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Md. PSC Staff Seek Show Cause Order as to Why Curtailment Service Provider Contracts Should Not be Voided
September 19, 2011
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Maryland PSC Staff requested that the PSC issue a show cause order to the four curtailment service providers selected under the "Gap RFP," as well as the utility counterparties, to ensure that double counting is not occurring and to, "address why all the Gap RFP Agreements should not be voided."
Staff's recommendation came in comments regarding requests by EnerNOC and Energy Curtailment Specialists to modify their existing contracts under the Gap RFPs after failing to obtain the required capacity resources under the contracts for the 2011-12 delivery year (see 7/14).
The Gap RFP, an outgrowth of the Commission's evaluation of the SOS procurement process and its concern with reliability and lack of new capacity under the Reliability Pricing Model, procured demand resources via nonbypassable surcharge on distribution customers, with no impact on SOS pricing.
The Gap RFP contracts called for the use of Interruptible Load for Reliability (ILR) resources, and EnerNOC and Energy Curtailment Specialists are seeking, among other things, to use either Demand Resources or ILR, as each is defined by PJM, to meet the contractual obligation for ILR resources.
"Staff has some indication that at least one other CSP [curtailment service provider] may have used DR to meet its ILR requirement in the 2011/12 delivery year," and has outstanding data requests to the remaining CSPs. Also awarded capacity under the Gap RFPs were Comverge and CPower.
Citing recent statements from PJM and the market monitor, Staff cited its concern that double counting of demand resources may occur under the Guaranteed Load Drop (GLD) method of compliance.
"Since the costs of these [Gap RFP] Agreements to ratepayers through the 2014/15 delivery year is over $34 million, Staff believes measures should be taken to ensure ratepayers actually receive the capacity resources they pay for," Staff said. Staff also said that the PSC should ensure that CSPs do not receive additional compensation for apparent over-compliance with the Gap RFP contracts, for which ratepayers would not receive compensation.
Staff's understanding is that neither CSPs nor utilities are required to ensure that the MWs of demand reduction required in the Gap RFP agreements are actually being provided. Accordingly, Staff requested the show cause order requiring CSPs and utilities to show how they can ensure there is no double counting.
The Gap RFP contracts are contracts for differences, based on the RPM clearing price. The lower than expected RPM clearing prices have resulted in the costs of the Gap RFP nearly doubling from the originally forecast $18 million to over $34 million.
"Staff further notes that the price for the 2011/12 delivery year was set in the Gap RFP at $110.04 per MW/day. This price is lower than all other contract prices for all of the Agreements. It is Staff's belief that CSPs may have raised their bids for the later years in order to make up for the low price of the 2011/12 delivery year. That is, if the Gap RFP did not require CSPs to bid the first year at a set price, the CSPs may have placed bids with lower prices in the out years. Allowing CSPs to amend capacity amounts for the 2011/12 delivery year, while largely keeping other years' capacity deliverables unchanged, may have the result of inflating bids in the outlying years, while not receiving the benefits of full capacity in the one year in which there is no costs to ratepayers," Staff said.
Given these double counting and cost concerns, Staff also requested that the show cause order require parties to, "provide any other relevant information as to why these Agreements should not be voided."
The Office of People's Counsel recommended an evidentiary process to investigate the Gap RFPs, disputing the CSPs' contention that ratepayers are not harmed by the 2011/12 under-deliveries since no payment was due to the CSPs for the 2011/12 year.
"There is no merit to this argument as it fails to recognize that the contract price for the three remaining delivery years reflects the value to ratepayers of a guaranteed amount of demand response in all four years of the contract term. If Petitioners fail to deliver that guaranteed amount in the 2011-2012 Delivery Year, then ratepayers will end up paying too high a contract price in the remaining years of the contract for the value received," OPC said.
Similarly, the Pepco utilities were not opposed to modifying the Gap RFP agreements to account for the CSPs' shortfalls, provided that the prices paid under the contracts are adjusted downward accordingly to reflect the resources the CSPs have failed to make available.
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