Three days after state regulators ruled that a confidential memo shedding light on a deal between Mayor Brandon Scott and Baltimore’s dominant utility provider should be public, the company released an unredacted version of the document.

Baltimore Gas and Electric has clashed in recent weeks with a state watchdog, the Maryland Office of People’s Counsel, over the public’s access to this internal accounting memo. In filings before the Maryland Public Service Commission and in statements to the media, BGE maintained that the memo — which details plans to finance the conduit deal it struck with the Scott administration in February — should remain classified, accessible only to parties in its ongoing rate case. People’s Counsel David S. Lapp, who represents BGE customers in the rate case, objected, arguing in October and November filings that the document should be released to the public.

The watchdog office got its wish with the Public Service Commission’s ruling Monday that gave BGE 10 days to suggest redactions before the public could access the document.

BGE said Thursday that, “in the name of transparency and good faith,” it was expediting the release of the document, choosing not to ask for redactions. The only blacked-out lines of the memo protect the names of its author and recipient.

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For all the public outcry over the memo — City Council President Nick Mosby and Councilman Zeke Cohen have celebrated the Public Service Commission order in recent days — its implications aren’t obvious. The 11-page document, exchanged between BGE’s accounting department and its parent company, Exelon, in March, is a complex accounting memo.

BGE serves 1.3 million electric customers and 700,000 natural gas customers in Baltimore and the surrounding region. It has asked to hike rates on customers over the next three years to cover the costs of more than $600 million in improvements to its infrastructure. The Public Service Commission is expected to release a decision in the rate case by Dec. 14.

BGE and Lapp both claimed Thursday that the memo supported their arguments about whether the rate increases BGE is seeking should be approved.

Here’s what the memo reveals.

A wonky dispute

At the heart of the dispute between BGE and the Office of People’s Counsel is a wonky disagreement over whether the company should be allowed to profit from its investments into the conduit system — an asset it doesn’t own — by passing costs to ratepayers. BGE argues this should be allowed because its improvements provide long-term safety and reliability to customers, while the people’s counsel has criticized the company’s justifications and maintained that utilities can’t typically profit off assets they don’t own.

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In the memo, which BGE says has been vetted by an independent auditor, the company argues that, even though it does not own the conduit system, the state has granted it “perpetual access” to ensure safe and reliable power. Because residents will benefit from BGE’s improvements long after the current agreement with the city has expired, the company argues it should be able to earn profits off its investments over that decadeslong life span of the asset.

And, because BGE’s rights to the conduit extend beyond the agreement it entered with the city, the company argues in its memo that its improvements to the system should be viewed not as those of a short-term renter but more like a long-term owner.

Lapp, however, argued that BGE has not taken a consistent stance on that question, pointing to filings before regulators in which the company characterizes its work as that of a short-term renter. At the same time, BGE relies on “circular logic” to back up this position, Lapp said. He noted that, at one point in the memo, BGE states that it should receive the “future economic benefit” of the conduit because of its “ability” to profit off its improvements — the same ability that regulators have yet to approve.

“This memo shows that the only thing that’s behind that [argument] is the expectation — or their hope — that the commission will do what they’re asking,” he said.

Is BGE angling to buy Baltimore’s conduit?

Buried in BGE’s internal memo is a suggestion that its arrangement with the Scott administration could pave a path for the utility to take ownership of the city’s conduit system.

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That possibility drove much of the uproar in City Hall over Scott’s deal with BGE this year, as some elected officials pushed back on the arrangement in light of last year’s voter referendum barring privatization of the underground system. Scott and BGE have maintained the deal does not cede ownership of the conduit to the utility but instead grants the company access to provide critical improvements to the aging system.

Under the agreement between BGE and the city, the utility received access to the city-owned conduit by funding $212 million in system improvements between now and 2029 instead of paying rent. The city and the company could choose not to renew the arrangement after $120 million of investment, at the end of 2026. The power company would also pay Baltimore an annual occupancy fee of $1.5 million.

This setup could be seen as a “test case” for future maintenance of the conduit system, the memo notes, leaving a “good chance” that the city seeks to change the structure of the deal or decides to break things off at a renewal point in three years.

But the memo also notes that the maintenance arrangement might persuade the city to cede ownership of the system further down the line.

“There is a possibility that if the City likes this new structure, the City could decide to sell the conduit system to BGE in the future,” the memo states. Such an outcome, of course, would require overturning the decision voters made last year, as the memo adds: “For this scenario to be a possibility, it would require another ballot initiative to reverse the rule that currently prohibits the City from selling the conduit system to any counterparty.”

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Asked about this section of the memo Thursday, BGE spokesman Nicholas Alexopulos said the company considered all potential future scenarios for the conduit as part of its “due diligence.” The line about the city’s ballot initiative is an acknowledgement that “we unequivocally respect the established democratic process for determining changes to conduit ownership,” he said.

The utility has had no discussions with the city about purchasing the conduit system since the ballot initiative went before voters, Alexopulos added.

Mayor Brandon Scott speaks to media after the Board of Estimates meeting at City Hall in Baltimore, February 15, 2023.
Mayor Brandon Scott speaks to media after the Board of Estimates meeting at City Hall in February. (Jessica Gallagher/The Baltimore Banner)

Does this deal save customers money?

BGE and the Office of People’s Counsel have traded blows over another fundamental question about the utility’s plans to capitalize on its investments into the conduit system. Will this arrangement save ratepayers money or cost them?

BGE pushed the Scott administration to ink the conduit deal before the start of its 10-month rate case in February, and the company has since argued the arrangement allowed it to reduce the rate hike it was seeking by tens of millions of dollars. The utility has estimated total savings from the deal at $57 million.

Although the Office of People’s Counsel agrees that the deal yields short-term savings, the watchdog agency has estimated a much steeper long-term cost to BGE ratepayers — $860 million over the next 50 years — as customers foot the bill for BGE’s rate of return and for its taxes on those returns.

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The utility, meanwhile, has not produced a long-term cost analysis of its own, a decision Lapp said amounts to “sticking their head in the sand” to ignore longer-term consequences to customers.

BGE has insisted that Lapp’s cost estimate is “both misleading and inappropriate,” arguing that, because the people’s counsel wasn’t present for negotiations between the city and BGE, its analysis amounts to “conjecture based on incomplete information.”

BGE maintains it was right about confidentiality of its memo

Even as the Public Service Commission forced BGE to release its memo, the company has maintained that the document should have remained classified. Alexopulos said after the Public Service Commission’s ruling Monday that BGE would comply with the ruling, though it disagreed with the basis of the decision.

And the company reiterated arguments Thursday that the Office of People’s Counsel had ample opportunity to object to the confidential status of the document earlier in the process, calling Lapp’s push “an attempt to improperly influence” the impending decision from state regulators.

Lapp pushed back on that argument Thursday, pointing to the company’s own public testimony and statements to the media. “The only thing that is unusual here is BGE’s determination to do everything in its power to ensure the public cannot see a document that, as the commission has ruled, is now a public record that does not appear to contain anything confidential,” Lapp said.

BGE has said it submitted the document as evidence in the rate case with the understanding it would remain confidential, arguing in a letter to the Public Service Commission this month that “the only reason” regulators and the Office of People’s Counsel have seen the memo at all is because the utility submitted it to the case record confidentially “in good faith and to be transparent.”

Adam Willis covers city government for The Banner, including the impacts of the large COVID-19 stimulus package that Baltimore received from the federal government. 

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