People’s counsel: Marylanders hit hard by gas and electric utilities’ excessive spending | GUEST COMMENTARY

It’s past time for the state to look out for customers by putting the reins on policies that fuel the utilities’ appetite for capital spending. 

It’s past time to shed light on the dramatic increases in rates that many Marylanders are paying utilities to deliver their electricity and gas. Rate hikes have been fueled by aggressive and highly profitable capital spending by many of the state’s largest gas and electric utilities — spending that has been super-charged by state law and Maryland Public Service Commission decisions.

Isolating the delivery charges for which each utility is uniquely responsible — and derives its profits — shows that the rates of several of the state’s largest utilities have doubled or tripled since 2010, far exceeding inflation rates. Captive to these monopoly providers of essential services, customers rely entirely on state regulation to control these delivery costs.

A report our office is releasing today documents how hyper-levels of capital spending by several of the state’s largest utilities have catapulted rates and boosted profits, while other utilities serve their customers with substantially lower rates. Our report reveals that the customers of Baltimore Gas and Electric, Pepco, and Delmarva Power — all the Maryland utilities owned by Illinois-based utility holding company Exelon — have been especially hard hit by rate increases. 

From 2010 to 2024, BGE’s gas delivery rates more than tripled, rising from 26 cents to 85 cents per therm, and its electricity delivery rates more than doubled from 2.5 cents to 6.2 cents per kilowatt-hour (kWh). Pepco and Delmarva Power also saw delivery rates more than double over the same period. Delmarva Power’s rates rose from 3.2 cents to 7 cents per kWh, and, under a PSC decision this month, Pepco’s rates rose from 2.6 cents in 2010 to 6.2 cents per kWh. None of these rate increases include monthly fixed charges, which have also gone up.

Escalating rates coincide with the use of both multi-year rate plans and the Strategic Infrastructure Development and Enhancement Plan (STRIDE) law, which promote utility capital infrastructure spending by accelerating utility cost recovery and driving investor profits. The more utilities spend on capital infrastructure —such as substations, poles, and wires (electric utilities) or pipes (gas utilities) — the more they profit. Exelon touts in its investor presentations these rate mechanisms and the capital spending growth of its various utility subsidiaries.

The only other Maryland utility to take full advantage of a special rate mechanism to boost its capital spending is Columbia Gas, owned by energy giant NiSource Inc. Like BGE, Columbia’s gas delivery rates have more than tripled, from $0.30 per therm in 2010 to $1.00 per therm in 2024.

In contrast, the state’s other large investor-owned utilities have spent substantially less on capital infrastructure, and customers have seen only modest rate increases that align with inflation. Potomac Edison’s 2024 delivery rates are 2.3 cents per kWh — less than half the lowest Exelon utility rate. And while the state’s second largest gas utility, Washington Gas, has a STRIDE program, its capital spending has been slow compared to other gas utilities, as reflected in its current delivery rate of $0.46 per therm — about half of BGE’s rate.

Understanding how utilities are performing for customers, and how well Maryland is regulating those utilities, requires focusing on the costs that are within the control of the utility and state regulation. Those are the costs specific to delivering electricity and gas to customers through utility local distribution systems. Delivery costs are the primary issue in PSC rate cases, which generally do not address other charges on utility bills, such as those for supply, transmission, energy efficiency programs or local taxes. Gas and electricity supply costs — as well as other costs on utility bills — depend largely on factors outside of the utility’s or state regulation’s control.

To downplay growing rates or the rate increases sought in rate cases, the Exelon utilities are adept at describing their rate hikes and proposed increases in confusing terms, and they have even outright denied that rates have increased. A BGE executive told the Maryland legislature in a February hearing that “our [gas] rates in effect today in 2024 are lower than they were in 2008.” This highly misleading statement — similar to those the utility made in rate case testimony and in a press release on its 2023 rate case filing — apparently uses gas supply costs from a record-setting high point in 2008 to mask the fact that the utility’s delivery rates have tripled since 2008.

In a positive sign, the PSC recently denied two of three years of Pepco’s multi-year rate plan, substantially curbing its proposed capital spending and rate hikes. That is a modest first step, as the PSC has not ruled out future multi-year plans. Much more needs to happen. To protect gas customers, the Maryland General Assembly should repeal or substantially modify the STRIDE statute to help reduce the more than $700 million per year the state’s gas utilities are spending on gas infrastructure — investments that are divorced from economic reality and state climate policy. 

Bottom line: The high rates of capital spending — causing drastic rate increases — are great for utility investors, but they are harming customers. Utilities are private monopolies with investors they need to please, and state regulation is the sole means of protecting the customers utilities hold captive and who need the essential services the utilities provide. The evidence is in the numbers: it’s past time for the state to look out for customers by putting the reins on policies that fuel the utilities’ appetite for capital spending. 

David S. Lapp (davids.lapp@maryland.gov) is the Maryland People’s Counsel.