Marylanders could be asked to fork over extra money to utility companies each month to accelerate improvements to the electrical distribution system, according to a report released Wednesday.
The report, which detailed 11 recommendations to improve the electric grid’s resiliency and reliability, was released by a task force created by Gov. Martin O’Malley in June after severe storms resulted in extended power outages across the region.
It outlined a plan to encourage companies to invest in better infrastructure and comply with stricter regulations sooner than what Maryland’s Public Service Commission requires. Customers would have to pay a monthly surcharge — or “tracker” — to pay for those improvements, and consumer advocates said it’s unfair to charge extra for better performance. Quality should be expected, they said.
“Representing the consumers, who are the ones going to be paying this, we do disagree with the use of trackers to collect costs that relate to these companies’ prime responsibility — which is to provide a reliable distribution system,” said People’s Counsel Paula M. Carmody, whose work heavily focuses on electrical distribution cases.
The task force determined — as many residents had already concluded — that utility companies’ performance during severe weather events has been “not acceptable,” and questioned whether utilities receive adequate incentives to invest in their infrastructure.
A cost recovery mechanism relying on surcharges could provide an effective incentive, the report says. The companies would receive advanced funding for the improvements, which proponents say would ensure the work actually gets done.
“Most of us would be willing to pay a dollar or two a month for a more reliable grid,” O’Malley said. He added that doing so is preferable to throwing out “$15 to $18 a month” in groceries, spoiled during prolonged outages.
The actual extra cost for consumers per month would depend on several factors, including which projects are begun.
Improvements would include the installation of some underground wires, “aggressive tree trimming” and extra attention to areas that suffer frequent damage during storms.
To justify the surcharge, supporters point to the expedited timetable by which utilities must implement changes.
“Clearly, asking the utilities to exceed their regulatory requirements will come with additional costs,” the report reads. “Staffing will have to be increased and capital expenditures will be performed sooner than otherwise anticipated.”
That rationale did not impress Carmody, however, who cited an investigation two years ago into the system maintenance of Pepco, which serves much of the Washington suburbs. The PSC found Pepco “had not acted prudently and had not been taking the steps to repair the system and keep its reliability up,” she said.
“When I look at a situation like that, I question why we should have our customers pay through a tracker the costs for getting the reliability up to a more acceptable level if these companies have been dragging their feet,” she continued.
O’Malley said business realities make it impossible for utilities — especially Pepco, “because of a failure of preventative maintenance” — to strengthen the grid without passing some of that cost on to customers.
“It would be easy and very popular for me to jump on a box here and say ‘damn those utility companies,’” O’Malley said. “[But] this is about hardening our grid.”
Carmody also said adding an automatic surcharge would reduce the rate-setting process’ transparency. Currently, utilities disclose all expenses before the commission approves their rates. Increased expenses might need to be offset with rate hikes, but sometimes funds can be redistributed from another expense that decreased. The tracker system does not allow for such cost-saving adjustments, she said.
The PSC has consistently rejected surcharges to fund infrastructure improvements, Carmody said, although other states have implemented them. Utility company representatives say the extra funds could be used to expedite more improvements and they applauded the recommendations.
PSC Chairman Douglas R.M. Nazarian did not return a phone call seeking comment.
Robert L. Gould, spokesman for Baltimore Gas and Electric Co., said he appreciates the task force understanding “the need for utilities to realize full and timely cost recovery for accelerated investment in the state’s electric infrastructure.”
And Pepco Spokeswoman Myra Oppel said the company does not view the surcharge as an “extra” charge on consumers.
“It would be a different method of recovering costs that Pepco incurs to provide reliable service,” she said. “We understand the impact of rate adjustments on our customers. However, improved reliability, customer service and technological innovations provide better service.”
For the recommendations to become policy, the commission would have to review and implement them, or lawmakers would have to introduce legislation.