Baltimore OKs contract for conduit system options

A contract to explore options for Baltimore’s conduit system was approved by the Board of Estimates Wednesday in spite of the overwhelming passage on Election Day of an amendment to the city charter barring the sale and lease of the system.

Approved by a 3-2 vote, the $50,000 agreement with FMI Capital Investors will help determine the “best and highest use” of the conduit system, city attorney Hilary Ruley told the board last month, when the contract was first proposed.

In addition to the flat fee, the consulting company would receive a percentage of any deal it would potentially broker for the system, although a lease or sale is no longer on the table.

The 700-mile terra cotta pipe system dates to 1898 and contains telephone, electric and fiber-optic cables from companies that lease space in the conduit system. The largest user is Baltimore Gas and Electric Co., which occupies 76% of the space and sought to buy the system for $100 million in 2015.

The ballot question put to voters this year was the result of years of discussion by the City Council. Then City Council President Bernard C. “Jack” Young lobbied for the system to be protected to encourage the installation of public broadband in Baltimore.

Public broadband is not yet available in the city, but last year Baltimore officials set aside $6 million in American Rescue Plan funds to run fiber to 23 recreation centers and create 100 community Wi-Fi hot spots.

In 2020, after Young had become mayor, the City Council voted in support of putting a proposed charter amendment to voters that would permanently block the sale of the conduit system. Then Council President Brandon Scott was among the members who supported that idea.

City voters passed that amendment overwhelmingly this month — almost 77% supported banning the lease and sale of the system.

Proposed by the Scott administration in October, just ahead of the election, the consulting agreement is necessary, Ruley said, because conduit system users have been waning as utility companies find alternatives, such as cellphone towers, to meet their needs.

The conduit system is expensive for the city to maintain, and leasing revenue is not enough to support those costs. Ruley said the city is losing $7 million annually on the system.

Ruley said city officials have attempted to renegotiate with Baltimore Gas and Electric Co., but the decades-old agreement gives the utility the perpetual right to use the conduit. The utility’s rates, which could be increased to pay for a higher conduit usage fee, are regulated by the Maryland Public Service Commission.

The timing of the contract proposal as well as its language raised concerns last month for Council President Nick Mosby and Comptroller Bill Henry, two of five members on the city’s Board of Estimates. The board last month opted to defer a vote until after the election at Mosby’s request.

Mosby and Henry, who both voted against the deal Wednesday, continued to express reservations about the deal’s language incentivizing the vendor to bring the most lucrative financial proposal to the city.

Mosby questioned whether the vendor would get a share if it recommends repealing the charter amendment and selling the system, a process that would take several years and another ballot question.

Ruley said the incentive only pays for an actual deal brokered by the vendor. It wouldn’t be paid for recommending a sale, she said.

“With the charter amendment the way it is, that’s not what we’re looking at,” Ruley said. “In the short term, they’re going to need to come up with something, some sort of private-public partnership, something that might be able to fit into the narrow box the charter has.”

Henry said he was concerned that the financial incentives in the contract could discourage the vendor from reaching a solution that may be advantageous to the city, but not in dollars. For example, the city could seek a deal in which BGE pays to maintain the conduit, saving the city money, but the city maintains ownership, he said.

“Even if that is a good deal for the city, technically the city isn’t making anything off of BGE,” he said. “This firm is financially disincentivized by the terms of this contract from bringing us a deal like that.”

Ruley said the Board of Estimates would have to agree to a deal.

“They couldn’t tie your hands in terms of what you’re able to do,” she said.

The board, however, has limitations, Mosby noted. Three of its five members are appointed by the mayor, almost assuring any agreement the mayor proposes will pass.

“I get to defer, he gets to defer,” Mosby said, pointing to Henry. “But eventually, it’s going to get passed.”