Maryland PSC Strikes 'Regulatory Out' From Contract for New Capacity

The Maryland PSC has struck a "regulatory out" clause from a Contract for Differences among the utilities and CPV Maryland LLC to enable the construction of a 661 MW natural gas-fired combined cycle facility in Charles County with an in-service date of June 1, 2015.

Specifically, the PSC has struck Section 6.9 from the CfD, which is the so-called "regulatory out" clause which provides that the utilities do not have to pay CPV under the CfD unless the utilities have timely and complete recovery from their ratepayers.

The PSC noted that Section 6.9 was not in the CfD attached to the RFP the PSC issued in December, 2011, which was the basis on which CPV prepared its bid.

"We find that it should not be retained and, accordingly, have deleted it from the attached Contract for Differences we are ordering be signed," the PSC said.

The utilities had raised concerns without the regulatory out clause, given that the CfD's costs are to be recovered from SOS customers only. Due to the potential for further SOS migration, which in turn would leave fewer SOS customers to pay the CfD's costs prompting further migration, the utilities raised concern about their ability to recover costs, particularly if a future Commission or General Assembly were to change the current recovery mechanism. The utilities said that this risk would lead to lower credit ratings and higher borrowing costs.

"We also do not find that the concerns of the EDCs' witness are realistic," the PSC said. "An assumption that investors will assume 'that two thirds to three quarters of the current SOS load has the potential to migrate' was acknowledged by the witness to be 'a very extreme case.' Likewise, the EDCs' witness posits that rating agencies will assume both that the projections around the CfD and future costs and revenues are wildly wrong and that therefore a future Commission or the General Assembly will intervene to interrupt revenue recovery by the EDCs. The probability of all of these events coming together is remote in our view and even conservative but knowledgeable analysts will recognize it as extremely unlikely. Furthermore, the EDCs could offer no historical basis to suggest that either the Commission or General Assembly would take such action. Consequently, while rating agencies and investors may well see the CfD as increasing some risk to the EDCs, the extent and effect of the projected impacts seems exaggerated," the PSC said.

The PSC also reiterated that cost recovery by the EDCs of their payments to CPV (or credits from CPV) under the CfD from or to their SOS customers is appropriate, and indeed required by §7-510(c)(6) of the Public Utilities Article.