Maryland state regulators on Dec. 13 approved a partial electric distribution rate increase for Baltimore Gas and Electric (BGE) of $33.6m and a $12.5m increase for its gas distribution rates, representing about 41% and 52%, respectively, of what the company had requested.
The new rates will result in an estimated monthly increase for average residential bills of $2.13, or 1.66%, in their electric bills and 73 cents, or 1.06%, in their gas bills, the state Public Service Commission (PSC) added in its statement.
The company had requested an $82.6m increase for electric distribution and a $24.4m increase for its gas distribution.
The PSC also noted that since economic conditions have not changed significantly since the company’s return on equity (ROE) was last set, the commissioners declined BGE’s request for an increase in its ROE to 10.5% for its electric distribution operations and 10.35% for its gas distribution operations. Instead, the PSC maintained BGE’s ROEs at 9.75% and 9.6%, respectively.
The new rates became effective on Dec. 13.
Also, the PSC noted that BGE had proposed a five-year, $136m electric reliability investment (ERI) initiative to accelerate reliability improvements to its distribution system through eight programs. Most of the commissioners voted to implement a $72.6m ERI initiative consisting of five of those programs, the PSC added, noting that the programs will serve to improve grid reliability during normal weather and in severe storms.
The programs include doubling the remediation of the poorest performing feeders, installing “reclosers” to minimize the number and duration of outages on 13-kV and 34-kV distribution lines, alternative routing of 34-kV substation supply lines and selective undergrounding.
The PSC also said that over the course of the initiative, BGE is to comply with certain conditions, including that it provide a description of the work to be done and set performance objective(s) for each project. BGE is to also establish major milestones and estimated costs for each and provide estimated total costs for each project.
For an average residential electric bill, the surcharge represents an additional 8 cents per month in 2014, 18 cents in 2015, 26 cents in 2016, 31 cents in 2017 and 36 cents in 2018.
The ERI rates will be in effect no earlier than April 1, 2014, the PSC added.
According to the PSC’s order, BGE said that its gas and electric construction investments in 2012 totaled $586m, noting that it has achieved a sustainable improvement in electric reliability of about 20% since 2010.
In discussing the rate changes, the PSC said, “We find that this will permit BGE to continue to improve the reliability and resiliency of its electric and gas distribution systems at just and reasonable rates.”
However, the PSC said, like most BGE customers, it is not content to rely on the historic pace of reliability and resiliency improvement, noting that as was shown dramatically following the June 2012 derecho, a public increasingly dependent on electricity to meet its daily needs is not satisfied with the condition of the electric distribution infrastructure that has evolved over the last century.
“The need for dramatic acceleration in the pace of infrastructure improvement causes us to look for new tools to incent the utilities to undertake such accelerated and incremental work,” the PSC said.
Referencing BGE’s ERI initiative proposal, the PSC said, “We have carefully reviewed each proposed program to determine if it is cost effective, if it provides accelerated and incremental benefits to increase reliability as well as resiliency, and if it is appropriate for concurrent surcharge cost recovery.”
The PSC added that while it deems the proposed programs that it approved to be cost-effective based on the evidence presented, it is not making a determination that BGE’s actual expenditures will be prudent. “We will hold the findings of prudency of expenditures, cost effectiveness, practical effectiveness and timeliness for the company to prove through subsequent filings,” the PSC said.
Among other things, the PSC said: “We grant any utility rate increase reluctantly, and only when we are persuaded by the evidence that the increase is necessary to maintain a reliable and safe distribution system, a financially sound utility and that it will improve the experience for its customers. We find that the rate increase we have granted herein, and the ERI initiatives we have approved and its concurrent surcharge, strike the proper balance of just and reasonable rates for ratepayers and an improvement of safe and reliable service, while maintaining BGE’s financial integrity.”
Commissioners Harold Williams and Lawrence Brenner issued a statement dissenting on the ERI surcharge, saying that the approval of a surcharge is contrary to the precedent established by the PSC as well as sound regulatory policy.
“The surcharge will unfairly shift risks that are properly borne by company shareholders to ratepayers, based on a multi-year forecast of plant that has not been demonstrated to be used or useful and estimated expenses that are not known and measurable,” they said.
Furthermore, the commissioners said, the reliance of the majority on the Governor’s Task Force Report to justify the surcharge is misplaced given that the report limited its surcharge recommendation to projects that bolster resiliency and that are accelerated and incremental, little of which has been shown in the BGE rate proceeding.
Maryland Gov. Martin O’Malley released in October 2012 that report, which contained 11 recommendations, including a four-step implementation plan that would accelerate investment designed to strengthen the electric distribution grid.
Additionally, the commissioners said, although the majority opinion purports to reserve prudency determinations for a future rate proceeding, the commissioners said they find the likelihood of a “claw back” of revenue in a future prudency review to be implausible.
A spokesperson for BGE, which is an Exelon (NYSE:EXC) company, did not immediately respond to TransmissionHub‘s request for comment.