O'Malley Seeks "Best Price" Under Maryland Capacity RFP, Linking Contracts to SOS

Maryland Governor Martin O'Malley has asked the PSC to expand the current capacity RFP to include other types of generation aside from gas-fired assets, and to allow utility-owned generation to submit proposals (9214, 9/30)

O'Malley, in a letter to the PSC, said that broadening the scope of the RFP to include such alternatives would be the only way for the Commission to meet its obligation to obtain, "best price in light of market conditions at the time of procurement."

However, in doing so, O'Malley invoked the PSC's obligation with respect to Standard Offer Service supply under Public Utilities Article § 7-510 (c)(4)(ii)1, which, while cited by the PSC in issuing the RFP (along with § 7-510 (c)(6)), does not apply to situations in which the PSC authorizes utility-owned generation.

Notably, § 7-510 (c)(6), which the PSC first cited in issuing the RFP, permits bilateral contracting or generation construction by the utilities, "[i]n order to meet long–term, anticipated demand in the State for standard offer service and other electricity supply" [emphasis added].

Although not addressed on point by the PSC, the RFP is mainly intended to reduce capacity costs of all load serving entities in Maryland (not only SOS suppliers), although the RFP includes financial contracts for energy from the associated capacity, and the PSC has not determined the disposition of the cots/benefits of such energy. However, § 7-510 (c)(6) does not mandate that any energy be used for SOS.

In contrast, § 7-510 (c)(4)(ii)1.B, which was cited secondarily by the PSC in its order and which O'Malley invokes, explicitly provides, "[u]nder the obligation to provide standard offer service ... the Commission, by regulation or order, and in a manner that is designed to obtain the best price for residential and small commercial customers in light of market conditions at the time of procurement and the need to protect these customers from excessive price increases ... may require or allow an investor–owned electric company to procure electricity for these customers directly from an electricity supplier through one or more bilateral contracts outside the competitive process" [emphasis added].

In short, the "best price" criterion cited by O'Malley only applies to bilateral procurements undertaken solely for SOS (with only bilateral contracts, and not utility-owned generation, listed in the relevant subsection of the statute). Furthermore the "best price" criterion need not be considered for procurements under to § 7-510 (c)(6) undertaken to meet "long–term, anticipated demand," which may be for SOS customers, or a larger universe of customers, and which may include utility-owned generation or bilateral contracts.

In any event, O'Malley said that, "limiting the RFP for new generation to natural-gas fired facilities is not in the public's best interest," asking that the PSC, "allow an opportunity for full and meaningful consideration of clean, renewable energy resources for meeting Maryland's electricity needs, as well as to include the option of utility-owned generation."

"[T]o protect consumers from excessive price increases, the Commission also needs to compare the price of natural gas to the price of renewable resources such as wind and solar that are not subject to significant fuel price volatility," O'Malley added.

Alternatively, O'Malley asked that the PSC issue a concurrent RFP for renewable resources.

O'Malley also requested that the PSC require all bidders to disclose an "all-in" price with no fuel pass-through for comparison purposes.

"[H]aving more participants in the RFP process will increase competition and could result in lower prices for Maryland ratepayers," O'Malley said, in requesting that the PSC expand the RFP to include bids for utility-owned generation.

Citing the "best price" statutory criterion noted above, which only applies to SOS procurements and not reliability procurements, O'Malley said that, "[a]n open RFP process is needed to provide a mechanism for comparison of real prices among real alternatives."

"For example, how can the Commission know in advance of receiving bids whether new natural gas generation will be less expensive than new land based wind generation? Further, how can the relative costs between PPAs with competitive suppliers and utility- owned generation be determined without allowing both options in the RFP process?"

Apparently ignoring that the intent of the RFP is to lower capacity prices (which would be more difficult with renewable generation with lower capacity factors), and not to source energy for SOS, O'Malley writes, "The Commission's Notice does not articulate why the current RPF [sic] is for up to 1,500 megawatts of new natural gas, and it is not clear that the record supports the need for this amount of natural gas generation at this time."