Maryland Orders Reduced Compensation for Demand Response Provider Over Life of Gap RFP Contracts

In an order on one of the failures of a curtailment service provider to meet its full obligations under one year of the Gap RFP demand response capacity contracts, the Maryland PSC has ruled that reduced compensation reflecting the failure to deliver shall occur over the life of the contract, rather than only the delivery year in which the failure occurred.

The PSC's order specifically addresses the Gap RFP contracts of Energy Curtailment Specialists, Inc.

Aside from a jurisdictional issue, the dispute centered on what form reduced compensation would take to reflect the under-delivery. The PSC found in its order that it retained jurisdiction over the contracts.

ECS favored a reduction for only the first year of the Agreements, the year ECS provided less capacity than required. The PHI utilities favored an equal reduction over each year of the agreements

A Public Utility Law Judge had concluded that the capacity ECS provides is not fungible and therefore ECS should not be penalized in the remaining years for the capacity it did not provide in year one.

However, the PSC reversed this finding in a final order. Because the PSC had ordered the demand response contracts as insurance, for several years, against forecast PJM capacity shortages, "we conclude that ratepayers should not be responsible for contract costs for the amount of megawatts that ECS failed to deliver in 2011/2012 and that this reduction should be reflected throughout the four-year term of the contract, i.e. the PHI Approach."

"We find that this outcome bears a rational relationship to what was sought and bargained for, namely, a four-year insurance policy," the PSC said.

Therefore, the PSC directed Pepco and Delmarva to file tariff amendments with the Commission that reflect a reduction in the cost of their respective agreements with ECS pursuant to the PHI approach, with the reduction applied evenly to reduce the ratepayer surcharges for 2013/2014 and 2014/2015.

ECS provided the following statement to Matters:

"ECS is disappointed that the Maryland Public Service Commission (PSC) has decided to reverse, in part, the Public Utility Law Judge’s (PULJ) proposed decision which the PULJ reached after conducting a full hearing. This proposed decision was acceptable to ECS and we primarily appealed on the question of jurisdiction. Three of the four other parties involved did not appeal. ECS acknowledged that it did not provide all of the demand response capacity it committed to provide to PEPCO and DPL in 2011 and ECS felt that the PULJ’s proposed decision appropriately addressed this by requiring ECS to accept a reduction in compensation of several hundred thousand dollars. ECS agreed to this even though the contract with the Utilities called for no compensation to be paid for the reductions in the first year of the contract.

"It should be noted that ECS is one of several companies that did not meet its commitment in 2011. Other companies settling with the PSC asked for and were granted a reduction in the amount of capacity they were required to provide for each of the remaining years of the contract. By contrast, ECS did not ask for a reduction in any future year’s commitment, a fact that significantly differentiates our situation from others. ECS has fully met its commitment since 2012 and will do so for the remainder of the contract.

"ECS had pressed its case because it does not believe the imposed settlement is equitable as it is not based on a contractual measure of damages. ECS fully met its commitment in 2012, will do so again in 2013, and strongly believes it will meet it again in 2014. Despite this, in its decision today, the PSC imposed a settlement from a case that had a different set of circumstances, which they refer to as the 'PHI approach.' We feel that the unique circumstances of our case were a significant differentiating factor arguing against the 'PHI approach.'"

Case 9149