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<title>Maryland Passes Deregulation Legislation Requiring Continuation of Purchase of
Renewable Energy and Study of Further Renewables Requirements</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
<br>
April 1999</u></b><font size="6"><b><br>
Maryland Passes Deregulation Legislation Requiring Continuation Of Purchase
Of Renewable Energy And Study Of Further Renewables Requirements<br>
</b></font><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
04/99</em>)</font></p>
<p><font face="Arial">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).</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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, <i>e.g.</i>, asset sales, and
will allocate costs and benefits between shareholders and ratepayers. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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 supplier’s 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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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 utility’s tax liability.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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