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PSC Staff Propose SOS Procurement Changes Due To Potential Launch Of New Pilot Opt-out Muni Aggregation

August 22, 2022

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Staff of the Maryland PSC have endorsed a change in the SOS procurement contract lengths at Pepco and Potomac Edison (PE) due to the potential launch of the Montgomery County pilot opt-out municipal aggregation (CCA)

If the standard two-year electricity contracts were used in the mass market SOS procurement for the period beginning June 1, 2023, the contracts could overlap with a potential start of the CCA, which may begin as early as October 1, 2024

In an annual report on the SOS procurement process, Staff said, "The prospect of a Montgomery County CCA is problematic for SOS bidding because there is substantial uncertainty as to when, or even if, the CCA will start, due to a significant issue that has arisen in the CCA work group. This means that if the standard schedule is maintained, anyone bidding to serve Residential and Type I Small Commercial SOS load in the Pepco and PE service territories faces the possibility that a large percentage of SOS customers in Montgomery County will suddenly be moved into the CCA, and they will no longer be providing power to serve that load. However, in order to bid to serve the load, they are required to procure power (or at least an option to purchase power) far in advance of when power must start to flow. This creates a substantial risk for suppliers, which under the standard bid schedule could prevent them from bidding or cause them to include a high risk premium in their bid offers."

"At this point, the only certainty with respect to the CCA remains that it will not start prior to October 1, 2024. The PIP [procurement improvement process] parties considered several options to address this situation for Pepco and PE: 1) a geographic split whereby Montgomery County and Prince Georges County load would be bid separately, with no power sought for Montgomery County after October 1, 2024; 2) a temporal split in which 16-month contracts would be bid for the entire Montgomery County and Prince Georges County load and ending October 1, 2024, combined with an 8-month 'stub' contract that would encompass the full Prince Georges County load and, possibly, a residual load in Montgomery County; and 3) bid as normal, with a Montgomery County commitment or Commission ruling that the CCA could not start serving load before June 1, 2025. Option 1 was ruled out, because the utilities have not yet compiled the data needed to separate their loads by county, though all are engaged in the process of making the significant IT changes that are necessary. That leaves the remaining two options for the Commission’s consideration," Staff said

"Pepco and PE have each submitted two bid plans – a base bid plan that reflects procurement on a normal schedule (Option 3), and an alternative bid plan (variations on Option 2). Pepco’s alternative bid plan addresses the CCA by incorporating 16-moth [sic] contracts for its entire load and an 8-month stub contract covering the period from October 1, 2024 through June 1, 2025, for only Prince Georges County load. Pepco did not specify a bid date for the stub contracts, but it could be bid out in any of the four bid tranches in the upcoming year. PE’s alternate bid plan uses a combination of 16-month and 4-month contracts, both of which would end on September 30, 2024. PE would procure its 16-month contract during the October and January bid tranches, and some of the 4-month contracts in each of the four bid tranches. The split in contract length is intended to help maintain the diversity in PE SOS supply contract portfolio, while the contract termination date would postpone procuring power for the period after October 1, 2024 until the 2023-2024 procurement year, in the expectation that there will be greater certainty about when the CCA will start, and the segregated load data will be available," Staff said

"Option 2, as set forth in the Pepco and PE bid plans, minimizes uncertainty by postponing until at least April 2023 any attempt to procure power to serve Montgomery County load after October 1, 2024. It does so at the price of altering the effective periods of power purchase contracts that have been set at two years since the Commission’s initial 2006 Order in Case No. 9064. At that time, the Commission carefully balanced the Residential and Type I SOS procurement approach by incorporating time diversity through twice-yearly procurements, and protection from price volatility through the use of two-year contracts. Option 2 would modify this approach temporarily, so as to minimize the risks to suppliers and ratepayers that are created by the uncertain start date of the CCA," Staff said

Staff endorsed this Option 2, which uses a shorter main contract (versus the standard two years) plus a "stub" contract

"Staff recommends that the Commission adopt Option 2, with bidding on Pepco’s 8-month contracts in January or April 2023, and bidding for PE as stated in their alternative bid plan. Staff recommends this Option on the assumption that the Commission would prefer to give the parties in the CCA work group more time to work out the issues associated with the CCA. Staff also believes that this choice reasonably mitigates the risks of purchasing power to serve load in Montgomery and Prince Georges County after October 1, 2024," Staff said

With respect to the other alternatives, Staff said, "Option 3 would have the bidding proceed as normal, but require delaying the start date of the CCA serving load until June 1, 2025. This would essentially postpone the problem a year, in the expectation that there will be greater certainty next year about the timing and parameters of the CCA, as these issues are worked out in the CCA work group. Montgomery County declined to commit to such a delay, so it would need to be ordered by the Commission if Option 3 is to be feasible. None of the PIP parties advocates bidding on the normal SOS schedule without the certainty that the CCA will be delayed. Suppliers would not want to bid on contracts with such a large load risk, and other parties do not want ratepayers to have to pay the potentially higher risk premiums that may be embedded in such contracts. In addition, there is some legal question regarding the Commission’s authority to delay the start of the CCA serving load."

Cases 9056, 9064

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