Md. governor to consider handful of energy bills as legislative session ends

Following adjournment of the Maryland General Assembly on April 8, several energy-related bills were forwarded to Gov. Wes Moore (D) for consideration, and amendments to another are being considered in a conference committee of members from both chambers.

➤ The legislation passed by both chambers and forwarded to the governor addresses issues related to retail competition, specifically the rules concerning the offering of competitive services by energy marketers; energy conservation and greenhouse gas emissions requirements; development of offshore wind generation resources; the availability of time of use rates in certain utility service territories; generation facility certification guidelines; and permitting disclosure requirements.

➤ Several of the measures provide adjustments to — or provide clarity for — the state's energy transition policy, but for the most part do not represent significant modifications. The generation certification bill addresses certain challenges datacenters may face in securing backup power for new facilities. The retail competition bill addresses an issue raised by the Office of People's Counsel (OPC) in at least one proceeding before the Maryland Public Service Commission (PSC).

➤ Regulatory Research Associates views the regulatory climate for energy utilities in Maryland to be more restrictive than average from an investor viewpoint.

The Maryland General Assembly is a bicameral body consisting of the Senate and the House of Delegates. The Democrats control both chambers, with 34 Democrats and 13 Republicans in the Senate and 102 Democrats and 39 Republicans in the House. The Assembly meets annually for 90 days, beginning in January, and may also convene for special sessions.

The 2024 session convened Jan. 10 and adjourned April 8. The final date for an extended session, which so far has not been called, would be May 8. The General Assembly has until April 28 to present bills to the governor. Unless he has vetoed them by May 28, these measures become law without his signature.

This happened in 2022, with the Climate Solutions Now Act, which outlines the state's policy with respect to renewable resources and the energy transition.

Senate Bill 1 addresses concerns raised by OPC with respect to retail competition framework

Senate Bill 1 and companion House Bill 267 would establish new license requirements for those who seek to sell electricity and natural gas in the state, while capping the cost of these services and establishing new parameters for what constitutes renewable energy. State law has permitted all electric and gas retail customers to elect to be served by a competitive electric and/or gas supplier since 1999. If customers do not select a competitive provider, they are provided service under default service/standard offer rates provided by the utility. The power/gas to meet these requirements is procured in the competitive wholesale market by the utility on behalf of customers.

If the legislation becomes law, the PSC would be required to develop a training and education program for energy retailers, with retail energy salespersons to be relicensed every three years. The PSC would also be tasked with developing new pricing disclosure requirements for competitive suppliers.

In addition, prices offered by competitive suppliers to residential customers would be capped at the trailing 12-month average of the local utility's default service price. The legislation also includes guidelines concerning what resources a marketer may classify as "renewable" or "green" in their marketing material.

The measure dovetails with complaints levied by the OPC over the last couple of years. In 2023, the OPC requested that the PSC initiate a formal rulemaking to amend existing rules governing the competitive retail supplier marketing and customer engagement process, alleging that retail choice has provided few if any benefits for residential customers.

The OPC also brought allegations that an unregulated marketing affiliate of AltaGas Ltd. subsidiary Washington Gas Light Co. had violated green marketing rules, and took issue with the PSC's resolution of that proceeding.

Senate Bill 474 addresses issue that arose regarding proposed datacenter project and its backup generation plan

Senate Bill 474 and House Bill 579 would exempt on-site generation facilities that are installed by large commercial and industrial customers for emergency backup, and are not connected to the grid for the purpose of providing power to the market, from the state's requirements that generation owners obtain a certificate of public convenience and necessity (CPCN) for the facilities from the PSC prior to commencing construction. The operators of the facilities would be required to file periodic reports with the Department of the Environment regarding the amount of time each year these facilities are in operation for backup or system testing purposes. Beginning in 2025, the Maryland Energy Administration is to issue a report to the state legislature concerning advancements in backup generation technology.

In May 2023, Aligned Data Center Propco LLC filed for PSC approval to install 168 emergency diesel generators, rated at 3 MW each, or 504 MW in total, and four 2-MW house generators, at a development site in Frederick County, Md. In the filing, the company requested the PSC grant it an exemption from its statutory requirement to file a CPCN, even though its facility's capacity was greater than the 2-MW threshold. This was the first case of its kind in Maryland.

Finding the installation of this amount of diesel generation potentially incongruous with the state's carbon emissions reduction goals, the PSC required Aligned Data to submit to the full CPCN process. The PSC, in an apparent departure from past precedent, had determined that the facility should be reviewed on an aggregate basis, rather than looking at the generators individually. This was despite the fact that facilities would not connect to the grid or be used to provide power to other customers.

In a September 2023 order on rehearing, the PSC granted a provisional exemption for the installation of generation up to a capacity level of 70 MW in aggregate, inclusive of all on-site generation regardless of the generation source or the purpose for its use, and regardless of the size of the individual units. The PSC stated that this would allow for the installation of sufficient capacity upfront to allow construction of the datacenter to begin, while Aligned Data pursued a CPCN for the full deployment of backup generation for a completed datacenter campus.

In addition, the PSC required Aligned Data to obtain and retire Maryland-qualified Tier 1 solar renewable energy credits (RECs) as offsets equivalent to the annual output of the exempted generating stations and commit to obtaining Maryland-qualified Tier 1 solar RECs as offsets equivalent to the annual kWh output of the additional generating stations that may be authorized in a future CPCN order.

In October 2023, Aligned Data notified the commission that it would not accept the provisional exemption and that it would not proceed with the project.

Other measures address specific aspects of energy transition

Under House Bill 397 and Senate Bill 570, by June 1, 2025, each gas utility that serves 75,000 or more customers in its distribution service territory would be required to propose a plan for a pilot thermal energy network system or systems, with at least 80% of the participants to come from lower- or moderate-income housing. The utility would be required to demonstrate that it has taken advantage of any available federal funding for the project. The plan must include a rate structure under which participants would pay no more for service than if they had not participated. The proposal would be subject to approval by the PSC. Once approved, the program would last for two years, after which continuation would be subject to PSC approval. Companies with fewer than 75,000 customers would be permitted to file such plans but would not be required to do so.

House Bill 864 would apply previously enacted energy efficiency standards to previously exempt gas utilities and electric cooperatives. Under former Gov. Martin O'Malley's EmPOWER Maryland initiative, each electric utility was required to implement a cost–effective demand response program in the electric company's service territory that was designed to achieve a reduction of at least 5% in per capita peak demand by the end of 2011, 10% by the end of 2013, and 15% by the end of 2015 relative to the levels observed in 2007, with incremental reductions of 2% per year required thereafter through 2026. A 2022 law modified the standard such that, using 2016 as the base year, utilities are to implement programs designed to produce incremental reductions of 2% for the years 2022 through 2024; 2.25% for 2025 and 2026; and 2.5% in 2027 and each year thereafter.

Senate Bill 959 and House Bill 1256 require each investor-owned electric utility to file by July 1, 2025, for PSC approval of one or more time-of-use (TOU) rate tariffs for appropriate rate classes that would be available on an opt-in basis. With the TOU tariff proposals, the utility would be required to include enrollment targets for each tariff; the PSC would be authorized to use achievement of these targets as the basis for performance incentives. The PSC would be required to develop rules by May 1, 2025, to establish an expedited process for interconnecting bidirectional electric vehicle charging systems to the electric distribution system.

House Bill 1296 and Senate Bill 1161 would require the PSC to open a revised Round 2 proceeding to evaluate proposed offshore wind projects and increase the maximum amount of offshore wind renewable energy credits (ORECs) sold. By way of background, legislation enacted in 2013 implemented a renewable portfolio standard (RPS) under which 25% of all energy consumed in Maryland was to come from renewable sources, with offshore wind to comprise up to 2.5%, roughly 500 MW, of the total RPS. In 2017, the PSC approved two projects, Ørsted A/S-owned Skipjack Offshore Wind Project and US Wind Inc.-owned Ocean City Offshore Wind Project (Marwin), totaling 368 MW. These projects are known as Round 1 projects.

The 2019 Clean Energy Jobs Act expanded the overall RPS to a goal of 50% by 2030, with at least an additional 1,200 MW (known as Round 2 projects) to come from offshore wind through three new offshore wind procurements. In 2021, the PSC approved development of 1,655 MW of additional offshore wind: Ørsted's Skipjack 2 Offshore Wind Project and US Wind's Momentum Offshore Wind Project.

In April 2023, Moore signed into law the Promoting Offshore Wind Energy Resources Act establishing a new goal of 8,500 MW by 2031 for offshore wind. The 2023 law requires an application for any newly qualified offshore wind project to be subject to a community benefits agreement that assures cooperation with organized labor and promotes increased opportunities for local, minority-owned, women-owned and veteran-owned businesses. In addition, the PSC must analyze transmission system expansion options for accommodating offshore wind and issue competitive solicitations for proposals for offshore wind transmission facilities and transmission upgrades/expansions.

Ørsted suspended the Skipjack projects in January 2024, stating that the under the contracts approved by state regulators, the projects are no longer economically viable. The proposed 2024 legislation would permit the PSC to reopen previously approved contracts to revise project schedules and sizing, as well as pricing, including OREC prices.

House Bill 581 and Senate Bill 472 would require each administrative department within Maryland state government to create a catalog of its permitting/certification authority and processes, including a description of any analyses conducted as part of the application process, the length of time it takes to process an application and any statutory or regulatory changes or resources that could expedite the processing time frame. This information is to be posted to each agency's website by Dec. 31, 2024, and be updated by Oct. 1, 2025, and annually thereafter.

Overview of Md. regulation of energy utilities

The Maryland regulatory climate is viewed as relatively restrictive from an investor viewpoint. Following the election of a new governor in 2022, there was considerable upheaval in the PSC's makeup, with the emergence of a new chairman, who was formerly an attorney with the OPC, and two other new commission members who were recently confirmed by the state Senate.

Since the commissioner changes, the OPC has been even more vocal than in the past, taking a hardline stance in rate proceedings before the new PSC and challenging certain determinations made and policies implemented by the former commission to mitigate regulatory lag, such as allowing post-test year adjustments to rate base for reliability investment and the approval of multiyear rate plans. The newly constituted commission has in some instances been supportive of the OPC's views, adopting many of their proposals in a recent rate case decision.

The OPC has also made itself heard in generic policy proceedings regarding retail marketing, PSC processing of stakeholder complaints, affiliate relationships and gas system planning.

RRA accords Maryland regulation a Below Average/2 ranking.

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Joe Felizadio contributed to this article.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}