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Maryland PSC Issues RFP for 1,500 MW of New Generation
September 30, 2011
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The issuance of an RFP for new generation, "is in the best interest of Maryland ratepayers and may promote the long-term electric reliability of the State," the Maryland PSC concluded yesterday in an order issuing an RFP for up to 1,500 MW (Case 9214).
"The Commission finds that Maryland continues to face the threat of insufficient new capacity, as PJM's capacity market construct, the Reliability Pricing Model ('RPM'), has been unsuccessful in attracting appreciable new generation to the State since its inception in 2007, despite the fact that RPM has imposed prices in the Southwest MAAC zone that are approximately double that of the rest of the PJM region."
The Commission's unassailable conclusion is that the resultant risk to Maryland's long-term reliability is further heightened by several factors including:
- Maryland's status as a net importer of electricity, importing about 30% of its electric needs each year
- The cancellation or postponement of certain large-scale transmission projects coupled with the unpredictable transmission planning process that has become characteristic of PJM's Regional Transmission Expansion Plan
- The potential that load forecasts could rise unexpectedly
- The increased reliance that the state has had to place on demand response to compensate for anemic electric capacity growth (not cited by the PSC was non-performance by demand response under the Gap RFP contracts)
- The risk that EPA regulation and future emissions legislation could cause substantial retirements of baseload generation, especially coal plants, in the state and throughout PJM
- The fact that Maryland relies heavily on coal plants for its electric generation needs
- The significant number of renewable resources anticipated to come on-line within PJM as a result of Maryland and other state RPS standards, which, because of the variable nature of their output, will increase the need for regulation services from existing and new conventional generation
The PSC invoked PUA Sec. 7-510 in issuing the RFP, which authorizes the PSC to direct the utilities to procure bilateral contracts for generation for residential and small commercial customers, or to direct the utilities to own and operate generation for such needs.
The PSC has made a "preliminary" determination that new generation is needed to meet the "standard offer service and other electricity supply" needs of residential and small commercial customers for the purposes of issuing the RFP, but reserved a final determination of need until after a January 31 hearing on the RFP results.
The PSC gave no indication, if it elects to approve any proposals under the RFP, how costs would be recovered. At least in terms of capacity, the RFP appears to be competitively neutral to the retail market, since the plants are required to bid into RPM, and any benefit will flow to all load serving entities in a capacity zone. It is less clear how any energy benefits (if any) will be allocated; the contracts will be financial and not physical, but it still leaves open the question of, if there are any energy benefits from the contracts, if such benefits are to be allocated to SOS customers only, or all distribution customers, and which universe of customers is paying for such benefits.
The issued RFP seeks up to 1,500 MW of generation to be located in the Southwest MAAC, and requires generation to be new, natural gas-fired units.
The RFP is for a maximum term of 20 years beginning no earlier than June 1, 2015 and no later than June 1, 2017. The capacity may not have cleared any prior Base Residual Auction.
The winning bidder must offer capacity into the BRA, and will not be paid if the capacity does not clear the BRA.
The contract structure will be a contract for difference between the winning bidder and applicable Maryland distribution company.
Each electric distribution company shall issue the RFP by October 7. Proposals are due November 11.
The PSC said that it is also considering issuance of an RFP addressing Eastern Shore reliability needs at a later date, and well as an RFP for renewable resources.
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