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Regulatory Activities – Electricity – Current Issues

Public Service Commission (PSC)

Electricity Planning

Governor O’Malley issuedExecutive Order 01.01.2010.16 on July 23, 2010requiring the development of a Long-Term Electricity Report. The Report was prepared by the Power Plan Research Project (PPRP) of the Department of Natural Resources (DNR) andsubmitted to the Governor and the General Assembly on December 1, 2011, and will beupdated every five years.OPC is one of the designated stakeholders in this process and provided extensive comments to PPRP during the 18 month process. The Report is available at http://esm.versar.com/pprp/pprphome.htm.

The Report will include an assessment and analysis of existing and long-term energy needs, the generation, transmission and demand resources available or necessary to meet those needs.Most importantly, DNR will evaluate different scenarios for meeting the State’s long-term needs. The evaluation will take into account long-term cost and cost stability, reliability, environmental impacts and consistency with state and federal environmental and other laws.DNR must also submit the report to the Maryland PSC with DNR testimony as part of any PSC proceedings on construction of generating or transmission facilities, energy efficiency and demand management.

OPC has been an advocate forthe implementation of a planning process to address the State’s overall electricity needs, and the electricity needs of Maryland’s residential Standard Offer Service (SOS) customers. SOS customerspurchase electricity from their electric utilities.During the 2010 legislative session, OPC testified in support of Senate Bill 910 and House Bill522requiring comprehensive energy planning in the State, but the bills did not get out of their respective Committees.Such planning has been lacking in Maryland since the adoption of retail competition in 1999.This Report, although not a planning document, should provide some useful information.

The PSC also has solicited comments at different times to address the needs of SOS customers and the potential need for new generating facilities. The PSC Notices and Stakeholder Comments, including OPC comments, are is PSC Case 9214. Most recently, the PSC issued an order requiring the electric companies to issue an RFP for a gas-fired facility, and a Notice for comment on the need for such a facility. Both the RFP responses and the comments are due in January 2012.

The Maryland PSC recently set up a Public Conference to examine the so-called Reliability Pricing Model (RPM). RPM is a pricing mechanism adopted by PJM Interconnection, the entity with oversight responsibility over Mid-Atlantic wholesale electricity markets and the regional transmission lines. In effect, consumers end up paying an additional sum to generation owners with the hope (but with no guarantee) that new generation facilities will be built in the regions. The PSC held a two-day hearing in mid-October 2010 in Annapolis, Maryland to hear comments and ask questions about the operation of RPM, its impacts on electricity prices paid by Maryland consumers, and possible actions by the PSC to address the cost impacts. OPC filed written comments and presented testimony to the PSC. For more information, see Public Service Commission--PC22.

The Maryland PSC also has challenged a FERC order related to the RPM that limits the practical ability of states and state commissions to address generation resource adequacy on behalf of customers within the state in support of other public policies. This appeal was consolidated with others in the U.S. Court of Appeals for the 3rd Circuit. OPC has intervened to support the Maryland PSC's appeal

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Energy Efficiency and Demand Response

OPC supports the development of energy efficiency and demand response programs as a cost-effective way to address the electric needs of our customers. During the 1990's OPC proposed thedevelopment of utility energy efficiency programs to avoid the construction of more costly generating plants. Those programs were shut down over OPC's opposition after the ElectricDeregulation law was passed.

However, in 2008, the General Assembly passed the EmPower Maryland law, which requires the utility to implement programs to reduce electricity use and peck demand. These programs can provide both reliability and economic benefits to residential customers. The first set of programs were approved in late 2008, and have been in place since then, subject to additional review and enhancements. The PSC recently issued an order approving the continuation of existing programs with modifications and the development of new programs for 2012-2014. Many of OPC's recommendations, including the consolidation of low-income programs with a single administrator and the standardization of many residential programs, were adopted. For more information, see PSC Case No. 9153 through 9157 (BGE, PEPCO, Delmarva Power, Potomac Edison, and SMECO.

NEW--PSC orders changes to Bill Stabilization Adjustment (BSA) adopted in 2007

In 2007 the PSC authorized the major electric companies to use a revenue decoupling mechanism, called the Bill Stabilization Adjustment (BSA), to remove any disincentive for utilities in participating in energy efficiency and demand-side management programs.The BSA basically adjusts revenues, subject to limitations, that may result from energy usage reductions or other causes.The PSC had adopted this mechanism prior to the 2008 adoption of the EmPower Maryland laws.

In response to the significant power outages experienced by PEPCO customers in 2010, OPC had recommended to the Commission that adjustments to the BSA should be considered so that electric utilities do not get the adjustment to offset revenue reductions during major storm outages.The PSC set up an investigation for each major electric company (except Potomac Edison, which does not have a BSA) in Cases Nos. 9257-60, and solicited comments.OPC urged the PSC to require a major storm outage adjustment so that ratepayers are not further burdened by “pay[ing] for electric service that was not delivered” during the outages.As OPC observed, the original intent of the BSA was to remove disincentives for energy efficiency programs, not to guarantee cost recovery of all fixed costs.The inclusion of a 24 hour grace period and a waiver option for the utilities were considered reasonable ways to balance ratepayer and utility interests.In a January 25, 2012 order, the PSC agreed with OPC, and ordered the adoption of a major storm adjustment to the BSA.For more information, see PSC Case Nos. 9257 through 9260.

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Smart Grid and Smart Meter Plans in Maryland

The recent decisions by the Maryland Public Service Commission on BGE and PEPCO's proposals to install smart meters in residential households have received national attention, andhave changed the nationaldiscussion about whether and how to move forward with these new technologies.

In the past few years there has been a lot of “buzz” about smart grid and smart meters in Maryland and on the national level.Maryland electric companies began seeking approval for smart meter installations in 2007.OPC consistently opposed these initial proposals as premature, too costly, and unnecessary for reducing energy usage, and identified a number of consumer protection issues related to the installation of meters.With the passage of the EmPower Maryland law in 2008, the focus rightly shifted to the development of energy efficiency and demand response programs that are voluntary and more cost-effective.

In 2009 the Department of Energy issued requests for utility proposals for smart grid grants. BGE, PEPCO and Delmarva Power applied for the grants.In July 2009 BGE and PHI (PEPCO and Delmarva Power) applied with the PSC for approval of major smart grid/AMI proposals. Despite the large dollar impacts of these proposals for residential customers, the Companies sought rapid approval without evidentiary hearings. However, at OPC's urging, the Commission scheduled full evidentiary hearings. This allowed OPC to present expert testimony challenging the proposals and identifying several issues of concern to consumers:

  • The cost-effectiveness of the Companies' smart meter proposals
  • Additional costs, not included in the Companies' proposals, related to installation of smart meters
  • BGE's request for guaranteed cost recovery through a surcharge on residential customer bills
  • BGE's proposal for mandatory Time-of Use pricing (TOU)
  • The privacy and security of customer information and data
  • The impact of remote service disconnection on residential customers
  • The importance of comprehensive customer education

The PSC initially rejected BGE's proposal, including the use of a surcharge and mandatory TOU pricing, and found BGE's business case for the meters "untenable." After further hearings, the PSC gave BGE, and also PEPCO, the go-ahead to install the meters, but without any up-front approval or recovery of costs, and without the imposition of "one-size fits all" pricing for our residential customers. See OPC PressRelease,August 16, 2010. Delmarva Power was required to make additional filings in support of its proposal, which is awaiting PSC decision.

PSC cases:

BGE PSC Case No. 9208

PEPCOPSC Case No. 9207

Delmarva Power PSC Case No. 9207

For more information, see Regulatory Activities/Electricity/Significant Cases

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Distribution Rates

Regulated utilities must file applications with the PSC to get approval for any increase in their distribution rates.All utility customers must pay distribution rates.These rates are set to cover the costs of building and maintaining the gas or electricity infrastructure (the “pipes” and “wires”), delivering gas and electricity to homes and businesses. These rates do not include the cost of the electricity or gas supply, taxes or surcharges.In these rate cases, OPC retains expert accountants and economists to review the Company data, conduct discovery and file expert testimony.OPC witnesses may challenge Company calculations, accounting treatment of operating income and expenses, treatment of depreciation and plant, the reasonable rate of return for the Company, and the proper allocation of the revenues to the customer groups.These cases always present accounting and other issues that have real dollar impacts for residential customers.

Recently filed rate case applications:

PEPCO PSC Case No. 9286 NEW

Delmarva Power PSC Case No. 9285 NEW

BGEPSC Case No. 9230

PEPCO PSC Case No 9217

SMECO PSC Case No. 9234

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Mergers and Acquisitions

The PSC has authority over mergers and acquisitions involving local utility companies if the Applicant Company would have the ability to exercise "substantial influence" over the utility. To approve the transaction, the PSC must find that it is in the public interest and provides benefits and no harm to customers. Typically, the companies involved will file an application and testimony, and OPC and other parties will review the application and data and submit expert testimony on the application.After hearings, the PSC will issue an order that denies, approves, or approves with conditions the merger or acquisition.In 2009, the PSC exercised this jurisdiction over the EDF-Constellation acquisition, after agreeing with OPC that the transaction would allow EDF to exercise substantial influence over BGE, the regulated utility. The PSC has approved the EDF-Constellationmerger as well as the applicationby a Mid-West based company, First Energy, to acquireAllegheny Energy, the parent of Allegheny Power, the electric utility operating in Western Maryland. The PSC has open proceedings on the application of Exelon to acquire Constellation Energy Group.

For more information on current merger cases at the PSC, see Regulatory Activities/Electricity/Significant Cases

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Construction of Transmission Lines – CPCN cases

Since 2007 there has been extensive discussion of reliability concerns in Maryland, and the potential need for construction of transmission lines in Maryland.The TrAIL (Trans-Allegheny Interstate Line) transmission line was approved by a number of states, and construction has been completed.While Maryland ratepayers will bear some of the cost of TrAIL, the TrAIL line will not be located in Maryland. In 2008 and 2009, OPC attended numerous preliminary stakeholder and agency meetings, in addition to community meetings, concerning plans to construct the Mid-Atlantic Power Pathway (MAPP) and Potomac-Appalachian Transmission Highline (PATH) lines in Maryland. Utilitiesfiled applications with the PSC to construct both the MAPP and PATH lines.However, due to continuing re-evaluations of the need for these transmission lines, the MAPP case schedule has been temporarily suspended twice, and thePATH application has been withdrawn.

For more information on the MAPP and PATHtransmission line cases, see Regulatory Activities/Electricity/Significant Cases

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Standard Offer Service (SOS) - Electric Companies

The PSC set up two cases, PSC Nos. 9063 and 9064, to examine ways to best provide electricity supply to SOS customers, and how to handle the procurement pending a final decision from the PSC.The PSC never issued a decision in Case 9063, and it is now closed. It did issue a decision in Case No. 9064.

The PSC order in Case 9064 sets out the manner in which electricity supply is obtained and provided to residential customers served by the utilities. These bid solicitations and subsequent hearings have been held at least 2 times a year (5 in fiscal year 2009).OPC has acted as an observer in the bid solicitation process, and OPC’s senior attorney actively evaluates and participates in the process, with technical assistance from an expert consultant, and PSC hearings.

These proceedings are conducted pursuant to the terms of a Commission order issued in 2006.While that order was only an interim order, the bid solicitation process required by the PSC has continued through April 2010, and will continue pending issuance of a further order in PSC Case No. 9117.

BGE, PEPCO,Delmarva Power, and Allegheny Powerconducted the most recent bid solicitation process in October 2011.As a result of reductions in wholesale electricity prices, there has been a reduction in retail SOS prices. These prices now tend to be around the same as or lower than retail supplier offers.

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