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From the Maryland Commission’s Report: 

The Commission is required to study and make recommendations to the Senate Committee on Education, Energy, and the Environment and the House Economic Matters Committee on “issues related to the utilization of end-use electricity customer load that is physically connected to the facilities of an existing or planned electric generation facility, also known as co-located load configuration.”

[ *** ] In this report the Commission is required to address findings on:

1. Potential cost impacts to Maryland ratepayers;

2. Potential impacts to wholesale markets (capacity, energy, and ancillary) and planning functions;

3. Potential impacts to the reliability of the electric transmission and distribution systems serving Maryland; and

4. Means to manage or mitigate any of these impacts.
The impacts of co-locating load with generation vary with the type of arrangement being considered and on a case-by-case basis. Some possible co-location configurations may bring reliability and cost benefits, while others, depending on how they are addressed, may bring challenges to the grid and to ratepayer equity.

Co-location, namely, the physical siting and direct physical connection of end-use load with generation, is not itself a novel concept. This report focuses on an emerging co-location arrangement in which a load co-locates with an existing generator that is interconnected to the grid but is situated behind the generator‘s meter. The Commission makes the following observations.

Potential Impacts to Reliability

Co-location of significant new quantities of load with existing baseload generation could present significant risks to reliability in Maryland and the PJM region. This is particularly true of colocation arrangements where ―not-network load‖ connects behind the generator‘s meter and can be considered off-system, which PJM has indicated it would not include in portions of its planning process. (This co-location arrangement is described in detail below.) If not-network load co-locates with baseload generation, such as the Calvert Cliffs nuclear plant, significant quantities of existing capacity will be effectively removed from the grid and resource adequacy may be degraded at an accelerated pace relative to connecting such load in traditional ways. Baseload capacity of the type Calvert Cliffs provides could take years to plan, certificate, and build.

In addition to being costly to replace a large nuclear plant, the quality of the generation— including the very high capacity factor of Calvert Cliffs—would be difficult to replace. The 2 highly reliable and continuous operation of these large baseload facilities is part of the appeal of co-locating there in the first place.

Generally, any large load connecting to the grid without the addition of new generation can contribute to reliability concerns, especially in the context of a resource-constrained grid. The policy goal of increased electrification of sectors of the economy, as well as the addition of large loads such as data centers, present challenges to the overall resource capacity of the grid.

Impacts to reliability from co-location are somewhat situationally specific and certain arrangements have the potential to offer certain reliability benefits on the grid. Benefits could include increased optionality for flexibility and reduced transmission losses. 

Potential Impacts to Wholesale Markets, Planning Functions, and Ratepayers

During the Commission‘s September 24, 2024 Technical Conference on co-location, discussed below, the Commission received testimony on the potential impact to the customers of Maryland‘s local utilities. 

From a market price perspective, as indicated by PJM‘s independent market monitor (IMM), the impacts of a load co-locating with generation (regardless of whether this co-located load is ―”not-network”) may be comparable to those of any large load connecting to the grid, all else equal. This analysis appears reasonable; in either case, to maintain resource adequacy, PJM may need to incent new generation (either to replace lost generation in a not-network scenario or to supply new demand with new generation) in its markets. Without the simultaneous addition of generation, the impact of a large load joining the grid may be an increase in the marginal price of electricity because demand on the grid is being increased without simultaneously increasing supply. 

However, the cost impacts of large load co-locating in a not-network configuration with existing generation have the potential to be more consequential than the impacts associated with load connecting to the grid in a traditional manner. This form of co-location could accelerate the pace at which large loads can be brought online and thereby more quickly diminish resource adequacy —a key component in maintaining grid reliability. This would exacerbate market impacts of the load joining the grid and increase costs to ratepayers. In fact, the cost effect on ratepayers could be acute if resource adequacy on the grid is strained to begin with. Additionally, not-network colocated entities could avoid participating in the payment of the costs they cause in the markets and some costs which they cause by creating the need for grid upgrades. If not-network colocation occurs with existing generation, reliability issues that the entities in this configuration cause may need to be addressed after the fact through transmission and/or new generation solutions that could take years to build.

Means to Manage or Mitigate Potential Impacts 

Nationwide, state public utility commissions and the Federal Energy Regulatory Commission (FERC) are analyzing the jurisdictional issues surrounding the co-location of large load with generation. FERC‘s technical conference and related proceedings addressing co-location are described further below and relate to cost allocation at the wholesale level. 

At the State level, the Commission recommends that the Maryland General Assembly clarify that co-located load is retail load. Confirmation that the definition of ―retail electric customer‖ (as specified in the Public Utilities Article (PUA) of the Maryland Code) applies to co-located loads would clarify the Commission‘s authority to regulate cost allocation for these loads by imposing on a co-located load the costs it imposes on the grid, commensurate with principles of cost causation. It is also recommended that the legislature clarify the definition of an electric company and/or electricity supplier as it may apply to the generator supplying and/or delivering power to the load in the case of co-location and to specifically clarify whether the electric company through which tariffs can be assigned is the utility in whose territory the load is physically located. It is also recommended that the State revise the PUA to make clear whether or not co-located load must meet the requirements of Maryland‘s renewable portfolio standard (RPS), pay for offshore wind renewable energy credits (ORECs), and make other payments to cover State programs such as EmPOWER, regardless of retail load designation by the legislature. 

Regardless of the timing of related pending cases at FERC addressing co-location, the General Assembly may also consider establishing a State agency review process for co-location configurations. The review process could undertake an analysis of all factors related to the benefits and costs to the State of the proposed co-location arrangements. Such a process could allow for determination as to whether each proposed co-location instance is in the public interest before it is allowed to proceed. Finally, the Commission notes that, should new large loads bring new generation with them, along with back up generation, resource adequacy challenges could be ameliorated. While large load developments are often integral participants in the modern economy with the expectation of employment and local tax revenue, such facilities, and data centers in particular, require significant resources that impact existing residents and businesses. The anticipated load on the local electric utility without new generation additions could affect reliability and prices for current ratepayers.

Elected representatives, in coordination with State and local governments and in conjunction with data center developers, should develop and enact policies to ensure that the new economic opportunities of these facilities are balanced with the impacts of their locations throughout the State. The Commission is prepared to address the integration of data centers within the service territories of the utilities in Maryland under the authority granted by the Public Utilities Article.
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Report (12/17/2024)
PC61 (06/21/2024)
(Senate Bill 1 Co-location Study)