On April 2, 1999, the Maryland legislature passed "The Electric Customer Choice and Competition Act of 1999" (the Act), which begins a phase-in of choice for customers on January 1, 2000, caps rates for a four-year period, and requires utilities to submit plans for deregulation. The Act requires utilities to continue purchasing electricity under contract with renewable energy facilities and to maintain the percentage of renewable energy at 1998 levels. In addition, the Act permits the establishment of programs to encourage use of renewable resources and provides for studies and reports on the feasibility of renewables requirements. The Act further provides utilities the opportunity for full recovery of stranded costs and the opportunity to obtain bonds to secure stranded costs. Certain on-site generators are exempt from paying the charge covering stranded costs. Competitive suppliers will be subject to licensing provisions and will contribute to funding of the Public Service Commission (PSC).
The Act requires utilities to continue to purchase electricity from renewable energy facilities under contracts in effect on January 1, 1999. Renewable energy resources are defined as solar, wind, tidal, geothermal, biomass (including waste-to-energy and landfill gas recovery), hydroelectric facilities, and digester gas. In addition, utilities must continue providing at least the same percentage of renewable source electricity as the utility provided in 1998.
The Act permits the implementation of programs to encourage the use of renewable energy resources and maintenance of demand-side management programs. Reasonable costs for such programs will be funded by surcharges, with charges incurred after the start of electric supplier choice not subject to the rate cap. In addition, the PSC will report to the Governor and legislature by February 1, 2000 regarding the feasibility of establishing a renewables portfolio requirement. The Act will also track shifts in generation sources and emissions levels that may arise with deregulation. Utilities are to study these changes and report to the PSC and the Department of the Environment on the results one year after retail choice. If higher emission levels are detected, an air quality surcharge or other environmental protection mechanism may be imposed.
Additionally, the PSC must annually submit to the Secretary of Natural Resources a ten-year plan which includes information regarding utilities use of cogeneration energy sources, and an evaluation of the cost-effectiveness of investments in renewable energy sources. The Act also extends to the year 2005, the time over which the environmental surcharge is imposed to fund the Environmental Trust Fund, which is used to fund state environmental programs and departments.
The PSC will determine the stranded costs recoverable by each utility by reviewing each utilities restructuring plan. The Act provides the utilities will have an opportunity to recover all of their prudently incurred and verifiable stranded costs. These costs are those recoverable under traditional rate of return regulation which are not recoverable under deregulation, although the costs are subject to full mitigation. The recovery of stranded costs is funded by way of a competitive transition charge, and the time for recovery will be determined on a company-by-company basis, based on the restructuring plan submitted to the PSC. The competitive transition charge will be included in the four-year rate cap. The PSC will annually review competitive transition charges in light of, e.g., asset sales, and will allocate costs and benefits between shareholders and ratepayers.
Existing on-site generators are not required to pay the competitive transition charge. In addition, on-site generating facilities with a capacity of 500 kilowatts or less installed after January 1, 2000 are not required to pay the charge if the electricity is derived from fuel cells, photovoltaics, wind machines, or microturbines and has an energy conversion efficiency greater than 40% (for facilities installed before January 1, 2004) or 50% (for facilities installed after January 1, 2004). On-site facilities not existing on January 1, 2000 and having a capacity of 500 kilowatts or less are not subject to the competitive transition charge to the extent of the first 80 megawatts of the aggregate statewide generating capacity of on-site generating facilities.
Competitive electricity suppliers must obtain a license from the PSC. Licensed suppliers are subject to PSC requirements, which will include providing customers with adequate information by which to choose a supplier and information regarding the suppliers fuel mix and emissions. Licenses may be revoked or suspended or civil penalties imposed for a number of violations, including providing false information, slamming, failing to maintain financial integrity, failing to pay taxes, and suspension or revocation of state or federal licenses.
The Act does not require utilities to divest themselves of generating assets, but does require functional separation of regulated and non-regulated services by January 1, 2001. A code of conduct between the utility and the affiliate providing electricity supply is required. The PSC may oversee the sale of assets or the transfer of assets to an affiliated entity to determine whether appropriate accounting has been followed, whether the transfer would adversely affect the competitive market, and for appropriate price and rate making treatment. The PSC is to reduce residential rates charged by utilities between 3% and 7.5%, and determines the allocation of the rate reduction between transmission, distribution, and generation. In determining the rate reduction, the PSC may take into account a number of factors, including changes in the utilitys tax liability.
The Governor recently announced he would sign the legislation into law. Companion legislation was also passed which substantially reforms utility taxes, including 100% relief from real property taxes and 50% relief from personal property taxes for property used for generation of electricity.