HAGERSTOWN, Md. — The long-term future of Hagerstown’s municipally operated electric utility emerged as a major point of concern Tuesday as city officials reviewed troubling financial projections during fiscal year 2027 budget discussions.
During a recent work session, finance staff and elected officials outlined a growing list of challenges facing the city’s electric department, including rising wholesale power costs, aging infrastructure, limited revenue growth and increasing financial deficits.
The discussion prompted broader strategic questions from Mayor William McIntyre about whether the city should continue to operate its own electric utility.
City officials explained that Hagerstown’s electric fund differs from most municipal operations because it is regulated by the Maryland Public Service Commission. Unlike the city’s water and wastewater systems, electric rates and operations are subject to oversight and restrictions from the state regulatory agency.
Officials said one of the utility’s biggest challenges is its inability to expand beyond its long-established service territory.
“Our customer base is very limited,” city staff explained during the presentation. “We can’t grow this boundary. We can’t grow our customer base by annexing or increasing area. The only way we can grow it is to have new customers or further development within the existing boundary.”
Budget projections presented to the council showed the electric fund expects approximately $45.5 million in operating revenues for FY2027. However, officials said roughly 75 percent of that revenue is consumed by purchased power costs paid to the city’s wholesale electric supplier.
Finance staff reported that the electric fund is projected to end FY2027 with an estimated $2.9 million deficit after accounting for infrastructure and capital project expenses. Officials also disclosed that the utility currently has a negative beginning cash balance of approximately $694,000.
“Yes, it is real,” finance officials said regarding the negative cash balance. “This fund, with what’s happening and had happened with revenue and the things that we were paying for, got into the situation where we were at negative cash and we’re still hoping to address it.”
Staff warned the trend could worsen in future years if significant operational or structural changes are not made.
Council members questioned how the city can continue maintaining critical electric infrastructure while operating under state-imposed revenue limitations and rising market costs for electricity generation and distribution.
McIntyre argued the city lacks the flexibility private utility companies use to offset infrastructure costs through customer growth and system expansion.
“If we aren’t provided the flexibility to recoup the necessary cost to operate and maintain the system and we’re not provided the ability to grow the customer base the way that traditional private utility providers are able to do, then you’ve got to ask yourself why are we in the business of owning a private utility industry-driven thing,” McIntyre said during the discussion.
The mayor described the issue as a matter of “simple mathematics,” citing rising infrastructure obligations and limited opportunities to generate additional revenue.
“You can’t go $10 million into the hole, borrow $10 million more, and have a finite customer base … and operate that business successfully,” McIntyre said.
He later acknowledged the idea may be unpopular but said the city may eventually need to seriously evaluate whether it should remain an electric utility provider.
“One of the nuclear options on the table at the end of that day has to be should we be in the business of being an electric utility provider,” McIntyre said.
City officials also reviewed several ongoing infrastructure investments within the electric system, including a multi-year electric meter replacement program, upgrades at the Bulldog substation and vehicle replacement purchases.
The meter replacement initiative remains one of the department’s largest capital projects. Staff said phase one concluded in January 2026 and replaced approximately 3,350 meters, representing about 19 percent of the city’s total electric meters.
Phase two of the program is expected to replace an additional 4,400 meters during FY2027, bringing the city to approximately 44 percent of total meter replacement. Officials said the project improves meter accuracy, enables automated readings and enhances outage detection capabilities.
The proposed FY2027 budget includes approximately $1.25 million for continued meter replacement work, $450,000 for Bulldog substation upgrades and approximately $320,000 for utility vehicle replacements.
Despite the financial challenges, officials emphasized that maintaining and modernizing the electric system remains critical to reliability and long-term service stability.
The city is expected to continue discussions on utility finances and broader budget matters during upcoming budget work sessions and public hearings.
