Maryland PSC warns ‘‘Type B’’ data‑center colocation could harm PJM reliability, shift costs to ratepayers

Fred Hoover, chair of the Maryland Public Service Commission, told the Economic Matters Committee that “this type of colocation could present significant risk to reliability to Maryland and the PJM region” after presenting the PSC’s December report on emerging ‘‘colocation’’ arrangements.

The PSC outlined two models. Under the report’s “Type A” model, a large energy user interconnects through the local distribution company and is treated as PJM network load subject to PJM planning and tariff cost allocations. Under the report’s “Type B” model, a large user (for example, a data center) takes output directly from a single generator under a bilateral contract and that load is effectively removed from PJM’s system studies and typical cost‑allocation rules.

Hoover said the practical effect of a Type B arrangement can be to remove generation formerly available to the broader grid. “If this type of energy user was directly connected to a plant … the output from that power plant would no longer be available to the PJM grid,” he said, noting that could accelerate resource‑adequacy shortfalls and raise prices for the rest of the region.

Commissioner Bonnie Sushman emphasized the planning gap that follows when an existing generator is dedicated to a single customer: “You could end up having problems 100 of miles away and that's why the study is so important,” she said, describing distribution and transmission impacts that may not be captured in ad‑hoc reviews.

Committee members pressed PSC staff on practical consequences and examples. Several members used a 500‑megawatt hypothetical to illustrate the cost allocation stakes: if a new transmission line were needed to serve that load and the load remained part of PJM planning, the transmission cost would typically be allocated through PJM’s planning process and tariffs; if the load were removed via a behind‑the‑meter or direct off‑take arrangement, the committee heard, those transmission and program charges could instead fall largely to retail ratepayers unless state or federal rules change. Delegate Charcuttian summarized the concern: if behind‑the‑meter colocation removes the customer’s obligation to pay certain charges, “that entire cost would go to ratepayers, not to the data center,” he said, while conceding the example is illustrative of current uncertainties.

PSC advisers and commissioners told the committee that PJM is handling each colocation request on a case‑by‑case basis and that the Federal Energy Regulatory Commission (FERC) is evaluating related filings. “PJM is doing 1‑offs … it is not going into their overall system study where they look at all the constraints at once,” the PSC said, a practice the commission described as a weakness because it limits comprehensive forecasting and transparency.

Commissioner Mike Richard and PSC staff noted there are possible mitigation models: when a data center brings new generation or transmission online contemporaneously (an example discussed was Microsoft’s arrangement tied to the former Three Mile Island site), those resources can be made part of PJM’s system and reduce the negative effects the PSC warned about. Hoover said the PSC’s report offers statutory and definitional clarifications the commission recommends, including changes to the Public Utility Article to clarify who is a retail electric customer and how energy suppliers are defined so large colocating loads contribute appropriately to grid costs.

The presentation also flagged related concerns that would affect Maryland ratepayers if Type B arrangements proliferate: reductions in billing determinants that fund programs (the PSC cited NERC‑related charges and Maryland distribution charges such as the Empower program), potential stranded assets, and the need to ensure contributions to utility‑assistance programs. The PSC’s report appendices list specific legislative options for committee consideration.

Committee members raised additional system remedies discussed in the hearing. PSC staff pointed to a sizeable interconnection queue in PJM (staff said multiple gigawatts are in process, with some interconnection rights not expected until the late 2020s) and noted that Maryland statutes already permit regulated local distribution companies to propose construction of generation to support standard offer service, though no such Certificate of Public Convenience and Necessity (CPCN) applications have been filed.

On potential offsets, PSC staff said Maryland has moved to authorize storage projects (legislation and implementing regulations are in place), which could mitigate some demand peaks and provide flexibility. Commissioners urged greater PJM transparency in study inputs and assumptions so states can assess reliability, market and ratepayer impacts.

No formal committee action or vote followed the briefing. The PSC said it would provide the committee with its report and a list of legislative items and remain available to advise on any bills the committee considers.