PROPOSED RULEMAKING
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[52 PA. CODE CH. 75]
[L-00060180]
Implementation of the Alternative Energy Portfolio Standards Act of 2004
[36 Pa.B. 6289]
[Saturday, October 14, 2006]The Pennsylvania Public Utility Commission (Commission), on July 20, 2006, adopted a proposed rulemaking order which will codify prior Commission interpretations of the Alternative Energy Portfolio Standards Act and resolve issues relevant to its implementation.
Executive Summary
Governor Edward Rendell signed the Alternative Energy Portfolio Standards Act (act) (73 P. S. §§ 1648.1--1648.8) into law on November 30, 2004. The act, which became effective February 28, 2005, establishes an alternative energy portfolio standard for this Commonwealth. The act includes two key mandates: 1) greater reliance on alternative energy sources in serving this Commonwealth's retail electric customers; and 2) the opportunity for customer-generators to interconnect and net meter small alternative energy systems. The General Assembly charged the Commission with implementing and enforcing these mandates, with the assistance of the Department of Environmental Protection. 73 P. S. § 1648.7(a) and (b). The Commission has determined that the act is in pari materia with the Public Utility Code, and that it will develop the necessary regulations to be codified in 52 Pa. Code.
The Commission has already proposed Subchapters A--C (relating to general provisions; net metering; and interconnection).[1] Proposed Rulemaking Re Net Metering for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050174 (Final Rulemaking Order entered June 23, 2006). Proposed Rulemaking Re Interconnection Standards for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050175 (Proposed Rulemaking Order entered November 16, 2005).
These proposed regulations represent Subchapter D. These provisions provide for the compliance of electric distribution companies and electric generation suppliers with the mandate to increase their reliance on alternative energy sources. The regulations identify how compliance will be measured, the penalties for noncompliance, the powers and duties of a third party administrator, the mechanism for cost recovery by electric distribution companies and other necessary provisions. The adoption of Subchapter D will essentially complete the Commission's development of the needed regulations to implement the act.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 645.5(a)), on September 27, 2006, the Commission submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House and Senate Committees. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Commission, the General Assembly and the Governor of comments, recommendations or objections raised.
Public Meeting held
July 20, 2006Commissioners Present: Wendell F. Holland, Chairperson; James H. Cawley, Vice Chairperson; Bill Shane; Kim Pizzingrilli, dissenting statement follows; Terrance J. Fitzpatrick, dissenting statement follows
Implementation of the Alternative Energy Portfolio Standards Act of 2004; Doc. No. L-00060180
Proposed Rulemaking Order The Commission commences this rulemaking process as part of the implementation of the Alternative Energy Portfolio Standards Act of 2004, 73 P. S. §§ 1648.1--1648.8 (the Act). This proposed rulemaking will codify prior Commission interpretations of the Act and resolve other issues relevant to its implementation. The Commission seeks comments from all interested parties on these proposed regulations, at Annex A. Comments shall be due sixty days from the publication of this Order in the Pennsylvania Bulletin.
Background
Governor Edward Rendell signed the Act into law on November 30, 2004. The Act, which became effective February 28, 2005, establishes an alternative energy portfolio standard for Pennsylvania. The Act includes two key mandates: one, greater reliance on alternative energy sources in serving Pennsylvania's retail electric customers; two, the opportunity for customer-generators to interconnect and net meter small alternative energy systems. The Pennsylvania General Assembly charged the Commission with implementing and enforcing these mandates, with the assistance of the Pennsylvania Department of Environmental Protection (DEP). 73 P. S. § 1648.7(a) and (b). The Commission has determined that the Act is in pari materia with the Public Utility Code, and that it will develop the necessary regulations to be codified at Title 52 of the Pennsylvania Code. 1 Pa.C.S. § 1932.
Accordingly, the Commission initiated an implementation proceeding for the Act via a Secretarial Letter issued on January 7, 2005, at Docket No. M-00051865. The Commission presided over a public technical conference on January 19, 2005, at which stakeholders had the opportunity to provide comments on the implementation process. Subsequently, the Commission established an Alternative Energy Portfolio Standards Working Group (AEPS WG) to provide a forum for input by consumers and their advocates, electric distribution companies (EDC), electric generation suppliers (EGS), state agencies, and other interested parties. The AEPS WG held its first meeting on March 2, 2005. The Commission focused the AEPS WG on the development of the rules necessary for the participation of customer-generators in this market, as required by the Act. 73 P. S. § 1648.5. The activities of the AEPS WG during 2005 led to the development of the following rules:
* The Commission has proposed final, uniform net metering regulations for customer-generators. Proposed Rulemaking Re Net Metering for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050174 (Final Rulemaking Order entered June 23, 2006). These regulations must be approved by the Independent Regulatory Review Commission (IRRC) and the Pennsylvania Attorney General before taking effect.
* The Commission has proposed uniform interconnection regulations for customer-generators. Proposed Rulemaking Re Interconnection Standards for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050175 (Proposed Rulemaking Order entered November 16, 2005). The interconnection regulations appeared in the Pennsylvania Bulletin on February 25, 2006, and the public comment period has concluded. Barring unforeseen developments, final form regulations should be issued for review by IRRC and the Attorney General during the third quarter of 2006.
As the Commission was proceeding with the development of the previously-mentioned regulations, it provided guidance on how other provisions of the Act would be interpreted. The Commission also implemented certain elements of the necessary regulatory framework. These actions include:
* Identification of the fifteen year reporting period schedule. Implementation of the Alternative Energy Portfolio Standards Act, Docket No. M-00051865 (Order entered March 23, 2005) (First Implementation Order).
* Identification of the compliance exemption period for each EDC service territory. Implementation of the Alternative Energy Portfolio Standards Act, Docket No. M-00051865 (entered March 23, 2005); as modified in Implementation of the Alternative Energy Portfolio Standards Act, Docket No. M-00051865 (Order entered July 18, 2005) (Second Implementation Order).
* Establishment of general standards and processes for tracking and verifying demand side management and energy efficiency measures. Implementation of the Alternative Energy Portfolio Standards Act: Standards for the Participation of Demand Side Management Resources, Docket No. M-00051865 (Final Order entered September 29, 2005).
* Designation of the alternative energy credit registry. Implementation of the Alternative Energy Portfolio Standards Act: Designation of the Alternative Energy Credit Registry, Docket No. M-00051865 (Final Order entered January 31, 2006) (Credit Registry Order). The Commission designated PJM Environmental Information Systems, Inc.'s (PJM-EIS) Generation Attribute Tracking System (GATS) as the credit registry.
* Completion, with the DEP, of an interim alternative energy system qualification process. (Secretarial Letters of December 20, 2005, and January 30, 2006). An application form developed as part of this process is available through the Commission's website. More than 170 alternative energy systems have been qualified and registered with GATS.
* Proposal of standards and processes for qualifying alternative energy systems and certifying alternative energy credits. Implementation of the Alternative Energy Portfolio Standards Act: Standards and Processes for Alternative Energy System Qualification and Alternative Energy Credit Certification, Docket No. M-00051865 (entered January 31, 2006) (January 31 Order). This Tentative Order was published in the Pennsylvania Bulletin, and the public comment period has concluded.
This rulemaking will codify many of the statutory interpretations made by the Commission in these Orders. These proposed regulations will also include rules for matters not previously addressed, such as force majeure. These provisions will be codified in 52 Pa. Code Chapter 75, Subchapter D. Subchapters A (general provisions), B (net metering), C (interconnection) of Chapter 75 have already been proposed in the net metering and interconnection rulemakings.
These regulations also include standards and processes for alternative energy resource qualification and alternative energy credit certification. As previously identified, the Commission did issue a Tentative Order on these matters on January 31, 2006. Due to the timing of the Act's compliance schedule, however, it was necessary to rule on several aspects of these issues in the context of the Pennsylvania Power Company's recent default service implementation filing. Petition of Pennsylvania Power Company for Approval of Interim POLR Supply Plan, Docket No. P-00052188 (Orders entered April 28, 2006 and May 4, 2006) (Penn Power Order).1 This rulemaking therefore reflects the holdings from that proceeding on the geographic eligibility of alternative energy resources and whether an alternative energy credit may represent attributes separable from the energy commodity. Given that these important, substantive issues have already been resolved, and to avoid a duplication of action, we find that there would be little value in issuing a final order on the matters addressed in the January 31 Order. Rather, the remaining issues will be resolved through a formal rulemaking process. The Commission has reviewed the comments to the January 31 Order, and found them to be informative and useful in developing these proposed regulations.
Certain other matters related to the Act's implementation remain open before the Commission:
* Pending before the Commission is the litigation on the ownership of alternative energy attributes for contracts entered pursuant to the federal Public Regulatory Policies Act of 1978 (PURPA), which required electric utilities to enter into long-term contracts with independently owned electric generation facilities, some of which relied on alternative energy sources to generate electricity. This matter was referred to the Office of Administrative Law Judge for further proceedings. Petition for Declaratory Order Regarding Ownership of Alternative Energy Credits and any Environmental Attributes Associated with Non-Utility Generation Facilities Under Contract to Pennsylvania Electric Company and Metropolitan Edison Company, Docket No. P-00052149 (Order entered March 23, 2005). A Recommended Decision on this matter was issued on July 13, 2006, that concluded that the EDCs owned the alternative energy credits associated with these PURPA contracts.
* The Commission proposed a policy statement on the nonpublic utility status of some alternative energy systems in late 2005. Implementation of the Alternative Energy Portfolio Standards Act, Docket No. M-00051865 (Order entered November 16, 2005). The public comment period has concluded. Final adoption of this policy statement is expected in the third quarter of 2006.
* The Commission reopened the default service rulemaking comment period to address the Act's cost-recovery requirements. Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa.C.S. § 2807(e)(2), Docket No. L-00040169 (Order entered November 18, 2005). Comments and reply comments on alternative energy cost recovery standards in the context of default service were solicited (Secretarial Letter of February 8, 2006). This second public comment period has concluded. The IRRC stated in a letter dated May 8, 2006, that it had no additional comments, and that the due date for a final default service rulemaking has been extended to April 7, 2008.
* Standards for the receipt, custody and disbursement of alternative compliance payments are in the process of being developed by the Pennsylvania Sustainable Energy Board (PASEB), which is the entity that the Act delegated primary responsibility to for managing these monies.
* On April 12, 2006, the Commission released a Request for Qualifications for parties interested in serving as the alternative energy credits program administrator. Responses were due June 13, 2006.
The previously referenced matters referenced will not be resolved through this rulemaking. Litigation pertaining to the ownership of alternative energy attributes for electricity sold pursuant to PURPA contracts may continue for several years, and to the extent that a regulation is necessary on this point, it can be added later. A final, adopted policy statement on the non-utility status of some alternative energy generators would be codified at 52 Pa. Code Chapter 69, and is thus not within the scope of this rulemaking. Rules for recovery of the Act's costs are proposed in this regulation, but some details will be addressed in the final default service regulations. The PASEB is currently developing standards on the receipt, custody and disbursement of alternative compliance payments, and will make a filing with the Commission later in 2006. The public will have the opportunity to review and comment on the proposed standards before their adoption by the Commission. Finally, the Commission is in the process of selecting a program administrator, and expects to enter into a contract by the end of 2006.
Discussion
As evidenced by its requirements, the intent of the Act is to encourage greater reliance on alternative energy sources in meeting the needs of Pennsylvania's retail electric customers. The Commission has largely completed rulemakings to provide the necessary rules for the growth and participation of customer-generators in the alternative energy market.2 The regulations proposed today address the standards and processes that will govern EDC and EGS compliance with the alternative energy portfolio standard portion of the Act.
Based on the Commission's reading of the Act, this legislation is intended to promote the efficient utilization of the region's alternative energy resources in a manner that will yield significant economic and environmental benefits for Pennsylvania. As such, these regulations must be conducive to private sector investment in alternative energy resources, compatible with applicable standards for environmental protection, administratively efficient, and favorable to reasonable, market-based electricity rates for retail customers.
The following sections briefly review the provisions of the proposed rulemaking. Interested parties may offer comments on some or all of the provisions, and recommend alternative regulatory language.
A. § 75.51. EDC and EGS obligations.
This section codifies the compliance schedule for EDCs and EGSs that was specified in the First Implementation Order. Consistent with the Penn Power Order, this section acknowledges that compliance will be measured in quantities of alternative energy credits, each of which shall represent one MWh of qualified alternative electric generation or conservation, whether self-generated, purchased along with the electric commodity or separately through a tradable instrument. Compliance will be measured against total sales of electricity to retail customers for the reporting period. This section also codifies the compliance exemption periods from the First and Second Implementation Orders, and identifies the compliance standard for EGSs.
Verification of compliance with the Act will likely require EDCs and EGSs to provide retail sales data more quickly than they have in the past. The Act includes a 90 day true-up period for EDCs and EGSs who failed to secure sufficient alternative energy credits during a reporting period. For the true-up period to be effective, EDCs and EGSs will need to know the status of their compliance soon after the expiration of a reporting period. This will require the program administrator to compare the quantity of alternative energy credits to the level of retail electricity sales during the just concluded reporting period. Ideally, this verification would occur within several weeks of the conclusion of a reporting period.
This will be very difficult under current practices, as EDC retail sales data for a particular month is often several months old when provided to the Commission. Additionally, in some instances, a meter that records sales for the month of May will not be read until near the end of June, well into the true-up period. For the true-up period to be effective, EDCs and EGSs are going to need to provide their monthly sales data more quickly than they have in the past. Otherwise, the true-up period may be largely concluded before an EDC or EGS knows whether they met their compliance obligation for a reporting period. Section 75.51(f) proposes a new standard for the reporting of monthly retail sales data to the Commission and the program administrator. Parties should identify in their comments any technical limitations to providing more timely sales data.
It may be that EDCs and EGSs will err on the side of caution, and procure quantities of alternative energy credits that exceed their forecasted sales for a particular reporting period. It may also be appropriate to consider the degree of exactness the Act requires in measuring compliance, or if a certain margin of error is acceptable. For example, parties may wish to comment on whether it is permissible to utilize some estimated data for the latter months of a reporting period to allow the program administrator to produce a timely compliance report at the beginning of the true-up period.
B. § 75.52. Fuel and technology standards for alternative energy sources.
This section includes fuel and technology standards for the alternative energy sources identified in the Act. While the Act includes a definition of ''alternative energy sources'' at 73 P. S. § 1648.2, it does not specifically define what constitutes each particular source.3 Some sources, such as wind and solar photovoltaic, do not include any descriptive language, reflecting the intent that state regulators more fully define the scope of eligibility. Other sources, like low-impact hydropower and municipal sold waste, include time based eligibility restrictions that require clarification. This section provides more specific guidance on which facilities will qualify for alternative energy system status. These fuel source and technology standards are based on the plain language of the Act, DEP's draft technical guidance document distributed in 2005, and comments received through the implementation proceeding. Applicants for alternative energy system status will need to demonstrate reliance on one of these sources or technologies before their facility is qualified for alternative energy system status.
As we noted in the Second Implementation Order, we are assigning the ''solar thermal'' to the Tier I category. This resource was not assigned to either Tier I or Tier II by definitions included in the Act. 73 P. S. § 1648.2. We conclude that as this resource relies on solar energy, and its use has negligible environmental impact, solar thermal more appropriately belongs in Tier I than Tier II.
For low impact hydropower, we observe that the statutory definition restricts qualification to ''incremental'' development. We interpret this language to find that the Act limits eligibility to those facilities permitted on or after February 28, 2005 (i.e., the Act's effective date) or capacity additions or efficiency improvements to preexisting plants that were implemented on or after February 28, 2005.4
For waste coal, we decline to expressly adopt the recommendation that waste coal from non-permitted disposal sites receive a blanket qualification as an alternative energy source. The Act does expressly permit the Commission, by regulation, to expand the scope of waste coal definition. 73 P. S. § 1648.2. Rather than grant a blanket qualification, the Commission will review requests to utilize non-permitted sites on a case by case basis. Parties who wish to qualify waste coal from a non-permitted site shall be required to file a petition for waiver from this regulation in which they demonstrate the public interest benefits of such relief. The Commission may, at its discretion, grant such a waiver.
Another issue that requires clarification is the scope of the ''distributed generation'' alternative energy source. The Act identifies this as the ''small-scale power generation of electricity and useful thermal energy.'' This definition does not specify a particular fuel or technology that qualifies. Nor does it define what constitutes ''small-scale.'' At a minimum, we find that this definition would include net-metered and interconnected customer-generators, particularly in commercial and industrial settings, that utilize Tier II sources. However, it would seem that the General Assembly intended other resources to qualify under this definition. We note that a previous draft of the Act, Printer No. 1945, included the qualification that the distributed generation systems utilize an ''alternative energy source.'' This language was struck in the version of the bill that was passed. It is possible that this action reflects the intent of the General Assembly to include other sources, such as combined heat and power systems that run on natural gas or diesel, in the final, approved version of the Act.
C. § 75.53. Alternative energy system qualification.
This section identifies processes and standards, first proposed in the January 31 Order, for alternative energy system qualification. Applications shall be filed with the alternative energy credit program administrator on a form developed and made available by the Commission. The administrator will verify that the applicant is geographically eligible, consistent with the standard identified in the Act and the Penn Power Order. Facilities must also be in compliance with applicable environmental standards, and rely on an alternative energy source to generate or conserve electricity. Alternative energy system status will be suspended for major environmental violations. Alternative energy credits will not be certified for the duration of the suspension.
D. § 75.54. Alternative energy credit certification.
This section reflects the different start dates for the certification of credits for generation and conservation measures. 73 P. S. § 1648.3(e)(7) and (10). Credits may be certified for qualified generation from the Act's effective date, February 28, 2005. Credits may be certified for qualified conservation measures from the date of the Act's passage, November 30, 2004. Credits may only be certified for that portion of an alternative energy system's output that relies on an alternative energy fuel source or technology. This section also reflects the prohibition against using the same resources to satisfy portfolio standards in more than one jurisdiction, and codifies the Act's delivery requirement.
Finally, this section codifies the finding from the Credits Registry Order that a Pennsylvania alternative energy credit only represents the attributes of energy that can be used to satisfy compliance with § 75.51. Credit or attribute definitions in other states with renewable portfolio standards sometimes include emissions or environmental characteristics.5 However, the Act makes no mention of environmental or emissions attributes in the definition of alterative energy credit, or any other section of the Act. Accordingly, the Commission concludes that it has no authority to find that an alternative energy credit includes such values. Generators are of course free to include those attributes in their sales of alternative energy credits. They may also sell, assign or trade them separately. Our expectation is that the disposition of these emissions and environmental attributes will be governed by specific, contractual language, and that parties will not look to the Commission to resolve ownership disputes.6
E. § 75.55. Alternative energy credit program administrator.
This section identifies the powers and duties of the program administrator. Consistent with the January 31 Order, the administrator will certify questions of compliance with the applicable environmental regulations and reliance on appropriate alternative energy sources to DEP. DEP's findings will become part of the administrator's determination. To respond to those parties who commented that the January 31 Order would delegate too much authority to DEP, the Commission notes that it retains the ultimate authority to review and modify the decision of the program administrator. The Commission intends to utilize DEP's expertise in environmental matters to facilitate the efficient and correct implementation of the Act. A decision of the administrator may be appealed pursuant to 52 Pa. Code § 5.44. If the administrator's decision was incorrect on the law or facts, it will be modified by the Commission.
The administrator will also be responsible for verifying compliance with the obligations identified in § 75.51. The administrator will prepare reports documenting compliance at the end of each reporting and true-up period. The administrator will recommend levels of alternative compliance payments for those EDCs and EGSs who do not satisfy the requirements of § 75.51. EDCs and EGSs shall be required to make available all necessary information to the administrator as part of the verification of compliance.
As noted in the discussion of § 75.51, the administrator's ability to verify compliance in a timely manner after a reporting period may be constrained by delays in providing retail sales data. Accordingly, the regulation allows the administrator 45 days to provide a report on EDC and EGS compliance with § 75.51.
F. § 75.56. Alternative compliance payments.
This section identifies standards for determining alternative compliance payments, consistent with the provisions of the Act. 73 P. S. § 1648.3(f) and (g). If an EDC or EGS disagrees with the recommended level of payment, they may request a hearing before the Office of Administrative Law Judge. As mentioned earlier in this Order, the PASEB is drafting language on the receipt, custody, and disbursement of alternative compliance payments which will be included in proposed governing bylaws and filed with the Commission.
Section 1648.3(e)(9) of the Act authorizes the Commission to utilize up to 5% of the alternative compliance payments for administrative expenses. This section also authorizes the Commission to impose administrative fees on ''an alternative energy credit transaction.'' This section touches on the manner that the program administrator will be compensated for its services. Parties may wish to comment on whether it would be more appropriate for costs to be recovered through the traditional utility assessment mechanism or by charging fees to EDCs and EGSs for alternative energy credit transactions. For example, the Commission could charge fees for the certification alternative energy credits used for compliance with § 75.51.
G. § 75.57. General force majeure.
This section proposes standards and processes for force majeure determinations, and their relationship to alternative compliance payments. These provisions also reflect a change in thinking on this issue by the Commission.
Initially, the Commissions' view, as stated in the Second Implementation Order, was that the costs of alternative compliance payments should not be recoverable by EDCs. The Commission and other parties were concerned that allowing alternative compliance payments to be recoverable would discourage the development of new, alternative energy resources. EDCs would find it more efficient to simply make a payment rather than procure credits from alternative energy sources. However, the Commission has concluded that the practical effect of disallowing recovery in all circumstances would be EDCs and EGSs acquiring alternative energy credits at any price, regardless of the costs to ratepayers. We do not believe that the public interest is served by EDCs and EGSs purchasing excessively priced alternative energy credits, the costs of which will be passed on to Pennsylvania's retail customers. The Commission is concerned about the magnitude of the electricity rate increases that retail customers will experience once the generation rate caps expire, and does not wish the Act's implementation to materially contribute to any potential price shock.
Instead, the Commission will use the force majeure and alternative compliance payment provisions of the Act in concert to establish a de facto price cap for alternative energy credits. Under these proposed regulations, the Commission will review the state of the alternative energy market prior to each reporting period. Separate force majeure determinations will be made for the Tier I obligation, solar photovoltaic obligation, and Tier II obligation. If it appears that there are insufficient quantities of credits to meet one or more of these obligations, the Commission will find that force majeure exists for that obligation for that reporting period. The Commission will also find that force majeure exists if the average market price for non-solar photovoltaic credits exceeds $45 for a significant period of time. EDCs and EGSs who have not already acquired or contracted for the purchase of credits for that reporting period will be permitted to pay an alternative compliance payment of $45 for each credit they need to satisfy their obligations. EDCs may recover such payments from ratepayers as a cost of compliance with the Act. These payments will be subject to Commission review as part of the cost-recovery process. If the record shows that the EDC could have met their obligations through credits acquired for less than $45, then cost recovery for some portion of these payments will be disallowed. We note that a similar approach has been adopted in other states with renewable portfolio standards, including New Jersey, Maryland and Massachusetts. N.J.A.C. § 14:4-8.10; Maryland Public Utilities Code, § 7-706; 225 CMR § 14.08(4).
The solar photovoltaic requirement presents unique challenges. The Act's market price standard for solar photovoltaic alternative compliance payments would appear to preclude a price cap for related force majeure determinations. Rather, the Commission will limit itself to reviewing the availability of solar photovoltaic resources when making force majeure determinations for this resource. If solar photovoltaic resources are not available in sufficient quantities, alternative compliance payments may be made at the applicable market price and the associated costs recovered from ratepayers by EDCs. Alternatively, the Commission may reduce the level of required solar photovoltaic compliance for the reporting period. These payments will be used by the sustainable energy funds and dedicated to projects that will increase the amount of solar photovoltaic resources available for compliance. 73 P. S. § 1648.3(g)(2).
We find that this approach provides the needed regulatory certainty to allow EDCs, EGSs, and alternative energy project developers to engage in the necessary strategic planning and long-term investments that the Act requires. This standard also serves the public interest by protecting ratepayers from any excessive alternative energy prices that may result during the development of this new market.
H. § 75.58. Special force majeure.
The Act requires the Commission to provide for a force majeure mechanism as part of the true-up period. 73 P. S. § 1648.3(e)(5). This section would only need to be used during those reporting periods where the Commission had declined to make a general force majeure determination for one or more of the compliance obligations. The Commission recognizes that circumstances may change during the interval between the beginning and conclusion of a reporting period that requires such a determination. For example, an EDC or EGS may unexpectedly acquire significantly more customer load over the course of a reporting period and fall short of meeting their obligations under § 75.51. In such a situation, there is no guarantee that the EDC or EGS could procure sufficient alternative energy credits during the true-up period to bring itself into compliance. The Commission will therefore review requests for special force majeure determinations on a case by case basis during the true-up period.
I. § 75.59. Alternative energy cost-recovery.
EDCs7 may fully recover the reasonable and prudently incurred costs of complying with Act 213 from ratepayers. This includes the costs for purchases of alternative energy or alternative energy credits, payments to credit program administrators, and costs levied by regional transmission organizations to ensure that alternative resources are reliable. 73 P. S. § 1648.3(a)(3). These costs are to be recovered ''pursuant to an automatic energy adjustment clause under 66 Pa.C.S. § 1307'' and are considered ''a cost of generation supply under 66 Pa.C.S. § 2807.'' 73 P. S. § 1648.3(a)(3). Section 2807 of the Public Utility Code includes the legal standard governing the acquisition of and recovery for costs for electricity provided to an EDC's retail electric customers at the conclusion of the transition period:
(3) If a customer contracts for electric energy and it is not delivered or if a customer does not choose an alternative electric generation supplier, the electric distribution company or commission-approved alternative supplier shall acquire electric energy at prevailing market prices to serve that customer and shall recover fully all reasonable costs.66 Pa.C.S. § 2807(e)(3). Given this requirement of the Act, we find that the alternative energy delivered to retail customers after the conclusion of the stranded cost recovery period is a component of the default service provided by EDCs.
Section 1307 of the Public Utility Code includes standards and processes for automatic adjustment clauses. Costs collected pursuant to these clauses are subject to annual audits. 66 Pa.C.S. § 1307(d). Each EDC utilizing these types of mechanisms must file a report every twelve months identifying revenues collected pursuant to the clause, the costs actually incurred, and the reasons for the difference. 66 Pa.C.S. § 1307(e)(1). The Commission is required to hold public hearings on the substance of these reports. 66 Pa.C.S. § 1307(e)(2). Finally, customers are entitled to refunds for over collection, and public utilities may recover from customers additional costs in the event of under collection. 66 Pa.C.S. § 1307(e)(3).
Initially, the Commission considered including the substance of the Act's cost-recovery regulations in the final form version of its default service regulations. Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa.C.S. § 2807(e)(2), Docket No. L-00040169 (Order entered December 16, 2004). However, in order to ensure sufficient opportunity for meaningful public comment on these matters, we are including the necessary cost-recovery provisions in this proposed rulemaking. Given the overlap with default service, this rulemaking and the final default service regulations will include necessary cross-references. For example, these proposed regulations cross-reference the standards for competitive procurement processes in the default service rulemaking.
Because section 2807(e)(3) requires energy procured for default service to be acquired at ''prevailing market prices,'' the Commission interprets 73 P. S. § 1648.3(a)(3) to mean that EDCs should use competitive processes to meet the requirements of § 75.51. However, this interpretation does not preclude the use of long-term, bilateral contracts between an EDC and an alternative energy generator as part of a reasonably balanced portfolio of alternative energy generation supply resources.8 The Commission recognizes that EDCs may pursue different strategies to acquire alternative and traditional forms of energy to serve retail customers. For example, an EDC might choose to enter into contracts of varying durations to acquire electricity from traditional energy sources, and at the same time enter into several long term contracts to satisfy its obligations under § 75.51. However, the EDC must still use some type of competitive process to acquire alternative energy in order to demonstrate that retail customers are being provided alternative energy at the most reasonable rates.
EDCs costs and revenues for alternative energy compliance will be reconciled on an annual basis consistent with 66 Pa.C.S. § 1307(e)(3). The Commission will also conduct annual audits of these costs. 66 Pa.C.S. § 1307(d).
J. § 75.60. Alternative energy market integrity.
This section is intended to preserve the viability of the voluntary market for alternative or renewable energy in Pennsylvania. Some parties to this implementation proceeding have expressed concerns that the adoption of an alternative energy portfolio standard will lead to the end of voluntary purchases of electricity by retail customers from renewable energy sources. The Commission finds that the public interest is served by ensuring a level playing field between mandatory and voluntary alternative energy offerings to retail customers. This section proposes certain requirements for the marketing of alternative energy sources by EDCs and EGS. These restrictions are similar to the requirements for green energy marketing found at 52 Pa. Code § 54.6(c).
The proposed standard does present a number of issues in its implementation. For example, an EDC or EGS may have multiple generation offerings it markets to retail customers. Some of these plans may rely on traditional fuels, while others rely on ''alternative energy.'' EGS offerings may even vary by EDC service territory. Comments are welcome on how EDCs and EGSs should distinguish between their traditional and alternative energy generation offerings, and the level of specificity required when marketing this information.
K. § 75.61. Banking of alternative energy credits.
This section codifies prior interpretations of the banking provisions of the Act from the First and Second Implementation Orders. The most problematic part of the banking provisions involves the apparent restriction placed on banking credits from alternative energy systems existing at the time of the Act's effective date during the cost-recovery period. 73 P. S. § 1648.3(e)(7). The Act appears to prohibit the banking of credits from these alternative energy systems in quantities equal to their sales to Pennsylvania retail customers during the twelve month period preceding the effective date of the Act, February 28, 2005. The Commission offered one interpretation of this provision in its Implementation Order, and received a number of comments in response.
The Commission has considered as an example an alternative energy system that sold 10,000 MWh of alternative energy to an EDC, which was in turn sold to Pennsylvania retail customers, during the period of February 28, 2004 through February 28, 2005. The language of the Act would appear to suggest that an EDC or EGS could only bank alternative energy credits for sales made by that same alternative energy system in excess of 10,000 MWh per reporting period during their cost-recovery period. Such an interpretation effectively discourages the acquisition of alternative energy and credits from resources already existing at the time of the Act's effective date. While this incremental requirement may encourage the development of new resources, it largely nullifies the cost-recovery period banking provision of the Act. It may also negatively impact Pennsylvania located resources the most, as they are more likely to have been used in retail sales to Pennsylvania customers. The effect of this provision may be to cause EDCs and EGSs to meet their initial requirements from resources located mostly outside of Pennsylvania. The Commission welcomes comments on how this provision of the Act may be interpreted in a way consistent with the intent of the General Assembly. In applying the rules of statutory construction, the Commission is to avoid results that are absurd, unreasonable, or that render a statute ineffective. 1 Pa.C.S. § 1922.
L. § 75.62. Alternative energy credit registry.
This section codifies the Commission's authority to designate a credit registry. 73 P. S. § 1648.3(e)(8). At this time, the Commission has designated PJM-EIS's GATS as the credit registry required by the Act. EDCs and EGSs are required to make all information within the registry available to the Commission and the program administrator so that they can carry out their responsibilities under the Act, including verification of compliance and the tracking of credit prices. As the needs of the Commission in regards to implementing the Act may change over time, as will available technologies, the Commission will not permanently designate any particular party or technology as the credit registry in this rulemaking.
Conclusion
Accordingly, under sections 501 and 2807(e) of the Public Utility Code (66 Pa.C.S. §§ 501 and 2807(e)); sections 1648.7(a) and 1648.3(e)(2) of the Alternative Energy Portfolio Standards Act of 2004 (73 P. S. §§ 1648.7(a) and 1648.3(e)(2)); sections 201 and 202 of the act of July 31, 1968 (P. L. 769 No. 240) (45 P. S. §§ 1201 and 1202), known as the Commonwealth Documents Law, and the regulations promulgated at 1 Pa. Code §§ 7.1, 7.2 and 7.5; section 204(b) of the Commonwealth Attorneys Act (71 P. S. § 732.204(b)); section 745.5 of the Regulatory Review Act (71 P. S. § 745.5); and section 612 of The Administrative Code of 1929 (71 P. S. § 232) and the regulations promulgated at 4 Pa. Code §§ 7.231--7.234, the Commission proposes adoption of the regulations set forth in Annex A; Therefore,
It Is Ordered That:
1. The proposed rulemaking at L-00060180 will consider the regulations set forth in Annex A.
2. The Secretary shall submit this order and Annex A to the Office of Attorney General for review as to form and legality.
3. The Secretary shall submit this order and Annex A to the Governor's Budget Office for review of fiscal impact.
4. The Secretary shall submit this order and Annex A for review by the designated standing committees of both houses of the General Assembly and for review by IRRC.
5. The Secretary shall deposit this order and Annex A with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
6. An original and 15 comments of written comments referencing the docket number of the proposed rulemaking must be submitted within 60 days of publication in the Pennsylvania Bulletin to the Pennsylvania Public Utility Commission, Attn.: Secretary, P. O. Box 3265, Harrisburg, PA. 17105-3265.
7. The contact person for this rulemaking is Shane M. Rooney, (717) 787-2871.
JAMES J. MCNULTY,
SecretaryFiscal Note: 57-252. (1) General Fund; (2) Implementing Year 2006-07 is $200,000; (3) 1st Succeeding Year 2007-08 is $200,000; 2nd Succeeding Year 2008-09 is $200,000; 3rd Succeeding Year 2009-10 is $200,000; 4th Succeeding Year 2010-11 is $200,000; 5th Succeeding Year 2011-12 is $200,000; (4) 2005-06 Program--$0; 2004-05 Program--$0; 2003-04 Program--$0; (7) General Government Operations; (8) recommends adoption. These costs will be recovered through the annual utility assessment mechanism.
Dissenting Statement of Commissioner
Terrance J. FitzpatrickPublic Meeting
July 20, 2006
Implementation of the Alternative Energy Portfolio Standards Act of 2004; JUL-2006-L-0042*; L-00060180 This matter involves a proposed rulemaking order designed to implement the Alternative Energy Portfolio Standards Act, (Act) 73 P. S. §§ 1648.1--1648.8. For the reasons set forth below, I respectfully dissent.
First, I disagree with Section 75.53(d) of the proposed regulations, which provides:
(d) The alternative energy credits associated with a qualified alternative system located outside of Pennsylvania shall be eligible for compliance purposes only in the portions of Pennsylvania within the boundaries of the same RTO control areas as that alternative energy system.This determination of the eligibility of out-of-state alternative energy sources to meet the requirements of the Act follows the recent decision by a majority of the Commission in Petition of Pennsylvania Power Company for Approval of Interim POLR Supply Plan, Dkt. No. P-00052188, Opinion and Order entered April 28, 2006, pp. 134-141. I disagreed with this aspect of the Penn Power decision, and Commissioner Pizzingrilli and I issued a Joint Statement9 explaining why we believe that this interpretation conflicts with the plain language of Section 1648.4 of the Act, 73 P. S. § 1648.4, which provides that energy from alternative sources within ''any'' regional transmission organization that serves ''any'' part of the Commonwealth ''shall be eligible to meet the compliance requirements of the Act.'' For this same reason, I believe that § 75.53(d) of the proposed regulations is inconsistent with the Act.
Second, I disagree with § 75.52(b)(2) of the proposed regulations to the extent it provides that the Commission may, in its discretion, grant petitions to allow waste coal from ''non-permitted sites'' to qualify for alternative energy resource status. This case-by-case approach is inconsistent with the Act, which provides eligibility for ''other waste coal combustion meeting alternate eligibility requirements established by regulation.'' 73 P. S. § 1648.2 (definition of ''Alternative energy source,'' no. 10) (emphasis added). In my view, the language in the Act providing for eligibility requirements to be established ''by regulation'' precludes a case-by-case approach to determining eligibility.
Third, I disagree with the requirement that the administrator must refer applications to the Department of Environmental Protection (DEP) for the purposes of determining environmental compliance and whether the applicant meets the requirements for alternative energy sources. See, proposed § 75.55 (4), (5). The administrator is required to follow DEP's advice on these issues. See, proposed § 75.55(6). These provisions give DEP a decision-making role within the formal adjudicatory process under the Act. However, the proposed regulations do not preclude DEP from later becoming involved in these same proceedings in another role--as a party-litigant. It is clear to me from DEP's intervention in the Penn Power proceeding, supra, and its subsequent appeal to Commonwealth Court, that it intends to litigate to pursue its interpretation of the Act. DEP's approach causes me to question the propriety of allowing it to also serve in a dual role as part of the decision-making process. To avoid this situation, I would allow DEP to make its views known as a party on the issues of environmental compliance and eligibility; however, I would not require the administrator to follow the advice of DEP on these issues.
Finally, I disagree with language in the proposed rulemaking order (p. 19) suggesting that electric utilities may enter into long-term contracts with alternative energy sources, at least to the extent that such contracts establish a fixed price that does not move with current wholesale prices. In my view, such contracts are anti-competitive and are inconsistent with the requirement that utilities procure electricity at ''prevailing market prices'' to serve customers who do not shop. 66 Pa.C.S. § 2807(e)(3).10
While I look forward to the comments of interested parties on these issues and others included in this proposed rulemaking order, for the above reasons, I respectfully dissent.
Dissenting Statement of Commissioner
Kim PizzingrilliToday the Commission commences a rulemaking process as part of the implementation of the Alternative Energy Portfolio Standards Act of 2004. While I support the initiation of the proposed regulations, as they codify prior decisions made by this Commission, I respectfully dissent in part.
Specifically, the proposed regulation includes the Commission's finding in Petition of Pennsylvania Power Company for Approval of Interim POLR Supply Plan, Docket No. P-00052188 (Orders entered April 28, 2006 and May 4, 2006)11 (Penn Power Order) wherein the majority adopted a restrictive interpretation of Section 1648.4 of the Act by limiting the geographic eligibility of alternative energy resources. Section 75.53 (relating to Alternative energy system qualification) of the proposed regulation requires that in order to qualify for alternative energy system status, it must be physically located in either the Commonwealth of Pennsylvania or the control area of a RTO that manages a portion of the electric transmission system in Pennsylvania. Subsection 75.53(d), further restricts eligibility as follows:
(d) The alternative energy credits associated with a qualified alternative system located outside of Pennsylvania shall be eligible for compliance purposes only in the portions of Pennsylvania within the boundaries of the same RTO control area as that alternative energy system.Consistent with my position in the Penn Power Order, I must dissent from the proposed language found in Section 75.53(d). In a Joint Statement with Commissioner Terry Fitzpatrick, I dissented from the restrictive interpretation in the Order, as I believe that all out of state energy systems that are located within the PJM and MISO control areas qualify for alternative energy status for use anywhere in Pennsylvania. Section 1648.4 of the Act contains no language that substantiates restricting the qualification of facilities to the control areas to which they are physically located. Expressly, the Act provides that facilities located within the MISO or PJM control areas '' . . . shall be eligible to meet the compliance requirements of this act.'' 73 P. S. § 1648.4.
Therefore, I dissent from the proposed regulations respective to the geographic eligibility restriction set forth in Section 75.53(d).
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1 The Pennsylvania Power Company and DEP each filed a Petition for Review of the Penn Power Order with Commonwealth Court (since consolidated sua sponte by Commonwealth Court). Pennsylvania Power Company v. Pennsylvania Public Utility Commission, 1004 CD 2006; Department of Environmental Protection v. Pennsylvania Public Utility Commission, 1085 CD 2006. The determinations on geographic scope and energy attributes have been challenged by the Pennsylvania Power Company and DEP, respectively. The Commission will revise this proposed regulation, or a final adopted regulation, if the current interpretations are modified as a result of this litigation.
2 Proposed Rulemaking Re Net Metering for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050174 (Final Rulemaking Order entered June 23, 2006). Proposed Rulemaking Re Interconnection Standards for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, L-00050175 (Proposed Rulemaking Order entered November 16, 2005).
3 The definition of ''alternative energy source'' from the Act is included in the general provisions of § 75.1, and is more specifically defined in the proposed § 75.52 for purposes of alternative energy system qualification.
4 We note that similar ''incremental'' requirements for renewable energy production tax credits exist at the federal level for hydroelectric facilities. 26 U.S.C.A § 45(c)(8). FERC reviews and approves certification of incremental development based on review of a historic average annual hydropower baseline and comparison to the requested increase. A similar standard may be appropriate for Pennsylvania, and comments are solicited on whether this level of detail should be included in this section of the proposed regulation.
5 See ''generation attribute'', 26 Del. C. § 352 (10); ''attribute'' and ''renewable energy certificate,'' N.J.A.C. § 14:14-8.2.
6 This finding is without prejudice to the Commission's ultimate decision in the pending proceeding regarding the ownership of energy attributes in energy contracts entered into prior to the effective date of the Act. Petition for Declaratory Order Regarding Ownership of Alternative Energy Credits and any Environmental Attributes Associated with Non-Utility Generation Facilities Under Contract to Pennsylvania Electric Company and Metropolitan Edison Company, Docket No. P-00052149 (Order entered March 23, 2005; Recommend Decision issued July 13, 2006).
7 In Section 75.59 of the proposed regulations, the Commission substitutes the term ''default service provider'' for EDC. The proposed default service regulations use this term for any party, EDC or otherwise, that provides default service after the conclusion of the transition period. This is because the default service regulations recognize that parties other than an incumbent EDC may be the provider of last resort after the conclusion of the transition period. ''Default service provider'' is a defined term in the proposed default service regulations issued at Docket No. L-00040169.
8 See Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa.C.S. § 2807(e)(2), Docket No. L-00040169 (Order entered November 18, 2005).
9 Joint Dissenting Statement of Commissioners Kim Prizzingrilli and Terrance J. Fitzpatrick, Petition of Pennsylvania Power Company for Approval of an Interim Provider of Last Resort Supply Plan, Docket No. P-00052188, Order entered April 28, 2006.
10 See, also, Dissenting Statement of Commissioner Terrance J. Fitzpatrick, Rulemaking Re: Electric Distribution Companies Obligations to Serve Retail Customers, Docket Nos. L-00040169, M-00051865, Order entered November 18, 2005.
11 I noted that the Pennsylvania Power Company filed a Petition for Review of the Penn Power Order with Commonwealth Court relative to the geographic scope determination. Pennsylvania Power Company v. Pennsylvania Public Utility Commission, 1004 CD 2006; Department of Environmental Protection v. Pennsylvania Public Utility Commission, 1085 CD 2006.
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