A state watchdog agency is calling on the Baltimore Gas and Electric Company Co., or BGE, to release a confidential memo that outlines details on its controversial conduit agreement with Baltimore City but BGE is fighting to keep that document secret.
The Office of People’s Counsel, an independent state agency tasked with advocating for Maryland ratepayers, asked the Maryland Public Service Commission in October to release the document. In its filing, the OPC claims the document shows how the utility company can potentially profit off improvements to the conduit system, which BGE does not own.
That memo was submitted as evidence for BGE’s rate multi-year rate hike case that currently sits before the PSC — a 10 month long process expected to be complete by mid-December.
People’s Counsel David S. Lapp said in an interview that “transparency is not advanced by keeping that document secret” and that it is “undermined” by “hiding” a document related to one of the rate proposal’s “most important” features: the conduit.
“Public utilities are monopolies; they provide essential services for Marylanders and for the residents of Baltimore, and those customers are entitled to know the rationales for how BGE is proposing to recover those costs,” said Lapp, who has seen the letter but can’t speak to its specific details.
Despite the fact that there are no utility companies competing with BGE, spokesperson Nick Alexopulos emphasized that the document is protected under accountant-client privilege.
“It should remain confidential,” he said, although according to Alexopulos, the memo actually benefits BGE’s position.
“What's important is that conclusions in the memo support BGE’s public position that the expenditures under the conduit agreement with Baltimore city can be capitalized and depreciated over the life of the asset,” said Alexopulos in an interview.
BGE is holding fast in keeping the memo sealed. It has also accused OPC of using the memo to make last minute attempts to sway the Public Service Commission’s decision in the rate case. Alexopulos pointed out that the memo was entered as evidence in July but OPC didn’t push to make the document public until October. In response, Lapp at the OPC said the agency needed to focus on preparing its late August evidentiary hearing before it focused on what it sees as “transparency” issues.
BGE, a subsidiary of Chicago-based Exelon Corporation, serves 1.3 million electric and 700,000 gas customers in Maryland.
In Baltimore, the utility company operates city gas and electric utilities out of a century-old network of 741 miles of underground terracotta piping. That’s the conduit and it's owned by Baltimore City. BGE uses about 70% of the conduit while other notable tenants include Comcast and Verizon.
In February, BGE and the city struck a controversial deal that would allow the utility to fund $120 million in conduit improvements through 2029 instead of paying the city millions of dollars in rent, although they will pay a $1.5 million yearly occupancy fee. The company argued that the deal is more cost-effective for ratepayers over the next three-years and by striking the deal, they were able to request a lower rate increase from the PSC. That deal is completely finalized.
The increase currently under consideration would increase consumer utility rates by 5% each year over the next three years.
But Lapp at the OPC says that in the long-run, the deal is more expensive for ratepayers. The OPC argues that BGE is counting the improvements made on the conduit system as part of its rate base — which is essentially composed of things the utility owns that investors can then see a return on. But in this case, the utility doesn’t own the conduit. Lapp argues that state law doesn’t allow BGE to include those capital improvements in its rate base because BGE doesn’t own the conduit. Yet, Lapp says that accounting could cost ratepayers $860 million over 50 years.
“BGE has made this argument that over the next three years, it's going to save customers money by making it more affordable. That's sort of like saying, Well, I'm going to buy my groceries and pay the minimum payment over the next three years. And I'm going to worry about the longer term costs, which are much more significant somewhere down the road,” said Lapp.
The BGE spokesperson also said that OPC’s claim that the conduit deal will cost more in the long run is unfounded.
“OPC was not a party to these negotiations. Their forecasts and estimates for what this is going to cost is complete conjecture. We plan three years out through our multi-year rate plans, so anything beyond that is pure speculation,” said Alexopulos.
BGE would not say if they have numbers projecting what ratepayers would pay over 50 years. The improvements promised to the conduit are contingent on the rate base approval, said Alexopulos. If the company does not make the required amount in investments, it does owe Baltimore City the difference.
The OPC has gained support from leaders like Baltimore City Councilmember Zeke Cohen, who has been vocal against the conduit deal, and filed a letter of support in making the memo public.
“We sent that letter with a request to just make sure that what we, the public, have received is accurate… so that we know they are being completely transparent with us in assessing what the conduit deal and what the build out of the gas pipeline will do to rates,” said Cohen, who is also running for City Council President against Nick Mosby. Mosby, has also been vocal in his opposition to the BGE-conduit deal, and along with Comptroller Bill Henry tried to block the vote in February by attempting to prevent a quorum of the Board of Estimates.
Lapp at the OPC said this case with BGE is unusual. Normally, the agency does have to go so far as to file a motion to unseal a confidential document. “Often, we'll make a request and ask the utility to waive its confidentiality designation, where we believe that the document should not be confidential,” he said. “Oftentimes, the utility will agree with us.”
The Public Service Commission is expected to make its decision in the rate case by mid-December.
Correction 11/16/2023: An earlier version of this story said that the BGE memo is protected under "attorney-client" privilege. BGE says it is protected under "accountant-client" privilege. We regret the error.
