BGE can accelerate its efforts to harden the grid through additional tree-trimming, selective burying of trouble-prone power lines and the adoption of new technology. That follows from a recommendation from the governor's task force that such a surcharge be allowed but only for a limited time and only to make improvements beyond the current requirements. In theory, it's a good idea — consumers get a more resilient electrical grid that leads to fewer outages of shorter duration, and if it works as intended, future rate increases will be less frequent and more predictable.

It does, however, reverse the traditional risk dynamic in Maryland utility regulation. In the normal rate-setting process, utilities bear the risk of whether the improvements they make are prudent and effective, as judged by the PSC. With a surcharge, the customers bear the risk that the utility will use the money appropriately, though in BGE's proposal, the PSC would still have a strong oversight role. For that reason, the Maryland Office of the People's Counsel has consistently opposed surcharges. As officials there see it, utilities have always been required to provide safe and reliable service, and if they haven't been making the investments necessary to achieve it, the consumer shouldn't be on the hook to pay for it.

What that reasoning fails to adequately account for is that circumstances have changed. The steady increase in the size of the grid and use of electricity over the last several decades has slowed or stopped, limiting utilities' ability to cover the costs of maintenance investments while they wait for PSC approval. Global warming is making power outages more frequent and severe at a time when our expectations for what constitutes "reliable" service have increased.

But how much they have increased and how much we are willing to pay to realize those expectations are questions beyond what the Public Service Commission is equipped to answer on its own. Whether or not the PSC grants BGE's surcharge request — or earlier ones by Delmarva Power and Pepco — this is a matter that ultimately needs to be settled by elected legislators, not appointed utility commissioners. The legislature this year enacted a bill encouraging and setting terms for surcharges for gas distribution system upgrades, and it should do the same for electricity.