Legal Bulletins

The EmPOWER Maryland Energy Efficiency Act of 2008 ("EmPOWER") requires Maryland's electric utilities to achieve energy savings through a managed portfolio of energy efficiency programs administered by the utilities and overseen by the Maryland Public Service Commission (the "Commission").¹ Under EmPOWER, utilities collectively spend hundreds of millions of dollars each year administering a wide range of programs including whole home energy audits, HVAC upgrades, combined heat and power ("CHP") projects, and appliance rebates.² And this spending will likely continue: on July 16, 2015, the Commission enhanced and significantly strengthened EmPOWER, promising even more substantial savings – and increased utility spending – in the near future. The Commission's EmPOWER planning process, which offers an opportunity for comment at least twice per year, provides a significant opportunity for stakeholders to advocate for their interests.

This bulletin provides an overview of the EmPOWER regulatory process for a wide range of stakeholders – from HVAC contractors to ESCOs to property management firms – that are interested in participating in the EmPOWER to generate business in Maryland or to enhance or maintain programs that benefit them through energy efficiency upgrades. It starts with a brief history of EmPOWER before highlighting the main enhancements from the Commission's July 16, 2015 order. It ends with an overview of the Commission's program proposal and review processes. Revamped program proposals to meet new savings goals are due by September 1, 2017 from Maryland's utilities. Accordingly, current or potential beneficiaries of utility energy efficiency programs should consider participating in the EmPOWER process in coming years to capitalize on opportunities under the Commission's aggressive framework, as well as to mitigate any risk of program adverse program reductions or changes.

1. History

Maryland has a long history of authorizing and supporting utility-run energy efficiency programs. Prior to deregulation, the Commission required Maryland's electric utilities to consider cost-effective demand-side management programs as alternatives to new generation facilities.³ In 1999, Maryland's electric restructuring bill (Senate Bill 300) eliminated requirements for utility energy efficiency programs, and the Commission soon authorized the utilities to terminate their programs. In 2007, however, rising energy costs led the State's utilities to propose new demand-side management programs.

The General Assembly codified Maryland's renewed interest in utility energy efficiency programs with the passage of the EmPOWER Maryland Energy Efficiency Act of 2008. The original EmPOWER legislation set a target reduction of 15% in per capita electric consumption (i.e., overall electricity consumption per year) and peak demand (i.e., level of highest electricity usage) by 2015 from a 2007 baseline, with 10% of the reduction allocated to electric utility programs. While this target was designed to be very aggressive, utilities came very close to meeting their per capita reduction target, achieving 85% of the goal through the second quarter of 2015. Utilities also generally achieved their peak demand reduction goals.

2. Order 87082: Aggressive Goals and Permissive Standard

The original EmPOWER legislation set goals through 2015, but did not provide a framework for adopting new targets for subsequent years. The Commission's EmPOWER Planning Workgroup, led jointly by the Maryland Energy Administration and the Commission's Technical Staff, worked for over two years to develop a regulatory framework for EmPOWER post-2015.

Ending uncertainty as to whether the energy efficiency programs of Maryland's utilities would run past 2015, the Commission on July 16, 2015 issued Order 87082, establishing an eventual yearly 2% per capita electricity consumption reduction target for each utility that ramps up .2% each year. Utilities have until 2020 to begin meeting the 2% yearly reduction goal.⁴ As indicated by the American Council for an Energy-Efficient Economy ("ACEEE"), "[t]he 2% goal puts Maryland in line with other leading states, such as Massachusetts, Rhode Island, Arizona, and Vermont, in terms of energy savings targets."⁵
In addition to setting this aggressive goal structure, the Commission adopted a more permissive cost-effectiveness framework than under the first iteration of EmPOWER. This, in turn, will allow more programs to qualify for Commission approval. Under the EmPOWER statute, all utility programs must be cost-effective and appropriate.⁶ Prior to Order 87082, the Commission did not adhere to a single cost-benefit methodology, requiring instead that utility programs offer ratepayers a "real return on investment."⁷ With Order 87082, the Commission adopted a Societal Cost Test ("SCT"), which takes into account broad benefits to society, as well as non-energy benefits, when calculating whether utility programs are cost effective.⁸

In the aggregate, the Commission's enhancements will allow more programs to qualify for Commission approval. As utilities work to meet their enhanced goals, new or modified programs will appear in the plans discussed in the subsequent section. From an industry standpoint, the content of these plans, and the ability to advocate for the inclusion of additional programs, will create both significant business opportunities and risks.

3. The EmPOWER Regulatory Process

Under EmPOWER, utilities must operate their programs on a three year program cycle.⁹ Utilities propose their programs to the Commission for each cycle in forward-looking plans that, by statute, must "address residential, commercial, and industrial sectors as appropriate, including low-income communities and low- to moderate-income communities."¹⁰ Once their three year programs are approved and become operational, utilities must submit "semi-annual reports" to the Commission tracking performance and proposing changes to what was approved. Both processes, which offer significant opportunities to influence the process to the benefit of stakeholders, are discussed in detail below.

a. Forward Looking: Three Year Program Cycle Review Process

The most significant component of the EmPOWER process is the proposal of three year program plans by utilities for consideration by the Commission. The size, scope, and detail of these plans offer industry a unique opportunity to advocate for programs that allow residential, commercial, and industrial customers of Maryland's major utilities to gain direct access to their services. It also creates an opportunity for commercial and industrial ("C&I") and other customers to advocate for programs that benefit them through subsidized energy efficiency retrofits.

On or before July 1 prior to the start of the next three year cycle, the utilities must provide their plans to the Maryland Energy Administration, which then must "consult" with the utilities on the "design and adequacy" of the plans.¹¹ Next, on or before September 1, the utilities must submit their plans to the Commission.¹² At this time, intervening parties can file written comments to the Commission on the proposed utility programs and recommend programs to be run by the utilities. The Commission also typically holds a legislative-style hearing where parties can further present their positions. After the close of comments, the Commission reviews utility programs using the cost-effectiveness and appropriateness methodology discussed above. Based on that review, the Commission denies, approves, or modifies and approves each utility program. The Commission can also require the utilities to run programs proposed by interveners, and commonly convenes working groups to further develop programs recommended by parties to the proceeding.

Utilities are currently in the middle of a three year program cycle spanning from 2015–2017. Utilities will propose their plans for the 2018–2020 program cycle to the Commission no later than September 1, 2017. These plans will be the first to incorporate the aggressive cost-effectiveness and goal setting methodology recently adopted by the Commission. Given the aggressiveness of these plans, and the novelty of the concepts utilized, this will be a significant opportunity for industry to propose programs for approval by the Commission that offer substantial benefits to utility customers.

b. Backward Looking: Q1/Q2 and Q3/Q4 Semi-Annual Reports

In addition to the forward-looking three year planning cycle, the Commission also requires utilities to file backward-looking "semi-annual" reports on Q1/Q2 and Q3/Q4 performance for programs currently being implemented by utilities. Q1/Q2 reports are due on July 31 of each year. Q3/Q4 reports are due on January 31 of each year.

These reports offer another recurring opportunity for stakeholder input. As with the three year planning process, intervening parties through their lawyers can file written comments to the Commission on these reports, making suggestions for program enhancements and funding levels. Utilities also propose modifications to their programs for the remainder of the program cycle. The Commission also holds a legislative-style hearing for parties to present their positions. After the close of the comment period, the Commission has the ability to authorize or require modifications to utility programs, as well as adopt the proposals of interveners.

The Commission issued its most recent semi-annual order on May 26, 2016, which makes numerous modifications to utility programs currently underway in the 2015-2017 program cycle. You can find a copy of this order here.


4. Conclusion

EmPOWER's regulatory process offers a significant opportunity for companies to advocate for utility programs that utilize their services or products. It also creates an opportunity for utility customers to advocate to maintain or enhance programs that benefit them through subsidized energy efficiency retrofits. Given the Commission's aggressive new framework for utility programs, stakeholders can expect significant changes to utility programs in coming years and should closely monitor the EmPOWER dockets for both opportunities and risks.

If you have questions or needs regarding Maryland's EmPOWER energy efficiency programs, the Gordon Feinblatt Environmental and Energy Practice Group is ready to help you.

Todd Chason at tchason@gfrlaw.com or
David Beugelmans at dbeugelmans@gfrlaw.com

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¹ All utility programs are paid for, in whole or in part, through funds collected from customers via the EmPOWER Maryland surcharge, which appears on customer bills. As discussed herein, however, utility programs must be cost-effective. That is, the monetary benefits delivered from the programs must outweigh their initial costs as passed on to utility customers.

² As of 2014, residential programs include lighting, appliance, and HVAC rebates, appliance recycling, and building retrofits. Commercial and industrial programs include financing programs, direct measure installations (such as lighting, refrigeration, HVAC, etc.), combined heat and power, and retrocommissioning. Utilities also administer demand response programs, such as BGE's popular Smart Energy Rewards program.

³See e.g., Re Potomac Electric Power Company, Case No. 8063, Phase II (1989). The Commission originally required the State's utilities to consider demand-side management in place of additional generation pursuant to its long term planning authority. The General Assembly later codified this practice in 1991 by creating Public Utilities Article § 7-211 which requires electric companies to propose and for the Commission to adopt cost-effective demand-side management programs.

⁴ The Commission did not set a demand response goal given uncertainty created by judicial review of FERC Order 745.

⁵ Three Cheers for Maryland, ACEEE (July 27, 2015), available athttp://aceee.org/blog/2015/07/three-cheers-maryland. For more information, see also Utilities Ordered to Boost Energy-Saving Efforts, Baltimore Sun (July 20, 2015), available at http://www.baltimoresun.com/business/bs-bz-energy-efficiency-20150720-story.html.

⁶ Md. Public Utilities Article § 7-211(f). While the "cost-effectiveness test" is a mathematical test that requires the Commission to approve utility programs if their monetary benefits outweigh their costs, the "appropriateness test" is subjective, thus allowing the Commission to consider factors such as the size of ratepayer impacts, job creation, and social and economic diversity. In Order No. 87082, the Commission indicated that it will continue the use of both tests.

⁷ Order No. 87082, 3.

⁸Id. at 7. The SCT adopted a lower discount rate than the Commission's previous test in order to more accurately represent benefits to society. The Commission also retained use of the Total Resource Cost ("TRC"), but only "as a guidepost and comparative tool to other jurisdictions, as well as … [Maryland's] own past performance."

⁹Md. Public Utilities Article § 7-211(h). Participating utilities in EmPOWER include BGE, Pepco, Delmarva Power and Light, Potomac Edison, SMECO, and Washington Gas.

¹⁰Id. at § 7-211(h)(5)(i). If utilities include programs for heating, ventilation, air conditioning, or refrigeration services, the plans must specify competitive procedures to procure such services, unless good cause is shown. Id. at § 7-211(h)(5)(iii).

¹¹ Id. at § 7-211(h)(1).

¹² Id. at § 7-211(h)(2).