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The cash cow beneath our feet

Baltimore officials have been talking for two decades or more about the idea of making a profit from the 741 miles of underground conduits that run under the city and carry electrical, telephone and fiber optic lines, but the idea appears to have gained new momentum, as Mayor Stephanie Rawlings-Blake's administration is now in talks with BGE about a range of options including the possibility of an outright sale to the utility. The possibilities are intriguing for a city that's constantly strapped for cash, but the question of what's best not just for the municipal coffers but also for the taxpayers in the short and long term is a complicated one, and the mayor should pursue the matter through a more transparent, holistic process.

The conduit system could be something of a golden goose. It runs under almost the entire city; there is effectively no way for BGE to run power to the city without it, nor for Verizon, Comcast or other telecommunications companies to do business. The city has captive customers. By law, Baltimore has always pegged charges to the cost of maintaining the system, but other cities charge more — or at least they did in the mid-1990s when officials researched the matter. The city figured at the time that it could increase revenue by as much as $16 million a year by merely matching what other cities charge.

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In previous conversations about the issue, city leaders essentially viewed that as free money. After a 2004 audit showing that the Department of Transportation, which manages the system, had failed to follow through on planned rate increases, Comptroller Joan Pratt lamented "how much money we lost," and then City Council President Sheila Dixon referred to rate increases as a way to avoid increasing taxes. But as BGE has made clear every time the city has talked about raising the rates, whether by a few cents per linear foot of wires as in the past or by a doubling or tripling of rates, as is under discussion now, those costs can be passed on to electric ratepayers. As a regulated utility, BGE has the right to recoup its costs plus a reasonable rate of return. The Public Service Commission would have to approve any increase, but the company could certainly make a strong case that it deserved to recoup costs over which it had no control. The company says Baltimore customers could see bills as much as $8 higher per month — the equivalent of its last four rate increases put together.

Getting a rate increase through the PSC is a long and difficult process, so the fact that the company might request so large a hike doesn't mean it would get it any time soon, but the prospect underscores the fact that it and all the others who use the conduit system would be likely to pass at least some of the increased costs on to customers, who are also city taxpayers.

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BGE's offer to buy the system outright for $100 million, then, is an interesting possibility. The company is betting that it can operate the system more efficiently than the city does, which we don't doubt as the company has more resources and expertise to bring to bear on such a task. As BGE officials note in their communications with the city, Baltimore has performed reactive rather than proactive maintenance. Keeping the conduits means the possibility that the city would be saddled with expensive and disruptive repairs as the system, which dates to the 1890s, crumbles beneath our feet. There's something to be said for unloading that risk on a private entity, particularly if doing so could provide Baltimore with an infusion of funds that could go toward new recreation centers, schools, parks or some other public amenity.

Baltimore has historically been reluctant to part with its assets — see, for example, City Council President Bernard C. "Jack" Young's unwillingness to even hold a hearing for Mayor Rawlings-Blake's plan to sell some parking garages to raise funds for new rec centers. This could be an instance in which it makes sense, but there's little chance a sale could win political support unless we publicly explore the possibilities

Is $100 million the right price, and is BGE the right company? The others who use the conduits might well have the same interest BGE does — and might be motivated by the prospect that they could find their access and fees determined by a private company rather than the city. What's needed is a formal request for proposals process. BGE's purchase offer is not something city officials had thought of on their own, nor is a long-term lease idea the company has floated. Other ideas for effectively monetizing the system may also be out there. At the very least, we ought to find out whether someone might be willing to outbid BGE.

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