Baltimore Gas and Electric Company (BGE), a widespread utility in Maryland, asked on Friday August 2, 2013 to enforce a monthly surcharge on gas customers. The surcharge is said to cover a portion of the cost to replace old pipes, a request that comes in addition to the rate increase and electric surcharge it is seeking.
BGE requested permission from state regulators to charge residential gas customers 32 cents a month and business customers $1.87 a month, starting in February of 2014.
The utility intends to request higher monthly surcharges each year for a four year period. Over that time frame, surcharges will ultimately top out at $2 for residents and $11.55 for businesses. Those amounts are the maximum that utilities can require from customers.
BGE officials said that they need a surcharge to assist in the payment for a plan that will have effect over the next five years. The plan averages in at about $400 million and is set to replace old and leaky pipes including cast-iron pipes that were installed as far back as the early 1900s.
BGE’s is the first such request in Maryland since a new law took effect in June allowing for gas surcharges. Critics worry that allowing surcharges will make it easier for utilities to prevail in such cases.
“We feel very confident that we operate a safe and reliable gas system today but that we need to increase the level of investment,” said Rob Biagiotti, BGE’s vice president of gas distribution.
BGE officials argue that they can more easily and cost-effectively accelerate infrastructure work if they get some money flowing in from the start, rather than waiting for state regulators to allow reimbursement afterward.
But opponents of surcharges contend that the increase in fees will result in a likelihood that consumers will overpay. Utilities are not subject to the same level of profit and expense scrutiny in a surcharge case as in a rate case, when all financials are on the table.
“I understand why it’s cost-effective for the utility because they basically get a separate income stream,” said Hank Greenberg, director of AARP Maryland, which advocates for the interests of older residents. “It is not cost effective for the consumer.”
He and other advocates, including the state Office of People’s Counsel, worry that surcharges sometimes called trackers are poised to multiply.
State legislators sent a supportive signal about gas surcharges when they approved the utility-backed legislation this year, aimed at accelerating pipeline replacement. Gov. Martin O’Malley’s grid reliability task force, convened last year after high-outage storms, recommended surcharges to pay for a faster pace of electrical upgrades.
And last month, Maryland’s Public Service Commission approved the first-ever infrastructure surcharge, a portion of what Pepco requested for electrical grid work in Montgomery and Prince George’s counties. The majority of commissioners said a “properly defined” surcharge can be appropriate to improve customer reliability, but one commissioner warned of the precedent.
“Today we are letting the tracker genie out of the bottle, and I fear it will continue granting the wishes of Maryland utilities for many years and we may never get it back in the bottle,” said Commissioner Harold D. Williams, a former BGE official, in his dissenting opinion.
The fight is playing out against a backdrop of aging infrastructure. Maryland is behind only four states and the District of Columbia for the percentage of gas main miles made of cast and wrought iron. Utilities used those materials in the 19th century and the first few decades of the 20th, switching later to steel and plastic.
BGE said it was cost-effective for years to repair the older pipes when needed, but that’s no longer true. Twenty percent of the utility’s gas infrastructure accounts for more than 70 percent of leak repairs, Biagiotti said.
BGE plans to spend about $400 million in the next five years, double what it spent in the previous five, to replace pipes made of cast iron, copper, uncoated steel and even plastic in some cases. The utility wants to get $90 million of that amount through surcharges. BGE said it would request reimbursement for the rest of the work in a later rate case.
What customers pay in rates is based on the amount of electricity or gas they use. The gas surcharge would be a flat fee, with small businesses paying the same as big customers.
Ultimately, the customer is at the mercy of the utility. Being a consumer of a utility leaves little room for control regarding rates and surcharges. However, living in a deregulated state allows consumers to take back control of their energy bill.
Customers of BGE have a choice whether or not to be subject to the rates enforced. By living in Maryland, a deregulated state, residents have the power to choose a retail energy provider at their leisure. Doing so allows customers to save money and to gain consistent energy bills.
Do not let the utility decide how much you pay each month. Make the smart choice to start saving today by visiting electricityrates.com. Check for savings in your area by simply typing in your ZIP Code.