ComEd 2015 Annual Report Download - page 97

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Various states have attempted to implement or propose legislation, regulations or other policies to subsidize new generation development
which may result in artificially depressed wholesale energy and capacity prices. For example, the New Jersey legislature enacted into law in
January 2011, the Long Term Capacity Pilot Program Act (LCAPP). LCAPP provides eligible generators with 15-year fixed contracts for the sale of
capacity in the PJM capacity market. Under LCAPP, the local utilities in New Jersey are required to pay (or receive) the difference between the
price eligible generators receive in the capacity market and the price guaranteed under the 15-year contract. New Jersey ultimately selected three
proposals to participate in LCAPP and build new generation in the state. In addition, on April 12, 2012, the MDPSC issued an order directing the
Maryland electric utilities to enter into a 20-year contract for differences (CfD) with CPV Maryland, LLC (CPV), under which CPV will construct an
approximately 700 MW combined cycle gas turbine in Waldorf, Maryland, that it projected would be in commercial operation by June 1, 2015. CPV
subsequently sought to extend that date. The CfD mandated that utilities (including BGE) pay (or receive) the difference between CPV’s contract
price and the revenues it receives for capacity and energy from clearing the unit in the PJM capacity market.
Exelon and others challenged the constitutionality and other aspects of the New Jersey legislation in federal court. The actions taken by the
MDPSC were also challenged in federal court in an action to which Exelon was not a party. The federal trial courts in both the New Jersey and
Maryland actions effectively invalidated the actions taken by the New Jersey legislature and the MDPSC, respectively. Each of those decisions
was upheld by the U.S. Court of Appeals for the Third Circuit and the U.S. Court of Appeals for the Fourth Circuit, respectively. However, the U.S.
Supreme Court has agreed to review the matter, and there is risk the Supreme Court will overrule the lower courts.
As required under their contracts, generator developers who were selected in the New Jersey and Maryland programs (including CPV) offered
and cleared in PJM’s capacity market auctions. To the extent that the state-required customer subsidies are included under their respective
contracts, Exelon believes that these projects may have artificially suppressed capacity prices in PJM in these auctions and may continue to do
so in future auctions to the detriment of Exelon’s market driven position. While the court decisions in New Jersey and Maryland are positive
developments, continuation of these state efforts, if successful and unabated by an effective minimum offer price rule (MOPR) for future capacity
auctions, could continue to result in artificially depressed wholesale capacity and/or energy prices. Other states could seek to establish programs,
which could substantially impact Exelon’s market driven position and could have a significant effect on Exelon’s financial results of operations,
financial position and cash flows.
One such state is Ohio, where state-regulated utility companies FirstEnergy Ohio (FE) and AEP Ohio (AEP) have initiated actions at the
Public Utilities Commission of Ohio (PUCO) to obtain approval for Riders that would effectively allow these two companies to pass through to all
customers in their service territories the differences between their costs and market revenues on PPAs entered into between the utility and its
merchant generation affiliate. Collectively more than 6,000MW of primarily coal-fired generation owned by FE and AEP’s affiliates seek ratepayer
guaranteed subsidies via the proposed Riders. Thus, the Riders are similar to the CfDs described above (except that the PPA Riders in Ohio would
apply to certain existing generation facilities whereas the CfDs applied to new generation facilities). While AEP and FE initially filed for these
Riders in 2013 and 2014, respectively, it was not until late 2015 that the proposals obtained meaningful traction when PUCO staff entered into a
settlement and stipulation with the Ohio utilities supporting the proposals and recommending that the PUCO approve the Riders. Exelon is a
participant in these proceedings. Although the matter is still in hearing and a decision by the PUCO is not expected until late February/early March
2016, it is increasingly likely that these subsidies may be approved by the PUCO. Litigation around these approvals is also likely.
Exelon opposes the proposals in Ohio, continues to monitor developments in Maryland and New Jersey, and participates in stakeholder and
other processes to ensure that similar state subsidies are
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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