www.baltimoresun.com/business/bs-bz-power-plant-contracts-unconstitutional-20131001,0,4655441.story

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Deal for new power plant ruled unconstitutional

Price arrangement violates federal pre-emption, court finds

By Jamie Smith Hopkins, The Baltimore Sun

6:43 PM EDT, October 1, 2013

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A federal judge has ruled unconstitutional an arrangement approved by state regulators to allow construction of a new power plant in Southern Maryland, an effort to increase locally produced electricity before tight supply causes reliability problems.

By setting the price that the plant's operator would receive for wholesale electricity over 20 years, Maryland's Public Service Commission tried to pre-empt federal authority, the decision found. That violated the supremacy clause of the Constitution, which states that federal law wins out in cases where state law conflicts.

U.S. District Judge Marvin J. Garbis ruled Monday that the PSC strayed into the jurisdiction of the Federal Energy Regulatory Commission, which oversees wholesale energy markets.

"Maryland's stated purpose to use the Generation Order to secure the existence of sufficient and reliable electric energy for Maryland residents does not permit invasion into a federally occupied field," Garbis wrote. "Where a state action falls within a field Congress intended the federal government alone to occupy, the good intentions and importance of the state's objective are immaterial."

The PSC had argued that it hadn't set wholesale prices — and thus wasn't pre-empting federal authority — but had merely arranged a financial deal to allow the construction of a power plant, which falls within state jurisdiction. It declined to comment Tuesday.

"If the order stands, it could restrict the state's ability to address reliability problems within the state," said Paula M. Carmody, who heads the state Office of People's Counsel, which represents residential utility customers. "That's the bottom-line tension."

PSC commissioners said in their order last year that Maryland's need to import 30 percent of its energy from elsewhere in the region had driven up costs for consumers. So-called "capacity charges" were costing Marylanders hundreds of millions of dollars, they said.

But they said their decision to approve a new plant was prompted by concerns that consumers could face reliability problems in several years, particularly if some of the state's old coal-fired plants are retired.

The PSC contended that developers weren't responding with new plants, despite high prices in Maryland, because the market setup "has not provided sufficient certainty for prospective generation suppliers to secure financing in the current economic climate." Commissioners approved a plan to have ratepayers subsidize the construction of a natural gas-fired power plant in Waldorf.

Under the plan, winning bidder Competitive Power Ventures would build a 661-megawatt plant and open it in 2015. In return, it would get payments from customers purchasing their energy from Baltimore Gas and Electric Co. and two other utilities if the price it received in the wholesale market fell below a set level. Any time the price rose above that level, ratepayers would get money back.

Several energy companies immediately challenged the decision, largely firms connected with PPL Corp., an Allentown, Pa.-based energy conglomerate. They argued that the order usurped federal authority and unfairly favored new plants in Maryland over existing plants in other states that compete in the region's wholesale markets.

Ryan Hill, a spokesman for PPL EnergyPlus, an energy marketer and trader, said it's the company's position that subsidizing power plant development ultimately costs consumers more.

"It creates barriers to future investment, it shifts that financial risk of construction from developers to ratepayers, and it really does that unnecessarily," said Hill, noting that other plants are now planned in Maryland.

A spokesman for Competitive Power Ventures said the company was still assessing the ruling and what it will mean for the Waldorf project.

In the Mid-Atlantic region, capacity charges — and the need to wait for the market to respond with more power plants — have pitted states against each other, said Lillian Federico, president of SNL Energy's Regulatory Research Associates.

That's because some, including Maryland and New Jersey, are paying more while others, such as Pennsylvania, are reaping the benefits, she said.

"It's a pervasive issue," Federico said.

jhopkins@baltsun.com

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