Unnecessary gas investments set to raise rates; Maryland regulator must intervene | GUEST COMMENTARY

It’s time for a reality check in Maryland. The state’s gas utilities are making massive long-term investments in their gas delivery systems, even though gas use must decline rapidly to meet Maryland’s aggressive climate goals and electric technologies are outperforming fossil fuels. Ultimately, customers could be on the hook for these investments.

Yet the Public Service Commission, which regulates the utilities, has taken no action to steer these companies in a different direction. The reality is that action is needed immediately to protect gas utility customers from looming massive rate increases and to meet Maryland’s climate goals.

The gas companies are pursuing their economic interests, aggressively, for the benefit of their investors. They are spending large amounts on their systems, because they make money by recovering their capital investments — along with a return for investors that more than triples the total costs for customers — through utility bills. Exelon, the Chicago-based parent company of Maryland’s largest gas utility, Baltimore Gas & Electric, recently told its investors that BGE would increase its gas distribution capital spending from $475 million annually in 2022 and 2023, to $500 million in 2024 and another $500 million in 2025.

BGE’s gas distribution delivery rates already have doubled since 2010. The ongoing massive gas utility spending is increasing rates further and will lead to even larger system costs in the future — more than double what customers are paying today by 2035.

At the same time, gas utilities are losing market share to highly efficient, cost-effective electric technologies for space heating, hot water heating and cooking — a trend that will accelerate with government policies supporting electrification. While the gas industry is pushing back hard, the broad consensus is that electrifying our buildings is cost effective and necessary to meet state climate goals.

Customer departures to electricity means fewer gas customers and fewer gas sales. Huge, anticipated increases in gas utility fixed costs will then be divided among fewer sales, requiring rate increases. As the difference between gas and electricity rates widens, more and more customers will leave the gas system, threatening what industry insiders call the “death spiral.”

In the spiral scenario, customers who are unable or can’t afford to electrify — low- and moderate-income customers and renters — will be stuck with increasingly unaffordable rates. My office, the statutory representative of residential utility customers, has documented the potential rate increases in two recent reports, one of which shows that by 2050 BGE rates could increase by as much as eight times from 2021 levels.

The Public Service Commission has already approved most of the utilities’ pre-2023 spending, and under utility law, the utilities have legal arguments that they are entitled to recover those costs, even if the pipes are hardly — or never — used in the future. Thus, under the law, until someone tells the gas utilities to slow or stop that spending, which would weaken their legal arguments substantially, gas utilities are incentivized to spend as much as they can as fast as they can.

That someone is the Public Service Commission. State law directs the commission to “supervise and regulate” the gas utilities to make sure they operate in the public interest and that customer rates are “just and reasonable.” It further requires the commission to consider the state’s climate commitments. Yet, unlike other states with aggressive climate policies, the commission has not begun to gather information on the impacts of the changing landscape and supervise the necessary transformation of gas utility operations.

To encourage the commission to act, our office filed a petition Thursday asking the commission to undertake immediate priority actions and long-term planning. The double-barreled approach aims to reconcile current gas practices and future planning with market trends and the reduction and eventual elimination of fossil gas use in Maryland, as necessary to meet state climate goals.

What the state desperately needs from the commission — which will soon have new blood appointed by the governor — is proactive leadership. Rather than deferring to or only addressing what the shareholder-focused utilities propose, the commission should set the agenda for the clean energy transition and guide a transition process that is robust, transparent, and inclusive of all.

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