Commentary: Time for Maryland utility customers to stop subsidizing fossil fuels – Maryland Matters

By David Lapp

The writer is Maryland People’s Counsel.

“A subsidy is a benefit given to an individual, business, or institution, usually by the government.” — Investopedia.com

Even as it searches high and low for funds to support ambitious climate goals, the state is forcing gas utility customers to subsidize billions of dollars in fossil fuel infrastructure spending.

In competitive markets, companies don’t spend billions of dollars on long-lived assets without believing they have a product customers will want for a long time. Absent strong future demand, the investment won’t be profitable and could lead to investor losses and, ultimately, bankruptcy.

But those competitive forces that discipline corporate spending are absent for gas utilities. By law, utilities are insulated from competition, and their investors face few of the risks that competitive businesses face. That insulation is compounded by the counterintuitive way gas utilities enhance their profits — by spending more customer dollars on infrastructure, usually gas pipes. Utilities recover those costs, plus profit, regardless of how much demand there is for the gas that those pipes deliver.

This way of profiting means that Maryland’s gas utilities have an interest in disregarding — and obscuring — the mounting customer costs of spending billions for gas infrastructure despite widely accepted projections of substantial declines in gas consumption due to electric technologies and climate policy.

Consider, for example, what is evident from proceedings before the Public Service Commission (PSC). Utilities report only the short-term impacts of their spending on customer costs. And they fail to consider that projected declines in gas consumption diminish the need for infrastructure spending — or whether lower-cost alternatives to such spending are available.

Our office’s reports provide the only data showing how this massive spending on gas infrastructure has impacted and will impact utility customers. No Maryland gas utility — nor the PSC — has provided its own data or projections.

Quite the opposite, in fact. The utilities are willfully blinding themselves to the future:

• Washington Gas, the state’s second-largest gas utility, admitted in its recent rate case that it has “[n]o analyses, documents, or studies. . . forecasting the expected gas usage of its customers over the next 30 years” — even though it expects customers to pay for its infrastructure investments for much longer, up to 80 years.
• Columbia Gas, Maryland’s third largest gas utility, recently said it is “not aware of any heat pumps currently available that would require no back-up heating system” — a hard-to-swallow statement given the availability of such heat pumps in Maryland and across the country. (This author has one that performed quite well without backup during our recent cold blast.)
• Baltimore Gas and Electric, Maryland’s largest gas utility, is spending more than $1.25 million on gas infrastructure every single day. BGE acknowledges that in the future its distribution infrastructure won’t be used for fossil gas but instead to “deliver something different.” No one — including BGE — can explain how alternatives like landfill gas or hydrogen can be cost-effectively substituted for fossil gas at scale.

No business operating in a competitive environment would risk spending vast sums on long-term infrastructure to deliver an undetermined “something different” or without considering alternatives and competition from other technologies.

Utilities can ignore these realities — but only if government regulation is lax. As the Maryland Supreme Court has observed, for utility monopolies, “extensive government control” over prices, services, and operations “takes the place of competition and furnishes the regulation which competition cannot give.”

The government’s failure to “control” gas utilities by replicating the forces of competition means that captive customers are paying for infrastructure that would never be built in a competitive market. This amounts to a massive state subsidy for fossil fuel infrastructure being foisted on state utility customers.

It’s past time for the General Assembly to address these gas utility subsidies. Right or wrong, the PSC recently declared that it has “limited” options to curb the gas utility spending on gas infrastructure “[u]ntil the General Assembly enacts changes to the STRIDE statute” — referring to the 2013 law that declares as its purpose the acceleration of gas infrastructure replacement work. The gas utilities agree, with BGE recently telling the PSC that it “should not move forward until the Maryland General Assembly makes future state policy decisions related to natural gas service.”

It is imperative that the legislature act now. Each day results in additional spending and locks repayment plus utility profits into rates for many decades to come.

An initial, modest step is to enact The Ratepayer Protection Act (SB 548/HB 731), legislation that would modify STRIDE in line with a Maryland Commission on Climate Change recommendation approved by an overwhelming vote, with broad and universal support, including from cabinet agencies, and opposition only from fossil fuel interests.

Sponsored by Sen. Charles E. Sydnor III (D-Baltimore County) and Del. Elizabeth Embry (D-Baltimore City), the bill requires gas companies to prioritize public safety and perform evaluations of cost-effective alternatives as a condition of obtaining profitable accelerated cost recovery for pipe replacement. These are modest and logical requirements that should already be part of the law.

Regulation of public utility monopolies is not self-executing; the state — the PSC and the General Assembly — must exercise its “extensive control” over utility monopolies. Otherwise, the utilities’ private interests overtake the public interest. Continued State inaction on gas infrastructure spending means continued windfalls for gas utility investors — windfalls from subsidies paid by captive utility customers. Utility customers deserve better.

Senate Bill 548 will be heard Thursday at 1 p.m. in the Committee on Education, Energy and the Environment. House Bill 731 will be heard on Feb. 29 at 1 p.m. in the Economic Matters Committee.

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