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Regulatory Activities – Electricity – Significant Cases

 
 
Electricity – Significant Cases
 
 
 
 
MARYLAND PUBLIC SERVICE COMMISSION (PSC) CASES
 
Electricity Procurement for Residential Customers
 
PSC No. 9064 (SOS Bid Solicitations-BGE, PEPCO, Delmarva Power & Light, Allegheny Power)
 
The PSC set up two cases, PSC Nos. 9063 and 9064, to examine ways to best provide electricity supply to SOS customers, and how to handle the procurement pending a final decision from the PSC. The PSC never issued a decision in Case 9063, and it is now closed. It did issue a decision in Case No. 9064.
 
The PSC order in Case 9064 sets out the manner in which electricity supply is obtained and provided to residential customers served by the utilities.  These bid solicitations and subsequent hearings have been held at least two (2) times a year (five (5) times in fiscal year 2009). OPC has acted as an observer in the bid solicitation process, and OPC actively evaluates and participates in the process, with technical assistance from an expert consultant, and PSC hearings. The most recent bid solicitations took place in April, June, and October 2011.
 
These proceedings are conducted at least two times a year pursuant to the terms of a PSC order issued in 2006. While that order was only an interim order, the bid solicitation process required by the PSC has continued through 2011, and will continue pending issuance of a further order in PSC Case No. 9117 (see below). See full PSC docket for Case 9064 and OPC's Initial Brief in Case 9064, October 2006.
 
 
 
SOS Procurement-PSC Case No. 9117
 
This case was established by the PSC in August 2007, in response to the legislative requirements of Senate Bill 1, to address procurement of electricity supply for residential customers. Case No. 9117 effectively took the place of the earlier case, Case No. 9063, which is now closed.
 
OPC was an active party in the case, which includes about 28 parties. OPC filed expert testimony in multiple rounds in September, October and December, 2007, and participated in multiple rounds of hearings in October and November, 2007 and January 2008.
 
The PSC did not grant OPC’s request to submit legal briefs at the conclusion of the evidentiary proceedings. OPC later released a report, Risk Analysis of Procurement Strategies for Residential Standard Offer Service,” completed March 25, 2008 by Resource Insight, Inc and Synapse Energy Economics, Inc at OPC's Request.  This report presented the results of an analysis of the potential benefits and drawbacks of various supply options for electricity service for residential customers.  The authors conducted a sophisticated computer modeling study to analyze the expected costs and risks associated with various supply portfolios for residential customers over an extended period of time.  The report’s authors concluded that the supply portfolios that performed best were those that have a diverse set of resources, including energy efficiency, renewable and new generating resources (or long-term contracts) and that this type of portfolio would produce the best mix of price and price stability over the long term.  
 
In a later Public Conference proceeding, PC 13, In the Matter of Senate Bill 400 Reports, OPC filed comments and this Report with the PSC, and participated in the May 14, 2008 hearing, see OPC Comments in PC13.  The Commission issued an order on July 3, 2008, and in response to the OPC Report, ordered the four (4) major electric companies to do their own electricity procurement plans. These reports were filed by the four companies on October 1, 2008. OPC and others filed comments with the PSC regarding plans. The PSC held a hearing in December 2008. 
 
In August 2009 Competitive Power Ventures (CPV), a merchant generator, filed a motion with the PSC to order an electric company (or companies) to enter into a long-term contract with CPV.  The Commission previously had approved a CPCN for CPV to construct a 600 MW facility in Charles County, Maryland. However, CPV has asserted that it needs the financial assurance of long-term supply contracts to proceed with construction. OPC and other parties filed comments on August 11, 2009. The Commission docketed a new but related case, PSC Case No. 9214 to address the CPV motion.
 
On December 18, 2009, Governor O’Malley submitted a letter to the Commission in both cases requesting action on electricity planning and the CPV motion. OPC supported this request, since we have been seeking a change in the procurement rules since 2006.  See OPC Comments in PSC Case No. 9117.  In response, the PSC sought comment in early 2011 on a draft RFP for a generating facility, and subsequently, in September 2011, issued a notice requiring all major electrical companies to issue an RFP to developers of gas-fired generation up to 1500 MW for a maximum of 20 years.  Responses to the RFP and comments on the issue of whether the generation is needed are due in January 2012, with a hearing later in the month.  The PSC is not required to approve any contracts.
 
While there has been activity in these other dockets, the PSC has not issued a decision in the major SOS procurement case, Case No. 9117, and residential consumers continue to be served by their utilities under procurement rules adopted in 2006. While residential SOS customers have seen the benefits of reduced prices in the electric wholesale markets beginning June 1, 2010, OPC believes that the majority of residential customers will be best protected by a continuation of the utility obligations to SOS customers, and long-term planning for procuring electricity.
 
 
 
Distribution Rate Cases
 
Delmarva Power and PEPCO--PSC Case Nos. 9285 and 9286
 
 In December 2011 Delmarva Power and PEPCO filed requests for significant rate increases. Delmarva Power seeks $25 million, while PEPCO has asked for $68 million, driven in large part by expenses related to reliability. The Companies also are asking the PSC to modify long-standing ratemaking rules to establish a cost-recovery mechanism (RIM) outside of rate cases for reliability expenses and set rates based on forecasts, not actual expenses. OPC expects to challenge these attempts to change the rules to favor the utilities, and to examine the reliability expenses in light of the PSC’s recent decision on the investigation of PEPCO’s service quality and reliability, resulting in a $1 million fine against the Company. 
 
 
PEPCO-PSC Case No. 9217
 
In a decision issued on August 6, 2010, the Maryland Public Service Commission (PSC) granted an increase to PEPCO for electric distribution rates of approximately $7.8 million, which was less than one-fifth of the increase originally sought by PEPCO.  The Maryland Office of People's Counsel (OPC) actively participated in this case, and most of the adjustments advocated by OPC were accepted by the PSC.
 
When PEPCO filed for a distribution rate increase in December 2009, the company sought a distribution rate increase of approximately $40 million.  As a result of various concessions by the company, when the case was submitted to the PSC for a decision, PEPCO's requested rate increase was approximately $28.2 million, OPC objected to a number of elements included in the requested rate increase, and advocated for various adjustments that would limit the increase to approximately $5 million.
 
The PSC accepted most of the adjustments advocated by OPC.  In particular, the PSC accepted OPC's position on excluding post-test year reliability plant additions, adjusting accumulated deferred income tax for severance payments, calculating cash working capital, excluding rate case cost from rate base, denying incremental costs for an Energy Advisor Program and an Enhanced Integrated Vegetation Management Program, applying the appropriate amortization period for extraordinary storm expenses, calculating the allowance for funds used during construction, adjusting for interest synchronization, adding the appropriate allowance for flotation costs, and adjusting the cost of capital for the bill stabilization adjustment.  Moreover, the PSC agreed with OPC that the increase in rates should be recovered solely from volumetric charges, with no increase in the fixed customer charge.
 
For residential customers, the increase approved by the PSC amounts to a 3.1% increase in residential distribution rates which will result in an increase in residential distribution charges of less than one dollar per month.  PEPCO has filed a Request for Rehearing, which has been opposed by OPC.  A PSC decision is pending.  For full case information look at PSC Web site, PSC Case 9217.
 
 
BGE-PSC Case No. 9230
 
On May 7, 2010 BGE filed a request for increases in both its electric and gas distribution rates. BGE claims a revenue deficiency of $92 million (reduced from the $110 million originally claimed), and due to a 2008 settlement restricting future rate increases, now seeks a $47.2 million rate increase from its electricity customers.  In addition, BGE now asks for a $30.4 million (reduced from $42.4 million) increase from its gas customers. OPC represents residential gas and electric customers in this case.   OPC submitted expert testimony challenging BGE's proposals.  Evidentiary hearings were held in September 2010, and public hearings were held in October 2010.  In a December 6, 2010 decision, the PSC rejected most of the Company's assertions, and granted a $31 million increase in electric rates and $9.7 million increase in gas rates.  For full case information look at PSC Web site, PSC Case 9230.  
 
 
Delmarva Power-PSC Case No. 9192
 
PEPCO Holdings, Inc. is the parent company of Delmarva Power and PEPCO. Both of these Companies received approval for increases in their rates in 2007.
Delmarva Power sought another $14 million distribution rate increase in 2009. OPC was a party in the case, and submitted the testimony of multiple expert witnesses to challenge the Company’s request, and in support of no more than a $3 million increase. As a result of OPC’s advocacy, the PSC issued a decision granting a rate increase of $7.5 million, substantially less than the Company request, to the benefit of residential customers.  See PSC Case No. 9192  and OPC Initial Brief in Case No. 9192. 
 
 
BGE Depreciation Case-PSC Case No. 9096
 
OPC was successful in a case to examine BGE’s depreciation rates.  Depreciation is the process by which BGE recovers from ratepayers over time the cost of its investments in equipment and lines (or “plant”) required to provide reliable electric service.  While one part of depreciation is the cost of the plant itself, another part is the future cost to BGE to remove its plant in the future when it has reached the end of its useful life and needs to be replaced.  The main problem arose from the fact that, overall, the cost to remove that plant now greatly exceeds the salvage value of the retired lines. In December 2006, BGE asked the PSC to modify BGE’s depreciation rates.  After extensive pre-trial discovery, OPC’s expert witness filed testimony opposing BGE’s request, and recommended changes to BGE’s methods of calculating depreciation rates. In particular, he recommended separate accounting of estimated removal costs, which appeared to be significantly and inaccurately inflated. Depreciation rates, including removal costs, can have a significant impact on rates paid by consumers. In an Order on Appeal issued in February 2010, the Commission generally supported OPC’s recommendations and, in particular, ordered BGE to change its method of calculating its estimated future costs to remove retired plant removal to the betterment of ratepayers. This will be beneficial to ratepayers in future rate cases. See OPC Brief 9096.
 
 
Major Storm Outages and Service Reliability
 
 
PSC Case No. 9240--Investigation of PEPCO Service Reliability
 
In July and August 2010, there were three (3) severe storms in the PEPCO service area, resulting in major power losses.  Customers in Montgomery County and Prince George's County were affected in significant numbers, and in some cases service was not restored for several days.  In response to customer complaints about PEPCO's storm response and recurring non-weather related outages, and the Company's performance during the February 2010 storms, the PSC opened an investigation into the reliability of PEPCO's distribution system.  The PSC convened a hearing on August 17, 2010 to hear from senior officials of PEPCO, and held public hearings (see Public Hearings Page)  in Prince George's County and Montgomery County to receive comments from customers.  The PSC also obtained an independent third-party evaluation of PEPCO's system reliability.  OPC hired an engineering expert to review the independent evaluation and conduct his own review, and provided expert testimony to the PSC. After extensive evidentiary hearings, OPC submitted a legal brief documenting PEPCO’s failure to meet its responsibilities to provide reliable service to its customers. In light of its management failures to invest properly in tree trimming, feeder improvements and other maintenance, OPC recommended specific compliance requirements to improve reliability and a substantial fine. The PSC issued a decision on December 21, 2011 that found PEPCO’s poor management decisions resulted in poor service reliability for its customers, ordered a number of corrective actions and imposed a $1 million fine.  PSC Case No. 9240
  
 
 
Rulemaking Docket RM-43 Service Reliability
 
As a result of the major service problems in PEPCO’s service territory in 2010, the General Assembly (GA) considered a number of service quality and reliability bills in 2011. The GA passed a bill requiring the PSC to establish service reliability standards and specific requirements for tree trimming, feeder repairs, downed wires and other maintenance requirements, as well as customer communication.  The PSC set up a Work Group at the end of the legislative session, which met for 6 months. OPC and its expert actively participated in the process and the development of proposed regulations. A Report and proposed regulations were submitted by PSC Staff to the PSC, followed by written comments and a hearing. OPC staff and its expert presented our support for many of the Staff proposals as well as additional recommendations. The PSC has approved a set of reliability regulations for publication, and OPC expects them to become final in the first quarter of 2012.
 
 
PSC Case No. 9220 and PC21--Major Storm Outages
 
In February 2010 the PSC docketed a case to investigate the performance of the utilities during the major snow storms we experienced in Maryland during that month. The companies submitted information about the outages to the PSC, and OPC retained an engineering expert to assist us with a technical analysis. We submitted our analysis and participated in the hearing. OPC made the following recommendations to the PSC:
 
  • Require PEPCO to examine the underlying reasons for its average outage duration of 13.6 hours per customer;
  • Require that future major storm reports include more information concerning the distribution of customer interruption duration and the longest interruption times experienced by customers;
  • Consider instituting a review of vegetation management practices of the Utilities, or, requiring that future major storm reports include additional tree trimming information;
  • Request that PEPCO examine its policies regarding engagement of external service restoration personnel during major storms and pre-mobilization; and
  • Consider revisiting the relative costs and merits of under grounding distribution facilities.
 
OPC also recommended  that the PSC  order the Utilities to file a “Lessons Learned from Snow Storms of February 5 through February 12, 2010 and Progress Report” six months from the conclusion of the hearings in this case. 
 
In response to OPC comments and the information provided, the PSC set up a technical conference to look further at the “lessons” learned by the utilities, to identify any “best practices,” and to address particular communities with significant outages. OPC participated in those technical conferences with the assistance of our engineering consultant. PSC Case No. 9220 and PC21 and OPC Comments PSC Case 9220, March 2010.
 
 
 
Energy Efficiency and Demand Response (EmPower Maryland)
 
 
PSC Case Nos. 9153, 9154, 9155, 9156, 9157
 
OPC consistently has supported the development of energy efficiency and demand response polices and programs, throughout the 1990s, as part of deregulation, and post-deregulation.  In 2007 OPC testified in support of Senator Frosh’s bill to establish energy efficiency goals. OPC has supported the development of these programs to meet the affordable price and reliability needs of residential customers, and supported the EmPower Maryland legislation in 2008. This law established specific targets for energy use reduction in Maryland, including targets for each large electric company in Maryland. Each electric company has a reduction target of 5% by the end of 2011 of both energy usage and peak demand, and an additional 10% by the end of 2015.
 
As a result of this law, the PSC set up separate cases for each of the major utilities BGE, PEPCO, Delmarva, Allegheny Power and SMECO to consider their EmPower Maryland proposals. The Commission issued a series of orders on September 3, 2008 establishing five (5) separate dockets for the larger utilities.  Each company was required to file a comprehensive plan in September 2008. OPC participated in workgroup meetings in September 2008, submitted initial and reply comments on each company plan during September and October, and participated in multiple hearings in September through November 2008. The Commission issued its orders on December 31, 2008, as required by the EmPower Maryland legislation.
 
The Commission approved most program designs proposed by BGE, PEPCO, Delmarva and Allegheny Power, although they set certain cost issues for further filings and review.  Allegheny Power was required to provide a revised plan to the Commission, and the Company’s proposals received final approval on August 6, 2009.  PEPCO and Delmarva were required to provide additional cost-effectiveness data. The Commission issued Orders approving the programs in 2009.
 
The EmPower Maryland utility plans were three year plans, and required continuous activity and involvement of OPC and other interested parties, particularly to ensure consistency among programs provided by the electric companies, Maryland Energy Administration and Maryland Department of Housing and Community Development   Each company files quarterly reports on the programs and the company’s progress in implementing the programs and meeting the EmPower Maryland goals.  OPC reviewed and commented on these reports at the PSC’s quarterly hearings and actively participated in the PSC’s general awareness and outreach work group, monitoring and evaluation activities.  OPC particularly commented on the delays in implementation of some utility programs and the limited customer participation in low-income and home performance programs.
 
Throughout most of 2011, OPC and its experts from the Vermont Energy Investment Corporation (VEIC) worked with the utilities and other stakeholders to assist utilities in modifying existing programs and expanding the portfolio of programs for 2012-2014. The utilities submitted proposals in September 2011, and OPC and others filed extensive comments with the PSC a month later. After hearings in October, the PSC issued an order in December approving the utilities’ portfolios of programs with modifications. The PSC accepted proposals by OPC and others to place all utility low-income programs with DHCD as a single administrator, and to standardize rebates, program features and marketing information as much as possible. OPC will join the work group to assist in plans for the transition of program to DHCD along with other activities to carry out the PSC order.
 
 
 
Smart Grid (Smart Meter) Proceedings 
 
PSC Case No. 9208 (BGE) and 9207 (PEPCO and Delmarva Power)
 
In the past few years there has been a lot of “buzz” about smart grid and smart meters in Maryland and on the national level. Maryland electric companies began seeking approval for smart meter installations in 2007. OPC consistently opposed these initial proposals as premature, too costly, and unnecessary for reducing energy usage, and identified a number of consumer protection issues related to the installation of meters. With the passage of the EmPower Maryland law in 2008, the focus rightly shifted to the development of energy efficiency and demand response programs that are voluntary and more cost-effective.
 
In 2009 the Department of Energy issued requests for utility proposals for smart grid grants. BGE, PEPCO and Delmarva Power applied for the grants. In July 2009 BGE and PHI (PEPCO and Delmarva Power) applied with the PSC for approval of major smart grid/AMI proposals. Despite the large dollar impacts of these proposals for residential customers, the Companies sought rapid approval without evidentiary hearings. At OPC’s urging, in orders issued on August 5, 2009, the Commission docketed two cases, Case Nos. 9207 and 9208, and set aggressive schedules for evidentiary hearings in the fall of 2009 on these applications. OPC conducted discovery and retained expert witnesses to analyze these filings and present testimony on the costs, benefits and detriments of these proposals to the Commission. The PSC held evidentiary hearings on these proposals over a period of several weeks, and OPC filed legal briefs identifying several issues and concerns related to the BGE and PHI proposals, including: 
  • The cost-effectiveness of the Companies’ smart meter proposals
  • Additional costs, not included in the Companies’ proposals, related to installation of smart meters
  • Opposition to BGE’s cost recovery proposal to use a surcharge on residential customer bills
  • Opposition to BGE’s proposal for mandatory Time-of-Use pricing
  • The privacy and security of customer information and data
  • The impact of remote service disconnection on residential customers
  • The importance of comprehensive customer education
 On June 21, 2010 the PSC rejected BGE’s proposal, including the use of a surcharge and mandatory TOU pricing, and found BGE’s business case for the meters “untenable.” 
 
Since then, BGE submitted a request for rehearing with a modified proposal to the PSC.  OPC filed testimony challenging BGE's amended proposal on August 2, 2010.  The PSC held a hearing on August 5 & 6, 2010 and on August 13, issued an order allowing the installation of the meters.  However, residential customers will not pay the cost for this proposal unless the Company is able to show in a future rate case that the meter installation is successful and cost-effective for our consumers.  A similar decision was issued for PEPCO.  The Department of Energy (DOE) has notified BGE and PEPCO that the Smart Grid grants were approved.  The PSC required Delmarva Power to make additional filings, and conducted further hearings in 2011. OPC submitted expert testimony raising significant problems with cost-effectiveness of the proposed installations, and recommended that the PSC not approve the proposal at this time. We are waiting for a decision.
 
These decisions, and OPC's positions in these cases, have received national attention, and have helped to elevate consumer concerns in the discussions about smart meters.  OPC testimony and PSC decisions can be found in PSC 9207 and 9208.  See OPC's Press Releases on the decisions. 
 
 
 
Mergers and Acquisitions 
 
 
Exelon and Constellation Energy Group--PSC Case No. 9271
 
 
Constellation Energy Group, the parent of BGE, became involved in another merger in 2011. In May 2011, Exelon Corp and Constellation announced a $7.9 billion merger deal. Since this merger could have significant impacts on BGE, a regulated utility, and BGE customers, the PSC must approve it. To do so, the PSC must find the merger is in the public interest and provides benefit s and no harm to BGE customers. Since the announcement, OPC, the State of Maryland, PSC Staff and other parties have engaged in extensive discovery, filed multiple rounds of expert testimony in September and October 2011, and participated in extensive hearings in November 2011. OPC and others submitted legal briefs on December 5. Subsequently, the Companies and the State of Maryland, with Baltimore City, announced that they had reached a settlement. Since other parties, including OPC, are not parties to that settlement, the PSC has ordered further rounds of testimony and discovery, with a further hearing at the end of January. A decision will be issued by February 17, 2012.
 
Unlike other parties, OPC’s responsibility is to represent the interests of BGE’s residential customers, and to examine whether the merger would harm customers or provide benefits to them. OPC has identified a number of issues in this case that can negatively impact BGE customers. The Companies have conceded that the merger will present market power problems in the wholesale electricity markets. Exercise of market power can lead to negative impacts on retail prices paid by BGE and other utility customers. OPC’s expert submitted testimony on the need for additional steps to address the market power problems. In addition, OPC witnesses highlighted the long-term impacts of the merger, which will place the ultimate decision-making for Constellation, and therefore, BGE, in the hands of an out of state corporation. OPC has recommended additional funding of service reliability initiatives, low-income programs, a three-year rate freeze and other measures to lessen the impact of this corporate removal. OPC’s proposals were not included in the settlement. Further testimony will be filed by OPC and others prior to the hearing.
 
 
 
FirstEnergy Corp. and Allegheny Energy Merger-PSC Case No.9133
 
In February 2010 FirstEnergy and Allegheny Energy announced plans for a merger. First Energy and its subsidiaries operate regulated utility companies and power plants in Ohio, Pennsylvania, New York and New Jersey, while Allegheny Energy is the parent of Potomac Edison d/b/a Allegheny Power, the regulated electric company operating in western Maryland. Allegheny Energy and its subsidiaries also operate in Pennsylvania, Virginia, and West Virginia.
 
The Companies filed an application for merger approval with the Federal Energy Regulatory Commission (FERC) and with the Maryland PSC.   Under Maryland law, the Companies will have to show that the merger is in the public interest, and provides benefits and no harm to Maryland consumers. OPC was a party in both the FERC and MD PSC cases, recommended that the PSC not approve the merger unless certain conditions were met to protect consumers and provide benefits to them, including a $7.5 million refund or credit per year for each of five (5) years and a five (50 year freeze on rates.  The state of Maryland entered into a settlement with the Companies.  While the settlement provided public interest benefits through a commitment to develop generation, OPC did not support the settlement because of its limited direct customer benefits.  The PSC approved the acquisition.  For more information, see Public Service Commission PSC Case 9233.
 
 
EDF – Constellation Acquisition – PSC Case No. 9173
 
This case stemmed from the near financial collapse of Constellation Energy Group, Inc., the parent of BGE, in September 2008.  Constellation initially agreed to be acquired by MidAmerican, and several months later terminated that agreement to enter into a different transaction with EDF International SA for EDF to acquire an interest in Constellation Energy Nuclear Group, LLC, a subsidiary of Constellation and affiliate of BGE. EDF, Constellation, and BGE challenged the legal authority of the PSC to review the proposed acquisition. In a Petition and during extensive litigation on this issue, OPC urged the PSC to find that it had regulatory oversight over the transaction. In an important win for consumers, the PSC ruled that EDF and Constellation needed PSC approval to go forward with the transaction.  This ruling resulted in a regulatory review of the transaction to determine whether it is in the public interest and whether it will result in “benefits and no harm” to consumers as Maryland law requires.  For BGE’s residential customers, this was critical, since the transaction could have real world and potentially negative consequences for ratepayers.
 
OPC engaged in extensive litigation in this case, and presented expert testimony on the proposed transaction and its impact on consumers. While OPC ultimately concluded that the proposed transaction provided insufficient benefits for BGE’s ratepayers, the Commission ultimately approved the Constellation-EDF (CEG-EDF) transaction.  As a result of the regulatory process, however, the PSC was able to craft conditions that will produce better results for ratepayers in contrast to the original CEG-EDF proposal. These conditions provided greater financial stability to BGE, significantly protected BGE ratepayers from CEG’s riskier operations and actions, and provided some limited one-time rate benefits to BGE ratepayers, in the form of a $100 credit for each customer. 
 
The Commission agreed with OPC and completely rejected the Companies’ attempts to link this transaction to the construction of Calvert Cliffs 3 (“CC3”), and correctly found that any alleged benefits from CC3 were far too speculative to be considered ratepayer benefits. The Commission also agreed with OPC that the transaction as proposed posed a very real potential for harm to BGE’s ratepayers because of the ability of EDF “to influence the flow of capital in and out of CENG, and thus the capital available to BGE” (Order, p. 41), and the risk to BGE ratepayers in the event of a CEG bankruptcy, which nearly occurred in the Fall of 2008. Recognizing these substantial risks, the Commission has made the transaction contingent upon a $250 million equity infusion in BGE, dividend payment restrictions and ring-fencing protections. These protections will provide for significant separation between CEG and BGE, including prohibitions on the commingling of funds.  These conditions should provide reasonable protection to BGE ratepayers against potential harm resulting from CEG’s riskier and unregulated operations.
 
The Commission’s order also included findings that will be beneficial to ratepayers in any future reviews of these types of transactions. The Commission agreed with OPC that the law requires the PSC to make independent findings that the transaction is in the public interest, does no harm to consumers, and provides benefits to those consumers. Furthermore, the PSC agreed that the “consumers” are the ratepayers of the regulated company affected by the transaction - in this case, BGE’s ratepayers, and not Maryland citizens in general.
 
 
 
Construction of Transmission Lines-CPCN Cases
 
The MAPP Transmission Line-PSC Case No. 9179
 
In February 2009, PEPCO and other utilities filed an application to construct the Maryland segment of the MAPP (Mid Atlantic Power Pathway) transmission line. Part of the line would run under the Chesapeake Bay and through Dorchester County. The estimated cost for the total line is about $1.2 billion; if eventually approved, Maryland ratepayers will be responsible for some of the total cost. OPC retained an expert in transmission engineering to review the application and make recommendations since the proposed line has price and reliability implications for Maryland ratepayers. In written testimony, OPC’s expert witness concluded that the Companies did not demonstrate a need for the MAPP Project, in part because they failed to propose a defined route for the transmission line, and that the total costs would be greater than the projected benefits from the line. While OPC’s expert determined that system reinforcement likely would be needed in 2014 or later, there needs to be an update of the data in the reliability study to take into account the recent reductions in electricity consumption.
 
 In January 2010, the Companies asked for and received a suspension of the hearing in the case in order to update the reliability information.  The Companies have notified the PSC Hearing Examiner that PJM has completed its updated analysis, and has concluded that MAPP is still needed with new on-service date of June 2015.  Since then, PJM, the organization responsible for operation of the electricity grid in the Mid-Atlantic area, has conducted further analysis of the need for the line, and determined that it is not needed for several years. As a result, the schedule has been suspended again.  For more information see PSC Case No. 9179, and OPC Testimony in PSC Case No. 9179.
 
 
The PATH Transmission Line-PSC Case No. 9223
 
In May 2009, Potomac Edison d/b/a Allegheny Power filed an application on behalf of an affiliate to construct the Maryland part of the so-called PATH (Potomac-Appalachian Transmission Highline) transmission line.  The estimated cost of the entire line is about $1.8 billion, and if approved, Maryland ratepayers would be responsible for a portion of the cost. The PSC agreed with OPC’s position that Maryland law permits only an electric company – that is, a company that transmits or distributes electricity to retail customers –  to apply for and receive a CPCN, and that Potomac Edison could not just file “on behalf” of PATH, an affiliate company. Potomac Edison filed a second application in December 2009, stating that it would construct and operate, but not own, the transmission line.  After considering legal arguments, the PSC recently issued a decision that Maryland law allows a transmission line to be owned by a non-electric company, if an electric company builds and operates the line, and directed Allegheny Power to submit supplemental testimony to complete its CPCN application.  Allegheny did so, and on July 28, 2010 the PSC assigned the case to its Hearing Examiner Division.  Since then, PJM has conducted a further analysis of the need for the line.  As a result, the utility has withdrawn its application. For full case information see PSC Case No. 9223 .
 
 
FEDERAL AGENCIES
 
Federal Energy Regulatory Commission (FERC)
 
OPC is an active party in a variety of FERC proceedings. These cases may involve wholesale market issues, multi-state transmission line cases, and demand response issues. The operation of the wholesale market directly impacts wholesale prices in the Pennsylvania-New Jersey-Maryland (PJM) region, and these prices are directly reflected in the retail electricity prices paid by residential consumers. PJM is the operator of the wholesale market for Maryland and other states. We also are a party in multiple transmission line cases because some of the costs eventually will be passed onto Maryland ratepayers. You can get more information about PJM at www.pjm.com.
 
You may get more information on FERC cases at www.ferc.gov by using the FERC case numbers listed below.
 
OPC may file comments on its own, or submit comments as part of a Coalition or as a member of the National Association of State Utility Consumer Advocates (NASUCA). 
 
 
Reliability Pricing Model
 
The Reliability Pricing Model (RPM) is a capacity market design approved by FERC for the PJM wholesale market region. While FERC has claimed that RPM is designed “to improve price stability, enhance reliability, and enable a potentially large supply of new resources to compete with existing resources,” the fact is that the RPM mechanism has resulted in significantly higher prices for Maryland ratepayers, with no new construction of generating facilities. OPC has been an active party and protestor of these flawed designs since 2005, when the RPM was proposed originally by PJM. OPC opposed the resulting settlement in the FERC cases and pursued appeals. We later joined a coalition of advocates and state commissions in a complaint regarding the results of RPM transitional auctions. OPC has joined other parties in an appeal of FERC’s dismissal of the complaint. Most recently OPC opposed a settlement to amend the RPM design that offered meager benefits to ratepayers. Unfortunately, FERC approve the settlement and denied OPC’s request for rehearing.
 
 
2011 UPDATE: More recently, FERC has issued orders that modify the RPM to the detriment of Maryland’s retail customers. Previously, under the contested settlement approved by FERC, utilities and other entities could satisfy their need for capacity by “self-supply,” with the remainder provided through a PJM process called the “Base Residual Auction (BRA).” The new orders remove earlier limitations on FERC’s rules for mitigating “buyer-side” market power. The result is that the Maryland Commission and utilities will not be able to act to provide capacity for reliability or economic purposes without incurring additional costs, in order to protect the interests of competitive generating companies. The Maryland and NJ Commissions have appealed the order, and OPC has intervened in the appeals in the U.S. Court of Appeals for the Third District.
 
 
FERC Case History (www.ferc.gov):
 
 
RPM Proposal ER05-1410
Complaint – RPM Transitional Auctions EL08-67
RPM Design – Amendments ER09-412
PJM Interconnection, LLC ER11-2875
PJM Interconnection, LLC EL11-20
 

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Multi-State Transmission Lines-General
 
 During the past few years, there has been a flurry of multi-state transmission line applications at FERC, the agency with authority to set rates for these multi-state projects. While only a few of these projects (MAPP and PATH) had been proposed for construction, in part, in Maryland, several projects projects in our region would have rate impacts for Maryland ratepayers. OPC has intervened and filed protests, with expert witness statements, in many of these cases, and frequently intervenes as part of a coalition with consumer organizations from other states. 
 
In its Order No. 679, FERC had established policies and rules for approving incentives for transmission line investments. These incentives are supposed to benefit customers by providing incentives to encourage infrastructure investment. In these cases, OPC has objected to the proposed profit levels and additional incentive payments as unreasonable and detrimental to consumers. In some cases we have been able to reach settlements on profit levels, but the incentive issue has been controversial. 
 
While OPC has not been successful in turning back these incentive requests, two FERC Commissioners (including now Chairman Wellinghoff) issued scathing dissents on FERC’s routine approval of incentives when extraordinary circumstances were not evident. OPC’s submissions have heightened the attention paid to the impact of the unreasonable rate treatments on ratepayers.  Chairman Markey, former Chairman of the Energy and Environment Subcommittee of the House Energy and Commerce Committee, expressed concern about the almost blanket approval of incentives, and questioned FERC about its incentive rate treatment policies.

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Joint Transmission Planning and Cost Allocation-FERC RM10-23 
 
On September 29, 2010 NASUCA submitted comments regarding FERC's transmission planning and cost allocation policies, and specifically has asked FERC to re-evaluate its rate incentive policies. In light of FERC decisions over the past few years in transmission cases, consumer groups, including MD OPC, have become increasingly concerned about FERC's generosity in granting rate incentive requests. NASUCA has asked FERC to limit incentives to extraordinary transmission projects, and only then to a reasonable package of incentives. These incentives should only be provided to reduce the risks of transmission projects to acceptable levels for both the companies and the consumers. For more information see NASUCA comments.
 

Promoting Transmission Investment through Pricing Reform, FERC RM11-26

2011 UPDATE: In response to the expressions of concern about the treatment of incentives, FERC established a Notice of Inquiry (NOI) in RM11-26 to consider potential changes to its incentive policies. OPC joined a large coalition of consumer organization to submit comments to FERC in support of reforming FERC regulations and policies on the scope and implementation of its incentives policy. The joint coalition has encouraged FERC to limit its approval of incentives to circumstances that truly require the use of incentives to ensure the construction of needed transmission lines.  See OPC COMMENTS. FERC has not issued any further order yet.

 
 
National Action Plan on Demand Response, FERC Case AD09-10
 
On March 11, 2010 FERC issued a notice requesting comments on a draft National Action Plan on Demand Response prepared by FERC Staff. The draft Action Plan was developed to carry out three main requirements of the Energy Independence and Security Act of 2007.  The National Association of State Utility Consumer Advocates (NASUCA) submitted comments on April 8, 2010.  These comments focused on residential consumer concerns related to a national communications program on demand response and smart grid issues.
 
Compensation for Demand Response in Wholesale Markets-FERC RM10-07
 
FERC issued a notice of proposed rulemaking on March 18, 2010, and sought comments on a proposal to provide compensation for demand resources comparable to that paid for supply resources in the wholesale markets. OPC has supported the development of energy efficiency and demand response resources in Maryland as a cost-effective way to meet the energy needs of residential ratepayers. To the extent that we are able to develop these resources here in Maryland, as we move forward with EmPower Maryland programs, residential ratepayers can benefit in two ways. Residential customers who participate in programs and reduce usage will see a reduction in their bills. At the same time, customers as a group can benefit both from payments for these demand resources bid into our wholesale markets our behalf. This is particularly important since our regulated companies do not own any generation anymore. OPC joined with consumer advocates from Pennsylvania, Connecticut, and Ohio to support FERC’s proposal. See the Joint Comments filed May 2010.
 
 
Wholesale Markets-Performance Metrics, FERC Case No. AD10-05
 
On February 3, 2010, FERC issued a notice seeking comments on its proposal to establish performance metrics to measure whether wholesale electricity markets administered by Regional Transmission Organizations, such as PJM, provide benefits to retail consumers. FERC is conducting this effort in response to a recommendation of the Government Accountability Office (GAO) in a September 2008 report. The deregulation of the electricity markets was supposed to be more effective than traditionally regulated markets in delivering “just and reasonable” prices and benefits for customers. The GAO recommended that FERC develop performance measurements to see whether these RTO markets provide benefits to consumers, and how the structure of the markets may influence prices. OPC believes that this can be an important undertaking, if the metrics actually address the key issue of whether the RTO-operated markets provide consumer benefits. 
 
OPC joined a large coalition of consumer organizations and business associations in submitting comments to FERC on March 5, 2010.   The coalition notes its support for using a variety of performance measures. However, the proposed metrics do not adequately address the GAO’s fundamental concern –whether the RTO markets provide benefits to consumers. One primary measure that is missing from the FERC proposal is the comparison of generator costs to revenues. This is the type of data that can actually help to establish the extent of consumer benefit, if any, from the adoption of this market-based structure. The coalition has urged FERC to institute further proceedings to develop ways to develop this performance measurement. See the Coalition Comments filed March 2010 .
 
 
National Science and Technology Council (NSTC)
Subcommittee on Smart Grid 
 
This federal subcommittee, representing a variety of federal agencies, was set up to establish a policy framework for grid modernization investments as part of the Obama Administration’s clean energy strategy. This grew out of requirements of the Energy Independence and Security Act of 2007 (EISA) and the White House commitments in its “Blueprint for a Secure Energy Future.” Maryland People’s Counsel and NASUCA participated in stakeholder meetings and conversations with subcommittee members to address consumer issues related to grid modernization: the need for cost-benefit analysis; cost recovery; customer education; data collection and privacy; cyber security. NASUCA joined a coalition of consumer organizations and submitted a report on “The Need for Essential Consumer Protections” {Gene - Link to publication} in relation to smart metering proposals to the Subcommittee. The Subcommittee issued its Report, “A Policy Framework for the 21st Century Grid: Enabling Our Secure Energy Future,” on June 13, 2011. See [ Publication - http://www.whitehouse.gov/sites/default/files/microsites/ostp/nstc-smart-grid-june2011.pdf.] The Report addresses a number of concerns and recommendations of consumer representatives. The People’s Counsel was one of only a few consumer advocates invited to attend a White House reception to publicize the Report.
 
 
 
Department of Energy
 
 
Request for Information (RFI)  National Broadband Plan--Empowering consumers and the Smart Grid: Data Access, Third Party Use and Privacy
 
On May 11, 2010 the Department of Energy (DOE) solicited comments about a number of consumer privacy and other issues related to the collection, storage and availability of electricity data through the deployment of smart meters.  MD OPC worked with other NASUCA members on comments sent to DOE in July 2010.  These comments reflected a consumer perspective on issues such as the ownership of the data, the reason for privacy protection for the data, the importance of consumer consent (affirmative) to release of data, the importance of consumer education, and the role of the Federal government and agencies in developing standards, particularly for cyber security.  See NASUCA comments.  On October 5, 2010 DOE issued a report on "Data Access and Privacy Issues Related to Smart Grid Technologies".  The Report recognizes "that long-term success of Smart Grid technologies depends upon understanding and respecting consumers' reasonable expectations of privacy, security, and control over who has access to potentially revealing energy-usage data." 
 
 
Notice of Intent-Smart Grid Investment Programs
 
In May 2009 OPC submitted comments to the United States Department of Energy on its Notice of Intent (NOI) regarding grant funding of Smart Grid projects of utilities. Our agency comments were focused on issues and concerns of residential consumers at the state level, particularly since the federal level discussion has not taken residential consumer protection and cost recovery issues into account in their discussions of smart grid policies. See OPC May 2009 Letter to DOE.
 
Three Maryland electric companies, BGE, PEPCO and Delmarva Power, applied for the grants. BGE was approved for a $200 million grant and PEPCO was approved for a $100 million grant. Delmarva Power’s request was denied. Both BGE and PEPCO filed applications with the PSC in the summer of 2009 for approval of smart grid (smart meter) programs. OPC and AARP MD filed written testimony and briefs identifying significant problems with the submissions, and have urged the PSC to defer approving smart meter programs. See the BGE, PEPCO and Delmarva Power smart meter case discussion in the PSC Case section above.