Introduction

Power Generation, Transmission, and Use

Markets, Regulation, and Oversight

Impacts of Power Generation and Transmission

Looking Ahead

Appendices

CEIR Report Map

PPRP Home

Maryland Power Plants and the Environment (CEIR-18)

3.1.2 Power Plant Construction

Prior to electricity restructuring, Maryland, like other states, would identify a need for generating capacity as part of an Integrated Resource Planning (IRP) process. Capacity was constructed, typically by vertically integrated utilities, once a need was identified and a permit to construct was issued by the PSC. The cost of building and operating the new generation capacity was included in customer rates, which were regulated by the PSC. With the adoption of electric industry restructuring in Maryland, as well as in many other states, generation is now considered competitive, and the competitive market is now relied upon to provide new generation resources to meet load requirements. Capacity is constructed by independent power producers or the competitive affiliates of the regulated electric distribution companies in response to wholesale electricity market price signals. PJM established the Reliability Pricing Model (RPM) capacity auction to provide a three-year forward market for new and existing generation capacity. The RPM has undergone multiple rounds of changes to improve the operation of the capacity market and to help ensure the availability of needed capacity to meet load requirements. See Section 2.1.4 Demand Response and Appendix B for more information on the RPM.

From the late 1990s through mid-2010s, relatively little new generation was constructed in the Mid-Atlantic region even with the implementation of the RPM capacity market. The lack of new generating capacity in the Mid-Atlantic gave rise to concerns regarding the reliability of power supply in Maryland and other nearby states. Though RPM capacity prices have remained higher in eastern PJM than in western portions of PJM, no new large generation projects were constructed in Maryland. Independent power producers and competitive affiliates proposed various generation projects, but they were mainly expansions of existing sites. Without the financial assurances that were previously available through utility ownership and rate base cost recovery, and the inability of power plant developers to secure long-term contracts for generation, it has become increasingly difficult for developers to obtain third-party financing to build new generation.

In September 2009, the PSC opened Case No. 9214 to “investigate whether it should exercise its authority to order electric utilities to enter into long-term contracts to anchor new generation or to construct, acquire, or lease, and operate, new electric generating facilities in Maryland.” In September 2011, the PSC made a preliminary determination that new generation was needed to meet long-term, anticipated electricity demand in Maryland. Subsequently, the PSC directed the State’s four investor-owned utilities to issue Request for Proposals for up to 1,500 MW of new, natural gas-fired generation in Maryland that will clear the RPM auction. In April 2012, the PSC issued an order accepting one of three bids for natural gas generation, a Competitive Power Ventures (CPV) bid for a 661 MW (later increased to 725 MW) combined cycle facility located in Charles County, originally slated to be operational by June 1, 2015.

Also prompted by high RPM capacity prices and no new large generation development, New Jersey conducted an auction to develop new large generating plants. New Jersey selected two companies to build new natural gas plants, with the condition that each plant must clear the RPM auction. PJM and some existing generators considered the New Jersey auction to be anti-competitive since the new, state-supported generating capacity could bid into the capacity auctions at an artificially low price (i.e., below their cost of construction), thereby lowering the RPM clearing price. In fact, with the requirement that new capacity clear the PJM capacity auction, new generation would have been bid into the auction at a price of zero. All resources clearing the auction receive the market-clearing price rather than the bid price. In May 2013, PJM received Federal Energy Regulatory Commission (FERC) approval to change the RPM rules to remove the exemption for state-sponsored projects from the Minimum Offer Price Rule (MOPR). In essence, the MOPR requires that new generating projects bid a price into the RPM equal to or greater than the capacity price that is consistent with the cost of new entry. Maryland included a similar provision requiring the winning bidder to clear the RPM auction, thereby making the CPV project subject to the MOPR. This could have potentially led to the CPV project not clearing in the RPM capacity auction, making it ineligible for RPM capacity payments and to be counted towards resource adequacy requirements for Maryland utilities.

As a result of this conflict between Maryland’s and New Jersey’s desire to actively promote increased generation in-state, and PJM’s and existing generators’ desire to maintain higher capacity prices, several lawsuits emerged. Maryland and New Jersey both challenged FERC’s MOPR ruling. Additionally, several generators brought lawsuits against the Maryland PSC challenging its authority to require utilities to enter into contracts with CPV. In September 2013, the U.S. District Court for Maryland ruled that the Maryland PSC order directing the utilities to enter into contracts with CPV was unconstitutional based on the Supremacy Clause of the U.S. Constitution. (Separately, in October 2013, the Circuit Court for Baltimore County ruled that it is within the Maryland PSC’s statutory authority to direct the utilities to enter into such contracts.) In November 2013, the Maryland PSC appealed the U.S. District Court’s decision to the U.S. Court of Appeals for the Fourth Circuit, which upheld the earlier verdict in June 2014. The Supreme Court of the United States then agreed to hear the case. Oral arguments were presented in February 2016. Despite the legal controversy, CPV was able to clear the PJM Capacity Market auction and broke ground on the Charles County project in 2014.

On April 19, 2016, the Supreme Court upheld the lower court’s decision stating in its opinion that the PSC’s ruling overstepped on FERC’s authority as granted by the Federal Power Act. In its opinion, the Supreme Court noted that in deregulated markets, power must be procured one of two ways: 1) through bilateral contracts where load serving entities agree to purchase power through a power purchase agreement or 2) through competitive wholesale auctions held by regional transmission operators. The contract for differences for the CPV plant would not transfer the ownership of power to the load serving entities and guaranteed the plant a contract price rather than the auction clearing price; therefore, the plant’s contract does not meet either of the two power procurement methods. In an effort to not discourage states’ efforts to develop new or clean generation, the Supreme Court clarified that the reason the contract for differences was invalid is that it violated the interstate wholesale rate required by FERC since it conditioned the payment of funds on the clearing the capacity market.

Separately, Old Dominion Electric Cooperative (ODEC) proposed to build a 1,000 MW natural gas power plant in Cecil County (See Section 4.2.1: Low-Flow Issues). In April 2013, ODEC asked the PSC for expedited approval of a CPCN for the project, so that it could bid into PJM’s May 2014 capacity auction. ODEC expects significant increases in capacity requirements over the next few years, and stated in its application that this project would reduce its need for market purchases by about 30 percent. The project, called the Wildcat Point Generation Facility, was approved by the PSC in March 2014. It is currently under construction, and is expected to be in service by June 2017.

Supreme Court Opinion No. 14-614 Argued February 24, 2016 – Decided April 19, 2016