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Md. PSC Intends to Issue RFP for 1,800 MW of New Capacity

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December 30, 2010

The Maryland PSC intends to issue a Request for Proposals for up to 1,800 MW of essentially new capacity to potentially be procured by the investor-owned electric distribution companies, under long-term contracts (Case 9214).

The fact that the Commission has prepared a draft RFP and intends to issue the RFP after a comment period on the RFP's contents, "should not be construed as a finding by the Commission that new generation is required or that the Commission has decided to order any party to construct, acquire, lease or operate new capacity resources in or around Maryland."

The Commission is silent at this stage with how any energy, capacity, or RECs potentially obtained under the RFP would be used (e.g. dedicated for SOS service) or how costs would be recovered.

The PSC had previously invited proposals, not subject to a formal RFP, for new generation in Maryland, but tolled the submission deadline in late 2009.  Since then, the Commission has determined that a more formal RFP is required to seek offers for new generating facilities in or around Maryland, "including the possibility that electric distribution companies ('EDCs') could be required to enter into long term contracts with persons that construct a new generating facility in or around Maryland."

"In addition, the Commission anticipates that it will order the EDCs to submit proposals to construct, acquire, or lease, and operate new generation capacity resources in or around Maryland that meet the requirements of the RFP issued in this matter," the PSC said.

Draft RFP Terms
Under the draft RFP, the Commission would request proposals for capacity, energy and any ancillary services and, where applicable, Maryland Tier 1 RECs.  Such products must be derived from Generation Capacity Resources (as defined in the PJM Reliability Assurance Agreement) that will be located in or around Maryland, so long as the Generation Capacity Resource is interconnected to the PJM system such that the Generation Capacity Resource's output is infed to a node east of the Western Interface and deliverable to Maryland east of the Western Interface avoiding likely transmission congestion.

Generation Capacity Resources may be conventional or renewable generation technology, but Generation Capacity Resources do not include demand resources or energy efficiency resources.

The capacity from the Generation Capacity Resources must not have cleared any prior PJM capacity auction.

Generation Capacity Resources may include new up-rates of existing generation resources, but only the incremental portion of such generation resources may be considered a Generation Capacity Resource.

Respondents would be able to submit proposals to commit Generation Capacity Resources for an initial term of a maximum period of 20 years beginning no earlier than June 1, 2015 and no later than a date to be determined in the final RFP.

At the respondent's election, pricing for capacity, energy and ancillary services from dispatchable Generation Capacity Resources may be offered on a cost-of-service basis, or, alternatively, based on a combination of a firm and indexed pricing basis.  Non-dispatchable Generation Capacity Resources shall not be offered on a cost-of-service basis but rather on a fixed/indexed price basis.

For the supplier's capacity and energy, the financial arrangement between the EDC and the supplier will be a contract for differences between a) the supplier's contract capacity price and the Reliability Pricing Model Locational Deliverability Area clearing price applicable to the Maryland EDC's service territory, and between b) the supplier's contract energy price and the hourly PJM nodal Locational Marginal Price in the PJM day-ahead market and/or real-time market, as applicable, at the point of delivery into the EDC's service territory.

If the proposed Generation Capacity Resource is offered on a fixed/indexed basis, respondents may offer certain components of capital costs on a "pass-through" basis if such costs can not be determined until after the completion of certain analyses, such as gas or electric interconnection studies.  In this case, the estimated capital cost of the items to be passed through must be provided in detail, along with a description of all assumptions regarding scope, level of confidence, and other factors.

Per the draft, the Commission will evaluate the Generation Capacity Resource proposals and proposals from the EDCs to determine whether the proposals will, "enhance electric service reliability and are in the best interests of ratepayers."  The Commission would rely on quantitative as well as qualitative evaluation criteria.

Respondents are instructed to describe ratepayer benefits, including the reliability and economic benefits which are likely to be realized by Maryland ratepayers as a result of the Generation Capacity Resource.

Furthermore, respondents may describe benefits to the state of Maryland as a whole, such as other reliability, economic, socioeconomic and, if applicable, environmental benefits that are likely to be realized in Maryland as a result of the Generation Capacity Resource, "e.g., construction jobs, permanent employment during the operating period, tax effects, community improvements, other."

The draft contemplates that the PSC will issue a final RFP on March 18, 2011.  No final date for selecting winners is included; however, the draft contemplates that the Commission shall hold a hearing and make a selection sometime between the date for the submission of public comments on the proposals on December 30, 2011 and the date on which the EDCs would execute Commission-approved agreements, which would be February 10, 2012.

Need for RFP
The draft RFP cites Sections 7-510(c)(4)(ii)1.B, 7-510(c)(4)(ii)2.A and 7-510(c)(6) of the Maryland Public Utilities Article, Annotated Code of Maryland for authority to issue the RFP for capacity, energy, ancillary services, and, if applicable, Maryland Tier 1 RECs.

The draft RFP states that the, "purpose of this RFP is to ensure the continued, long-term reliability of the electricity supply to Maryland customers."

"In a March 2, 2010 presentation provided by PJM as part of Case No. 9149, PJM opined that the Capacity Emergency Transfer Limit (CETL) of the Mid-Atlantic area, which includes Maryland's Eastern Shore and the Pepco load delivery area was limited by the Pleasant View 500/230 kV transformer ... And at the April 14, 2010 Transmission Expansion Advisory Committee (TEAC) meeting, PJM reported that it had conducted preliminary load deliverability thermal and voltage analyses on selected Locational Deliverability Areas (LDAs) which include MAAC, Southwest MAAC (SWMAAC) and Pepco.  The results show reactive deficiencies in 2015 with MAAC and the other areas being voltage limited," the draft RFP states.

"The Pleasant View constraint is the most recent example of how resource and transmission limitations, often outside of Maryland, constrain the availability of resources to serve Maryland's needs.  Although the Commission recognizes and appreciates PJM's role in planning regional transmission solutions, Maryland law directs this Commission to ensure an adequate and reliable supply of electricity to  Maryland citizens. Where that supply may fall short, Public Utilities Article § 7-510(c)(6) authorizes this Commission to require investor-owned electric companies in Maryland to 'construct, acquire or lease, and operate generating facilities in order to meet long-term anticipated demand in the State for standard offer service and other electricity supply,'" the draft states.

"The reactive deficiencies PJM is predicting for 2015 would, if not cured, limit the amount of electricity available to import into Maryland.  And that potential capacity shortage could be exacerbated further if new emissions regulations being considered by the United States Environmental Protection Agency were to cause coal-fired plants in PJM to cease operations.  For all of these reasons, Maryland law requires this Commission to consider the impact of these potential constraints and shortfalls upon Maryland ratepayers and identify all possible mitigating solutions, including new generation.  Because market forces have not produced new generation in our region, the Commission may need to invoke its authority under § 7-510(c)(6) if, after an evidentiary hearing, the record in this case demonstrates that a projected capacity shortfall in the Delivery Year may affect Maryland and that ordering the construction, acquisition, lease or operation of additional capacity resources would satisfy the long-term anticipated demand in Maryland for Standard Offer Service or other electricity supply," the draft continues.


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