Why Mayor Brandon Scott wants a do-over on his most controversial deal

It was one of the most consequential days of Mayor Brandon Scott’s tenure, but few understood what was happening.

Prominent city leaders wanted to stop — or at least slow — a proposed deal between the city and Baltimore Gas and Electric. On Feb. 15, 2023, they boycotted the spending board meeting, later calling the deal illegal. It didn’t matter.

Capping a two-week sprint, Scott shoved the agreement through. The city steeply reduced the rent BGE pays for space in the underground conduit system. In exchange, BGE committed to making major improvements to it.

One crucial aspect of the agreement was never discussed: It created a new avenue for BGE to profit from city-owned infrastructure, tacking hundreds of millions of dollars onto customers’ bills over the coming decades.

The conduit, an aging, expansive web of subterranean tubes carrying utility and telecom lines across much of the city, operates out of sight. But problems with it burst into public view in recent years as underground fires belched smoke and shot manhole covers into the sky.

Scott once vehemently defended the conduit agreement, but now, midway through its six-year term, his administration wants to renegotiate.

Whether the deal is scrapped entirely or replaced by a new one, it’s a stark reversal for a mayor who characterized his decision as a principled political stance and called his critics peddlers of misinformation.

As he worked out the deal back in 2023, Scott had reasons to avoid a confrontation with BGE. A subsidiary of Exelon, it is one of Maryland’s biggest and most politically active companies. It had sued Baltimore before. And the conduit has been a perpetual source of friction.

While the city continues to be responsible for conduit maintenance, BGE agreed to spend as much as $210 million on capital improvements over six years.

The mayor argued that the agreement would lower energy bills in the short term. That much was true.

But consumer advocates who studied the deal after its rushed passage say that immediately after a period of savings could come a doubling in conduit-related costs that BGE customers have to pay.

Here’s why: When BGE pays conduit rent to the city, that is an operational expense passed directly to ratepayers without profit. When BGE makes capital improvements to the conduit system, customers pay the utility interest and profit on that investment for decades.

The deal was set to automatically renew for another three years unless the city took action by July.

The Banner asked Scott’s office in May if he understood in 2023 the potential for BGE to profit, and why he had championed the agreement. His spokesperson, Silas Woods III, did not answer those questions. Instead, in a statement, Scott’s administration said the conduit deal has a minuscule impact on utility bills.

Then, two weeks later, the administration announced it was backing out of the agreement. In a letter delivered Friday to BGE, city officials said they would not be renewing the deal, opting to renegotiate.

BGE spokesperson Nick Alexopulos said the utility is committed to working with the city and has made long-overdue improvements to a conduit system that faced decades of underinvestment under city control.

“Any improvements to the city’s 100‑year‑old conduit system immediately benefit Baltimore’s residents and businesses and help prevent much bigger problems down the road,” Alexopulos said in a statement. “This is infrastructure the city owns, and BGE is partnering with the city to keep it functioning safely. Ignoring these needs simply isn’t an option.”

To some, however, Scott’s deal with BGE stands out as a uniquely bad decision. Comptroller Bill Henry, who often aligns politically with Scott, was one of the officials who boycotted that February 2023 hearing. He could think of no worse decision Scott has made.

The deal faced significant pushback from many of the city’s elected officials and prompted the City Council to investigate.

“One elected official in City Hall thought he had all the answers he needed to commit the city to this,” Henry said. “He literally pushed it through single-handedly, and now we are where we are.”

A valuable asset or a financial drain?

Before pavement coated Baltimore’s streets, before the Great Fire of 1904 razed downtown and before modern buildings rose in its place, Baltimore’s conduit was born. Tired of unsightly, dangerous cables hanging above city thoroughfares, 19th century leaders passed an ordinance calling for utility lines to be buried.

Today, the 741-mile conduit system houses cables for electricity, phone service and the internet, yet much of it is still made of clay and wood pulp instead of more modern PVC pipe.

Baltimore appears to be the only major U.S. city that owns a large-scale underground telecom and electrical conduit system. In most cities, utility companies have their own conduits.

The unique system’s value depends on who you ask — and when. As its rental agreement with the city was about to expire in 2015, BGE offered to buy the entire conduit system for $100 million.

Baltimore declined the offer and attempted to triple the conduit rental fees instead. In response, BGE accused the city of price gouging, refused to pay and sued Baltimore. They settled a year later, with BGE’s annual conduit fees roughly doubling to $27 million.

After the dustup, David Ralph, a top-ranking city attorney who helped to negotiate the agreement, found a new job with BGE’s parent company Exelon. He’s now BGE’s top attorney.

A few years later, city leaders moved to protect the conduit system, putting a charter amendment on the ballot that would prevent Baltimore from ever selling the network.

In 2022, BGE’s rental agreement was nearing another expiration. Months into negotiations, a city attorney stood up at a public hearing in October and said something puzzling. The conduit system was not a lucrative asset, Hilary Ruley argued, but a black hole.

The system was losing $7 million annually, Ruley said, and that deficit was only going to get worse over time. The simplest solution was to raise BGE’s conduit rental fees, but Ruley said that was out of the question.

The utility had “ancient rights” to the conduit, she said, which require the city and BGE to agree on any changes to BGE’s rental payment for the system.

“We’re stuck,” she said.

Voters didn’t seem to mind. The next month, they voted overwhelmingly to never let Baltimore sell its conduit.

Secret planning

To the public, it appeared the conduit issue had been permanently settled. But days after the election, Ralph emailed top city officials, setting the stage for the next round of negotiations. The former city attorney — and Ruley’s old boss — sent over a proposed non-disclosure agreement, internal emails show.

There was a furious race to the finish late in the year as a key deadline for BGE approached. The utility was preparing to ask state regulators to increase customers’ rates and wanted to include the conduit deal as part of its three-year business plan.

“As we are quickly running out of time, please let’s keep working to keep this moving as prudently but expeditiously as possible,” wrote Ralph in an email to then-city solicitor Jim Shea on Dec. 28.

As they worked, both sides made efforts to keep the discussions under wraps, signing a non-disclosure agreement. But the deal still came to light.

In late January 2023, a report in the Baltimore Brew revealed that negotiations had been happening behind the scenes.

On Feb. 7, just a week before it was approved, administration officials announced they had reached a deal.

“This is a sensible agreement that gives the city an opportunity to demonstrate good stewardship over this valued and vital asset,” Scott said in a news release.

Baltimore’s other elected officials were immediately skeptical.

To some, the agreement seemed to fly in the face of the will of the voters who had just agreed to bar the conduit’s sale. The City Council reconstituted its defunct Legislative Investigations Committee to look into the matter. (The committee held several hearings and subpoenaed documents from the administration, but took no further action.)

The machinations that cemented the conduit agreement into law were arguably the most aggressive of Scott’s tenure. The five-member Board of Estimates is effectively controlled by the mayor. Scott sits on the board in addition to two of his appointees. Rounding out the group are Henry and the City Council president, at that time Nick Mosby.

Outnumbered and unable to delay a vote, Henry and Mosby boycotted the February 2023 meeting where the conduit agreement was up for approval. They did so with the understanding that the meeting, per city charter, could not be held without them.

Scott pressed forward nonetheless, counting Henry and Mosby as abstentions. Asked to justify his haste, Scott cited BGE’s impending regulatory deadline.

“The last thing I want for the residents of Baltimore is to be back in court with litigation, and this is where we would have ended up if we did not do this at this appropriate time,” Scott told The Baltimore Sun.

On the day of the vote, BGE’s political action committee made a $3,500 donation to Scott’s campaign. It followed a $2,500 donation a month earlier. The total $6,000 — the maximum allowed for the cycle — was the largest the PAC had made to Scott as mayor. The PAC makes donations to dozens of Baltimore and Maryland politicians and has not given to his campaign since.

A week after the conduit deal was signed, Deputy Finance Director Bob Cenname made a surprising admission at a city council hearing: A key talking point of city leadership was not entirely true.

Upon review, Cenname said, the conduit system was not losing $7 million annually. The system, he said, was more or less paying for itself.

‘We would’ve said that’s crazy’

Two days after the deal was approved, BGE made its case to state regulators to increase customer rates. The utility filed hundreds of pages of written testimony from executives filled with technical jargon and tables outlining its investments and operations for the next three years, including a handful of pages about the conduit agreement.

Maryland has a small agency that advocates for the customers of regulated monopolies, including BGE. David Lapp, who leads the Maryland Office of People’s Counsel, said he had followed the news about the conduit deal in the winter, but it wasn’t until he and his team were poring over BGE’s paperwork that summer that he realized its significance.

From Lapp’s perspective, the conduit deal was unprecedented; it allowed BGE to take a piece of infrastructure it didn’t own and turn it into a profit-making venture.

Spending $210 million to fix up the conduit during the six-year deal would saddle ratepayers with about $860 million in costs over the next 50 years, a consultant hired by Lapp’s office calculated. That would be roughly equivalent to giving BGE a one-time payment of $50 million, according to the consultant.

“If we had a rudimentary understanding of what was happening, I think we would’ve said that’s crazy,” Lapp said.

In September 2023, Lapp put out a press release breaking down how the conduit deal would actually cost ratepayers much more in the long term. His warning received little public attention.

When it came time for state regulators to approve BGE’s proposed rate increase, the Public Service Commission largely agreed with Lapp’s assessment of the conduit deal. Ratepayers could face higher costs in the long term, they wrote.

The commission approved BGE’s request that December on the condition that the company eventually provide a cost-benefit analysis of the deal. But the issue has not come back before regulators, meaning BGE hasn’t yet been required to perform that analysis.

Lapp’s office is challenging state regulators’ approval of the conduit deal in Baltimore City Circuit Court. Oral arguments were heard earlier this year. A judge has yet to make a ruling.

With the deal expiring at the end of the year, the city and BGE are back at the negotiating table. The city, said Scott spokesperson Jonas Poggi, “will be guided ultimately by what is in the best interests of its residents.”

“Doing so will require balancing the need to maintain this critical infrastructure with the impact that doing so will have on ratepayers,” he said in a statement before the city informed BGE of its decision.

Khalil Zaied, the city’s deputy mayor for operations, said the city is looking at how much investment the conduit needs, as well as who will be responsible for the work.

Given BGE’s experience managing large utility projects, the company is able to perform the improvements more efficiently, Zaied said.

City Council President Zeke Cohen was skeptical.

He said he has no confidence in BGE’s ability to improve the conduit system in a cost-effective and efficient manner. He called the company an under-regulated, “extractive monopoly” that is incentivized to inflate costs.

“I don’t need a middleman to skim off the profits,” Cohen said. “We would do much better without their services.”

All told, the conduit system has 12,000 manholes and 17 million linear feet of conduit ducts carrying cables.

BGE planned to spend $120 million over three years on the conduit. So far, BGE has rebuilt 18 manholes, installed 27 new manholes and added more than 330,000 feet of conduit ducts, roughly equivalent to 2% of the total system.

City financial documents appear to show that the city had been doing roughly the same amount of work in prior years. But it’s difficult to make an apples-to-apples comparison. The city measures its work in “linear feet” that is “rehabilitated.” BGE refers to “conduit duct feet” that is “installed.”

BGE’s spending on the conduit makes up a minuscule portion of customers’ monthly electric bills, and that will continue to be true even if the deal had been extended for the full six years. Increases in monthly bills have largely been driven by other factors, like the replacement of aging gas pipes or new transmission infrastructure to handle data center development.

But to Henry and other critics, the deal was a giveaway to one of Maryland’s most powerful corporations.

“They made millions of dollars by having the city cut this deal,” Henry said of BGE. “I’m still waiting for someone to show me what the city got.”