Key differences have begun to emerge between House and Senate versions of a wide-ranging energy bill, setting up a potential battle between the chambers with just two weeks left in the legislative session.
The Utility RELIEF Act, which passed the House in mid-March, was in the Education, Energy and Environment Committee Monday and was expected to be back for more markup Tuesday before it is sent to the full Senate.
But as of now, the bill includes distinct provisions on hot-button topics, including utility rate-setting, data centers and the state’s signature home energy efficiency program.
The House version, for example, would prohibit a rate-setting practice known as “forecast test years,” through which utilities request rate increases based on forecasts of future spending — not their actual costs. The Senate version only requires that regulators study the practice in a formal proceeding — not end it altogether.
Senate President Bill Ferguson (D-Baltimore City) said Friday that there is a benefit to letting utilities use forecasts when they ask for rate increases. But House Speaker Joseline Peña-Melnyk (D- Prince George’s and Anne Arundel) said the restoration of forecasting was frustrating.
“This important ratepayer protection is a priority for the House,” Peña-Melnyk said in a statement to Maryland Matters. “Why does it matter so much? Rules around ratemaking drive utility behavior – and consumer costs.”
Peña-Melnyk called the practice an “open invitation for the utility companies to throw in every conceivable cost in their projections and hope that the Public Service Commission approves it.” It’s then up to ratepayer advocates, including the Maryland Office of People’s Counsel, to show which costs are excessive, she said.
In an analysis released Monday, the Office of People’s Counsel determined that Maryland utilities raised rates more aggressively when they were using spending forecasts, a fairly new procedure that electric companies were not allowed to use in Maryland until about 2020.
In traditional ratemaking, utilities can only recoup costs from ratepayers after they’ve been spent. Because regulators can deny the cost recovery, the utilities take fewer risks, according to David Lapp, the people’s counsel.
“Forecasts give the utilities the ability to add to the credit card balance that customers pay much faster than standard rate-setting and they shift huge risks to customers,” Lapp testified to the Education, Energy and the Environment Committee last week. “Standard rate-making is working fine for the non-Exelon utilities — and worked well for all utilities for more than 100 years.”
According to Monday’s OPC report, an average customer’s rates at Baltimore Gas & Electric increased $164 over six years when BGE was using forecasts. During the previous six years, BGE increased rates $55 for the same ratepayer. At Pepco, annual rates increased $323 using forecasts, compared to $157 under traditional ratemaking, the report said.
“It’s time to put an end to setting rates based on forecasts of utility spending,” Lapp said in a statement. “The data undeniably shows the significant costs to customers.”
But Ferguson defended the use of forecasts in a news conference Friday.
“Do we want to know where the utilities are forecasting their investments? My belief is that we do,” Ferguson said. “We want to know where their intended investments are, and then we want to be able to evaluate whether they are the best cost and most necessary for the moment.”
The Public Service Commission is best-suited to make the final decision, Ferguson said, because it has the expertise to “get into the weeds of what the long-term implications are.”
At a last week’s committee hearing, a Pepco representative argued that forecasted test years, which the utilities have used to create multiyear rate plans, “have become a critical affordability tool, not only in Maryland, but across the country.”
Rob Leming, Pepco’s vice president of regulatory policy and strategy, argued that rate increases have slowed down as a result of forecasting. He said forecasts “allow alignment on the pace of spending before rates are set. Under historical rate-making, costs are reviewed only after they’ve been spent, when they are effectively locked into rates.”
In written testimony, BGE and Pepco argued that banning forecasting would make it more expensive for the utilities to finance their projects by decreasing predictability. That could cause customer bills to increase by tens of millions of dollars, BGE argued.
Peña-Melnyk said the legislature doesn’t necessarily need to use forecasting to incentivize more investment in the poles, substations and wires that make up the electric grid. “In Maryland, we have already done much to modernize the electricity grid, reducing the need for rapid additional investment,” she said.
But in his remarks Friday, Ferguson pointed to the need for continued improvements to the grid.
“We know we have upgrades to do. We know our electric system — our infrastructure — is old,” he said. “We see it with gas and with electric.”
EmPOWER Maryland remains in the crosshairs
Meanwhile, home improvement contractors and environmental groups are still fighting hard against cuts to EmPOWER Maryland, the state’s energy efficiency program.
Ratepayers support the program through a surcharge on their power bills, averaging $15 to $20 per household. It funds utility-run programs through which ratepayers can receive rebates for actions that reduce electricity demand and greenhouse gas emissions, such as weatherizing their homes or buying a more efficient HVAC system.
Leading Democrats in both chambers have argued that temporarily trimming the program — by decreasing greenhouse gas emissions goals — is one of the few easy ways for lawmakers to quickly cut rates.
The House and Senate EmPOWER proposals are similar, but the Senate version would raise greenhouse gas goals back to the current level in 2030, six years sooner than the House. The Senate version also includes language requiring all the residential programs making up EmPOWER meet a certain cost-effectiveness test. The House removed that language.
Ferguson Friday spoke in favor of the cost-effectiveness checks. “Now is that period where we just have to be more judicious and really protect ratepayers as much as possible,” he said.
But advocates have argued that the provision would fence out certain options, possibly including expensive HVAC replacements, even though the EmPOWER program as a whole has proven to be cost-effective.
At a rally Monday outside the State House, Emily Scarr, senior adviser for Maryland PIRG, argued that these cost-effectiveness calculations will be provided by the profit-making utilities that run each EmPOWER program.
“We’re deeply disappointed that the Senate is considering cutting program offerings within the EmPOWER Maryland program, not on actual cost effectiveness, but on projections offered by the utilities themselves,” Scarr said. “The House, rightfully, already rejected this idea.”
She was joined by climate activists from the Chesapeake Climate Action Network, and a handful of contractors from around the state, who warned that cuts to EmPOWER could result in job losses, and increased bills due to greater power demand.
“There are people on job sites as we speak, working hard, but in the back of their minds, wondering if they may soon have to leave an industry they have spent years building their skills in,” said Isaiah Allen, operations manager at Advanced Green Home Solutions.
We’re deeply disappointed that the Senate is considering cutting program offerings within the EmPOWER Maryland program, not on actual cost effectiveness, but on projections offered by the utilities themselves. The House, rightfully, already rejected this idea.
– Emily Scarr, senior adviser, Maryland PIRG
Data center proposals differ
The Senate committee also approved several amendments from Sen. Katie Fry Hester (D-Howard and Montgomery) to the data center provisions of the Utility RELIEF Act, that are distinct from the House version.
In part, Hester’s amendments would try to catch more data centers in a special tariff for large load customers, which aims to hold large customers accountable for the transmission costs they create.
Both House and Senate would lower the threshold for a large load customer from 100 megawatts to 25 megawatts of consumption. But Hester’s amendments would also lower the threshold capacity factor, a measure of how intensely a data center operates, from 80% to 60%.
Both chambers have added a new data center registry at the Maryland Public Service Commission, which essentially requires data centers to go before state regulators rather than just local ones. But Hester’s amendments made it so that a data center’s registry information will not become publicly available until the center is operational.
Hester would also add a new, tiered benefit system for data centers that build energy storage, buy clean power or participate in programs to lower energy demand.
In the top tier, data centers would get a guarantee that their permit applications would be processed by the Maryland Department of the Environment within 12 months, in addition to prioritization over other data centers for interconnection. They would also get the opportunity to fund a substation, potentially hastening the infrastructure build-out that they require.
“Everybody’s coming here, right? We just want to prioritize, so that the cleaner ones get reviewed first,” Hester said.
