Report blames utility infrastructure costs for spike in consumers’ monthly gas, electric bills

Natural gas meter with pipe on the wall. Getty Images photo.

Consumers may not understand the jargon like price per therm, standard tariffs and rate that are packed into a 92-page report from the Office of People’s Counsel, but they surely understand the report’s bottom line.

“Customers of most of Maryland’s largest utilities are facing staggering levels of cost increases for the delivery of their electricity and gas,” said David S. Lapp, the head of the Office of People’s Counsel, which represents the interests of Maryland utility customers in state and federal regulatory proceedings.

The report released Tuesday , with dozens of charts, graphics and arcane terms, focuses on what the state’s monopoly gas and electric utilities have been charging their customers for distributing energy since 2010. It found that distribution costs represent about half of an average customer’s utility bill — paying the energy supplier is the other half.

Supply costs go up and down and are tied to the volatility in gas and electricity markets. But the delivery costs are significant because they’re regulated by the state and, to a lesser extent, the federal government.

Some of the statistics revealed in the report are startling:

• Distribution rates at Baltimore Gas and Electric, the state’s largest utility, have tripled since 2010.
• Rates for delivering energy at Columbia Gas, the state’s third-largest gas utility, have increased at 3.5 times the rate of inflation.

Some other utilities’ price increases aren’t quite as dramatic. Distribution rates at Potomac Edison have largely been stable over the past 14 years, the report found. Washington Gas price increases have largely tracked with inflation. Delivery increases at Southern Maryland Electric Cooperative have been a few ticks above the inflation rate.

What’s driving the high distribution costs, the OPC concludes, is increased spending by gas and electric companies on repairing, modernizing and replacing utility infrastructure across the state — particularly natural gas infrastructure that could tether consumers to gas energy even at a time when the state is trying to move away from fossil fuels.

“These increases reflect a concerted utility effort to boost profits by accelerating capital infrastructure spending — including massive spending on gas infrastructure that is at odds with state efforts to fight climate change,” Lapp said.

Lapp for several years has been complaining that state policymakers and regulators are enabling gas utilities to spend millions of dollars a year on infrastructure improvements — and passing the costs, with interest, along to consumers. That’s possible through 2013 legislation called the Strategic Infrastructure Development and Enhancement (STRIDE) program, along with a pilot program at the Maryland Public Service Commission (PSC), the state’s utility regulator, that lets utilities seek rate increases on a multiyear basis based on their proposed capital investments.

Lapp has repeatedly warned that the cost for these decades’ of mandated natural gas infrastructure improvements will eventually be borne by consumers who are unable to afford to convert their homes to all-electric energy or use geothermal heat pumps.

Utilities, he said Tuesday, are like lenders: They make money available for infrastructure improvements that state officials deem necessary (or at least acceptable), then collect reimbursements with interest from their customers.

“Highly profitable rate recovery mechanisms are helping drive massive rate increases and imposing significant burdens on customers,” Lapp said. “It’s past time to return to the basics of regulating utility monopolies for the public good rather than promoting strategies that place utility investor interests ahead of customer interests.”

In the report, the OPC recommends that the legislature repeal the STRIDE program and that the PSC end the multiyear rate plan. It also suggests that the PSC ensure that customers’ bills contain uniform information across utility companies, and that they’re presented in an easy-to-understand way.

The PSC is scheduled to begin reviewing the multiyear pilot program in the fall, Fred Hoover, the commission chair, told Maryland Matters Tuesday. But he would not predict how he and his fellow commissioners would vote.

“We’ll have to see what the OPC and the investor-owned utilities say and then we’ll make a decision about what’s in the best interest of the state,” Hoover said.

In the most recent General Assembly session, Sen. Charles E. Sydnor III (D-Baltimore County) and Del. Elizabeth Embry (D-Baltimore City) introduced legislation that would have changed the STRIDE program — though stopped short of eliminating it. The bill would have only allowed utilities to collect reimbursement for utility infrastructure work when the PSC deemed it necessary and when it aligned with the state’s climate goals.

When it was passed in 2013, STRIDE was touted as a climate-friendly initiative that would make the use of natural gas safer. But many lawmakers and environmental advocates have taken a dimmer view of natural gas in more recent years, and newer state policy has sought to promote the electrification of many buildings in the state.

The Sydnor-Embry legislation ran aground in the House Economic Matters Committee and in the Senate Committee on Education, Energy and the Environment — panels where utility lobbyists often hold great sway.

‘When you find yourself in a hole, you stop digging’

Consumer advocates applauded the OPC report.

“Maryland utilities have schemed and maneuvered to increase their profits, driving utility bills to unaffordable levels,” said Emily Scarr, director of the Maryland PIRG Foundation. “When you find yourself in a hole, you stop digging. We’re counting on regulators and policymakers to put the shovel down, revise or repeal the STRIDE law, and exercise their authority to require utilities to serve the public interest by providing safe, reliable, and affordable energy.”

Laurel Peltier, chair of the Maryland Energy Advocates Coalition, said that 340,000 families in the state are spending more than 6% of their income on energy costs — meaning they’re considered “energy burdened.”

“This level of gas infrastructure spending is unsustainable financially and for our health and climate,” she said.

But in an email to Maryland Matters, Lee Gierczynski, a spokesperson for Columbia Gas, said the STRIDE program “has allowed Columbia Gas to recover a portion of its costs of replacing aging infrastructure through a monthly surcharge on customers’ bills.” He noted that STRIDE surcharges on consumers’ bills are capped.

Gierczynski said company officials were still digesting the OPC report and were not ready to comment on it directly.

“However, Columbia Gas is committed to our customers and communities and is investing to ensure continued system safety and reliability, and we must continue to invest in our system to upgrade aging infrastructure, just as investments are made in bridges, roads and other infrastructure in our cities, towns and communities,” he said.

Hoover, the PSC chair for the past year, who previously worked for the OPC, said he was concerned that the current commission would be tarred for 14 years of price increases even though three of the four members — there is currently one vacancy — have only been on the job since last year, when they were appointed by Gov. Wes Moore (D).

“It’s not an adequate measure of what we’ve been doing,” he said.

Hoover also said that as long as the STRIDE program remains on the books, the PSC will have to consider utilities’ requests for reimbursements.

“If a company files STRIDE proceedings, I’m obligated to adjudicate them,” he said.

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