Maryland is just beginning its grid modernization proceeding, and the first round of scoping comments are due in three weeks. So while it's too early to say what direction the state will take on a range of issues, there are some points to watch for. Its inclusion in the PJM Interconnection market, and reliance on demand response resources, mean Maryland will face complications other states do not. And rather than a comprehensive reform of its market structure, the Public Service Commission appears focused on more specific technologies and issues.

"In one sense it's more complicated because Maryland is a part of PJM," said Malcolm Woolf, senior vice president of policy and government affairs for Advanced Energy Economy. "On the other hand, it’s also potentially more significant or interesting because if Maryland can think through how to work these issues out it can chart a path that other states can follow."

The Maryland's efforts fit alongside proceedings in California, Hawaii, New York and Minnesota, where regulators are rethinking the use of distributed resources and how to bring more and diverse energy technologies and providers into the market. That means at least 10% of states have now launched broad modernization efforts of the utility business model, and the number will climb as more begin tackling the evolution of the power sector.

"These states are providing models on what works, where there might be bumps in road, how folks react to different options," said Tanuj Deora , chief strategy officer at the  Smart Electric Power Alliance. "Maryland has a great opportunity — as a fast follower — to learn from the first movers as they incorporate the visions, approaches, and processes into a roadmap that works for them."

Christine Stearn, a utility strategy analyst at SEPA, said that while New York and California have distinct timelines for their efforts, Maryland's "is more of a foundational conversation to really start to isolate some of the key pieces of grid modernization. But that being said, one of the other big differences there is PJM. New York and California have their own ISOs. It's another actor, and the state (Maryland) doesn't have full oversight.”

SEPA is closely watching these proceedings, and is the force behind the 51st State initiative, which seeks to provide a framework for rethinking the grid and tools to enable the process. 

“Obviously on a certain level each state is on its own, each state has its own regulatory body and markets. However, there are a growing set of tools,” Stearn said. “There is a recognition that there is a need for tools people can use and customize to their own markets, and that's something we're doing with 51st State.”

Maryland's process

The PSC will take comments until Oct. 28, building on two technical conferences it held last year focused on rate design for distributed resources. It has asked stakeholders to comment on "specific opportunities to transform Maryland’s electric distribution, including seven key areas:

• Rate design options, particularly for electric vehicles;
• How to value costs and benefits of Distributed Energy Resources (DERs), including
• solar energy;
• Advanced metering benefits, and how to maximize them;
• Valuing energy storage properly;
• Streamlining the interconnection process for DERs;
• Evaluating distribution system planning;
• Protections for low-income customers.

"It's early, but looking at the scoping order, they’re thinking about very discrete, focused things they can do, in contrast to New York's REV, which has a comprehensive ambition," said Woolf. "That seems to indicate Maryland is thinking about this incrementally."

The Reforming the Energy Vision proceeding kicked off in 2014, with New York focused on a wholesale overhaul of its system, with a focus on using distributed resources to avoid building traditional infrastructure. Underpinning the state's efforts is a fundamental rethinking of utility business models, asking traditional power providers to instead at as a “Distribution System Platform Provider."

Maryland's proceeding will look at three of four foundational principles that are part of SEPA's recent Blueprints for Electricity Market Reform report: efficiency, ratemaking and customer choice, “but Maryland isn't directly addressing the utility model right now," Stearn said.

While the commission's order may not fully reimagine the business model of utilities, rate design is first on the list of topics. And according to Woolf, that puts a wide range of actions on the table.

"I started thinking of the business model as how utilities make money, and rate design as how they collect money — they seem to be two sides of the same coin," Woolf said. "The fact that they have rate design on the list is exciting, there is a lot that can be done even within the existing business model, to align utilities with what the commission seems to want.

"There are a lot of things the commission can do with rate design to incent the utilities to spend money on the commission's priorities and encourage better performance," he said.

SEPA Research Analyst Vazken Kassakhian sees the proceeding as an opportunity for distributed resources, despite possible complications working alongside PJM.

"There is the question of how this could stimulate aggregated resource opportunities," he said. "But regardless of participation in wholesale markets there is a benefit for utilities across the board” to take on studies that examine locational value of resources for avoiding or deferring expenditures on the distribution side.

Role of demand response still evolving

Maryland's grid proceeding, and how it will interact with PJM Interconnection markets, is also complicated by the grid operator's consideration of changes to seasonal resource standards.

PJM has been gradually integrating stricter capacity requirements into the market: In the last two forward capacity auctions, 80% was allocated to a new Capacity Performance product and 20% to Base Capacity. The biggest difference, on top of harsher penalties and higher prices, is that CP capacity is expected to be online year-round. That spells trouble for demand response programs focused on summer cooling loads, which would struggle to bid.

A final decision has not been made yet, and PJM's Seasonal Capacity Resources Senior Task Force is working on a decision likely by the end of the year. The final deadline, however, is really the auction for the 2020/2021 delivery year, which will be held next June.

"That has a huge impact on Maryland," said Woolf. "The state has approved demand response programs that relied on the capacity market as part of their business case, and if that's not going to exist they may need to look at this again."

According to Katherine Hamilton, executive director of the Advanced Energy Management Alliance, “if the seasonal resource goes away, state programs will no longer be able to monetize those programs."

The goal of these proceedings, said Hamilton, is “trying to make sure the wholesale market stays vibrant. ... You want demand response to be able to bid in useful resources and get paid for those resources. It's important to open up the market."

Maryland regulators could create it’s own rate design to reward those programs if they are cost effective, Woolf said. The resource is significant in the state — according to a PJM report on the 2015/2016 delivery year, Baltimore Gas & Electric had more than 1,500 MW of unique demand response.

"It has embraced it in a very big way, both on the commercial and industrial side and residential," Woolf said. "If PJM is no longer working for Maryland, Maryland can find a way to keep that capacity."

Asked about the grid modernization efforts, Baltimore Gas & Electric said it intends to participate in the PSC proceeding and that the company has "a strong track record of bringing new technologies such as AMI to better serve our customers." BG&E's parent company, Exelon, also owns other major Maryland utilities Pepco and Delmarva Power.

Another interesting aspect of the Maryland proceeding is that it is not backed by ratepayer funds. When Maryland approved the merger of Exelon and Pepco Holdings in May 2015, it required the companies to file a plan for transforming its distribution system and to fund up to $500,000 to retain a consultant for the matter.

"The commission has a fair amount of money, and it’s not ratepayer dollars," said Woolf. "Other states have been reluctant to ask some of these big questions where they don’t know exactly where it will lead. ... Maryland has the ability to step back and ask, 'How do we embrace this transition?'"