BGE asks to shield memo explaining how it aims to finance controversial Baltimore conduit deal

Baltimore’s dominant utility provider is asking Maryland regulators to keep secret a key document that sheds more light on the controversial deal the company inked earlier this year with Mayor Brandon Scott — an agreement a state watchdog says could cost ratepayers hundreds of millions of dollars in the coming decades.

In early October, Baltimore Gas and Electric asked the Maryland Public Service Commission to shield an internal accounting memo the company had submitted as evidence in its ongoing rate case, a 10-month regulatory process to set the electric and gas rates for the utility’s customers. The rate case takes into account a broad set of variables, among them the deal the company struck earlier this year with Baltimore over access to the city-owned conduit system, a 741-mile underground network housing the wires that power street lights, traffic signals and phone and internet services.

Exactly what the BGE document — filed with state regulators late this summer — might reveal isn’t clear. The company’s request came in response to a push by the Maryland Office of the People’s Counsel, an independent state agency representing ratepayer interests, to unseal the memo.

In an interview, People’s Counsel David S. Lapp described the document as containing “internal discussions” that shed light on the utility’s arguments for why it should be able to earn a return on investments it makes into Baltimore’s conduit system, an asset that belongs to the city. Lapp has argued over the course of the rate case that utilities cannot typically collect returns from assets they don’t own — an arrangement he has called a “monopoly company’s gambit” to benefit its investors at the expense of its customers.

In a series of exchanges before the Public Service Commission, Lapp – who has seen the memo but said he is under legal obligation not to go into specifics about its contents – has appealed to state regulators to publicize the document, pushing back on BGE’s arguments that disclosing it could put them at a disadvantage with competitors.

“Instead of substantiating why the memorandum’s contents should be considered confidential,” the people’s counsel wrote in an objection, BGE leans on “unfounded and irrelevant procedural arguments defending its decision to hide from the public the only complete explanation of why it proposes” that its customers pay for investments into infrastructure the utility doesn’t own.

In a statement, BGE spokesperson Nicholas Alexopulos argued that the memo should remain confidential under an “accountant/client privilege,” but added that the contents support the utility’s position and would benefit the company if publicly disclosed. The utility has argued in regulatory filings that the Office of the People’s Counsel had ample opportunity to object to the confidential status earlier in the process.

“It’s likely this is OPC’s latest desperately transparent attempt to improperly influence decisions” in the rate case, Alexopulos said.

Whatever the contents, the document may prove consequential to the decision by regulators on BGE’s proposal to capitalize off of the deal it struck earlier this year with the Scott administration. While the deal is final as far as the city is concerned, BGE still needs the Public Service Commission’s approval in order to collect returns from ratepayers for the investments it puts in the aging conduit — and avoid potentially footing the bill itself.

BGE serves 1.3 million electric customers and 700,000 natural gas customers in Baltimore and the surrounding region and has asked to hike rates on customers over the next three years in order to cover the costs of more than $600 million in improvements to its infrastructure.

The five-member Public Service Commission is expected to reach a decision in the utility’s application for a rate increase by Dec. 14, Tori Leonard, spokesperson for the commission, said Friday.

Under the agreement between BGE and the city, the utility would receive access to the city-owned conduit by funding $212 million in system improvements between now and 2029 instead of paying rent. Those terms drew backlash in some corners of Baltimore government after voters barred the privatization of the underground system. The power company would also pay Baltimore an annual occupancy fee of $1.5 million.

In the past, BGE customers have helped cover about $28 million in annual lease payments for the utility’s use of the underground conduit system.

Revelations about the terms of these negotiations sparked an uproar in City Hall earlier this year, coming to a head at a dramatic meeting of the city spending board in February in which Scott and two of his appointees rammed the deal through over the protests of Comptroller Bill Henry and City Council President Nick Mosby. Those two spending board members had skipped the meeting in a last-minute effort to prevent a quorum and block a vote.

A spokesperson for Scott did not respond to a request for comment on the confidential BGE memo.

Emily Scarr, state director for the public interest advocacy group Maryland PIRG, called on regulators this week to make public BGE’s memo and pushed for “tough scrutiny” of how the conduit deal factors into the utility’s requested rate hike.

“It’s becoming clear that BGE is using the conduit deal to benefit their shareholders instead of their customers,” Scarr said in a statement to The Banner, pointing to an estimate by the people’s counsel of the deal’s long-term costs to ratepayers. “Baltimoreans have had enough of BGE’s bait-and-switch tactics and slick messaging and deserve greater transparency from the utility.”

Councilman Zeke Cohen also sent a letter to the Public Service Commission earlier this month calling on regulators and BGE to publicize the memo. The 1st District councilman noted that in its opposition BGE has raised concern about how the memo would be used in “a public campaign” against its requested rate hike.

“BGE has conducted a public campaign of its own,” said Cohen, who is running for city council president. “The City Council and citizens of Baltimore deserve to have a full accounting of the conduit deal.”

A subsidiary of the Chicago-based Exelon Corp., BGE pushed for the city to ink the deal in February before the start of its rate case, and has argued that the agreement allowed them to reduce the rate increase they were seeking by tens of millions of dollars. The utility has pegged savings from the deal at $57 million over the next three years.

While the Office of the People’s Counsel agrees with BGE that the deal saves ratepayers money in the next few years, analysis by the watchdog has predicted that the long-term costs would be much more substantial — far exceeding the $212 million the utility is on the hook for over the next six years.

According to analysis the state agency released in August, costs would reach approximately $860 million as ratepayers foot the bill both for BGE’s rate of return — a cost analogous to paying interest — and for its taxes on those returns.

And because the deal does not guarantee BGE rights to the conduit after 2029, the people’s counsel has argued that the arrangement could wind up even more expensive for customers than the $860 million figure, as the company eventually ends up having to pay twice for use of the conduit — once for the structural improvements and again for renewed lease payments.

While BGE did not directly answer a question this week about whether it has done its own analysis of the long-term costs of the conduit deal, Alexopulos called the people’s counsel estimate “both misleading and inappropriate.” The watchdog was not involved in the utility’s negotiations with Baltimore officials, so its analysis amounts to “conjecture based on incomplete information,” he said.

And in a letter filed before the commission this week, BGE accused the people’s counsel of attempting to litigate its case in the media “as a way of improperly influencing the Commission to disregard the law.”

adam.willis@thebaltimorebanner.com

Adam Willis

adam.willis@thebaltimorebanner.com

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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