NOTICES

Implementation of the Alternative Energy Portfolio Standards Act of 2004: Standards and Processes for Alternative Energy System Qualification and Alternative Energy Credit Certification; Doc. No. M-00051865

[36 Pa.B. 785]

Public Meeting held
January 27, 2006

Commissioners Present: Wendell F. Holland, Chairperson; James H. Cawley, Vice Chairperson; Bill Shane; Kim Pizzingrilli; Terrance J. Fitzpatrick

Tentative Order

By the Commission:

   The Alternative Energy Portfolio Standards Act of 2004, 73 P. S. §§ 1648.1--1648.8 (the ''Act''), requires that a gradually increasing percentage of electricity sold by electric distribution companies (''EDC'') and electric generation suppliers (''EGS'') to retail customers in Pennsylvania be derived from alternative energy sources. Compliance with the Act is measured in terms of alternative energy credits, which represent one megawatt hour of electricity generated from a qualified alternative energy system. EDCs and EGSs must acquire sufficient alternative energy credits to meet the Tier I and Tier II shares required by the Act consistent with the compliance schedule identified by the Commission in prior Orders. This Tentative Order will propose standards and processes for qualifying alternative energy systems and certifying alternative energy credits.

HISTORY OF THIS PROCEEDING

   A review of history of this proceeding provides a useful context for the consideration of the issues to be addressed herein. The Act was signed into law on November 30, 2004, and took effect on February 28, 2005. The Commission was charged with carrying out provisions of this law, and accordingly opened an implementation proceeding at this docket. The Commission has identified a schedule for compliance with the Act and made findings regarding a number of issues. Implementation of the Alternative Energy Portfolio Standards Act of 2004, Docket No. M-00051865 (Order entered March 25, 2005) (''Implementation Order''); Implementation of the Alternative Energy Portfolio Standards Act of 2004, Docket No. M-00051865 (Order entered July 18, 2005) (''Implementation Order II''). In the Implementation Order, the Commission identified a fifteen year reporting schedule that will commence on June 1, 2006. The Commission also held that the Act was in pari materia with the Public Utility Code, and that they would be construed together whenever possible. The reporting schedule was slightly revised in Implementation Order II.

   The Commission then focused its efforts and that of the Alternative Energy Portfolio Standards Working Group on developing rules for distributed generation and energy conservation resources, consistent with the timeline mandated by the Act. Standards and proposed regulations on these topics were issued by the Commission during the fall of 2005. Implementation of the Alternative Energy Portfolio Standards Act of 2004: Standards for the Participation of Demand Side Management Resources, Docket No. M-00051865 (Order entered October 3, 2005); Proposed Rulemaking Re Net Metering for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, et al., Docket Nos. L-00050174 (Order entered November 16, 2005); Proposed Rulemaking Re Interconnection Standards for Customer-generators pursuant to Section 5 of the Alternative Energy Portfolio Standards Act, 73 P. S. § 1648.5, et al., Docket No. L-00050175 (Order entered November 16, 2005).

   More recently, the Commission has addressed the designation of an alternative energy credits registry and the recovery of costs by EDCs for compliance with the Act. Implementation of the Alternative Energy Portfolio Standards Act of 2004: Designation of the Alternative Energy Credits Registry, Docket No. M-00051865 (Tentative Order entered October 28, 2005). 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), et al.; Docket No. L-00040169 (Order entered November 18, 2005). The Commission anticipates an active schedule at this docket in the comings months, as various matters, including cost-recovery, the retention of a credit program administrator, etc., are addressed.

DISCUSSION

   The Act includes provisions on the standards and processes for qualifying alternative energy systems and certifying alternative energy credits.¹ Because the Act is a complex law, different interpretations have been offered for these provisions. In this Tentative Order the Commission will review the relevant provisions and make tentative findings on the appropriate interpretations. The Commission seeks comments from interested parties on what standards and processes will best ensure the successful implementation of Act 213. Parties may suggest other alternative standards and processes not identified in this Tentative Order. After a review of the comments, the Commission will issue a further order establishing these standards.

A.  Legislative Intent Regarding the Act

   The Commission is bound by the rules of statutory construction in its interpretation of the Act. 1 Pa.C.S. §§ 1901--1939. Of particular importance is 1 Pa.C.S. § 1921, which provides that legislative intent shall control. Every statute shall be construed, if possible, to give effect to all of its provisions. 1 Pa.C.S. § 1921(a). Additionally, when the words of a statute are free from ambiguity, the letter of the statute is not to be disregarded in pursuit of unstated legislative intent. 1 Pa.C.S. § 1921(b). If the language is ambiguous, an agency may consider a number of other factors, including prior interpretations, the purpose of the statute, legislative history, etc. 1 Pa.C.S. § 1921(c). An agency may make a number of presumptions regarding legislative intent, including that the Pennsylvania General Assembly (''General Assembly'') intends the entire statute to be effective and constitutional, and that public interest is to be favored over the private interest. 1 Pa.C.S. § 1922. Finally, the words and phrases of a statute should be interpreted consistent with their plain and ordinary meaning. 1 Pa.C.S. § 1903.

   The Commission's ability to ascertain the General Assembly's legislative intent in these matters is complicated because the Act does not contain sections discussing specific declarations of policy. This is in contrast to other recent legislation that the Commission has been charged with carrying out, including the Electricity Generation Customer Choice and Competition Act (''Competition Act''), 66 Pa.C.S. §§ 2801--2812, Alternative Form of Regulation of Telecommunication Services, Act 183 of 2004, 66 Pa.C.S. §§ 3011--3019, Responsible Utility Customer Protection, Act 2001 of 2004, 66 Pa.C.S. §§ 1401--1418. These laws included express declarations of legislative intent to guide the Commission in its implementation and enforcement of their provisions. 66 Pa.C.S. §§ 1402, 2802, 3011.

   In the absence of such policy direction, the Commission will adhere to the rules of statutory construction identified above. The Commission will attempt to construe the Act so that all its provisions are effective, it will avoid the pursuit of unstated legislative intent where the language is clear, and it will interpret statutory provisions consistent with their plain language. 1 Pa.C.S. §§ 1903, 1921(a), 1921(b).

B.  Allocation of Agency Responsibilities Regarding Alternative Energy System Qualification and Credit Certification Processes

   The successful implementation of the Act 213 will require close cooperation by the Commission and the Pennsylvania Department of Environmental Protection (''DEP''). The overall responsibilities of the Commission and DEP are identified at Section 7 of the Act:

(a)  Commission responsibilities.--The commission will carry out the responsibilities delineated within this act. The commission also shall, in cooperation with the department, conduct an ongoing alternative energy resources planning assessment for this Commonwealth. This assessment will, at a minimum, identify current and operating alternative energy facilities, the potential to add future alternative energy generating capacity, and the conditions of the alternative energy marketplace. The assessment will identify needed methods to maintain or increase the relative competitiveness of the alternative energy market within this Commonwealth.

(b)  Department responsibilities.--The department shall ensure that all qualified alternative energy sources meet all applicable environmental standards and shall verify that an alternative energy source meets the standards set forth in section 2.

73 P. S. §§ 1648.7(a) and 1648.7(b). The Commission and DEP also are to jointly prepare an annual report to the General Assembly on the status of the alternative energy market, the costs associated with the Act, and recommendations for improvement. 73 P. S. § 1648.7(c).

   The Commission concludes that the language of Section 1648.7(a) vests the Commission with the general supervisory, execution and enforcement powers for this Act. The phrase ''carry out'' can also be found in our general powers at Section 501 of the Public Utility Code, 66 Pa.C.S. § 501(a), '' . . . the commission shall have full power and authority, and it shall be its duty to enforce, execute and carry out, by its regulations, order or otherwise, all and singular, the provisions of this part.'' (Emphasis added).

   The Commission has previously addressed the implementation of the Act as it relates to the Public Utility Code. Specifically, we applied the principle of statutory construction known as pari materia in the Implementation Order:

Act 213 does not represent an amendment or supplement to the Public Utility Code, 66 Pa. C.S §§ 101--3316. However, the Public Utility Code and the Act both involve the regulation of electric distribution companies, electric generation suppliers and the sale of electric energy to retail customers in the Commonwealth of Pennsylvania. The Commission notes that Act 213 makes repeated reference to various portions of the Public Utility Code, including 66 Pa.C.S. §§ 511, 1307, 2807, 2812, and 3315. The Act also makes express use of certain definitions found at 66 Pa.C.S. § 2803. As such, the Act and the Public Utility Code are in pari materia and shall be construed together as one statute. See 1 Pa.C.S. § 1932. Therefore, the provisions of the Public Utility Code and its associated regulations will be applied to the implementation and enforcement of the Act, except where prohibited by the express language of Act 213 or necessary implication thereof. Any new regulations adopted by the Commission as part of the implementation of the Act will be codified at Title 52 (pertaining to Public Utilities) of the Pennsylvania Code.

Implementation Order, pg. 3. While the Commission has the general enforcement powers for Act 213, the General Assembly did carve out an important role for DEP through Section 1648.7(b):

The department shall ensure that all qualified alternative energy sources meet all applicable environmental standards and shall verify that an alternative energy source meets the standards set forth in section 2.

73 P. S. § 1648.7(b). One could interpret this section as providing that DEP has been assigned the task of qualifying generation facilities for alternative energy status. However, the Commission notes that ''qualified'' is used as an adjective to describe the alternative energy source and not as a verb to describe DEP's action or power. This suggests that the task of qualifying resources has been assigned to another party. Accordingly, this provision requires DEP to ensure that qualified facilities are complying with all existing environmental statutes and regulations, and to verify that the standards at Section 1648.2 are adhered to.

   The responsibility for qualifying resources has been specifically provided for in Section 1648.3(e), pertaining to the alternative energy credit program administrator:

   (1)  The commission shall establish an alternative energy credits program as needed to implement this act. This provision of services pursuant to this section shall be exempt from the competitive procurement procedures of 62 Pa.C.S. (relating to procurement).

   (2)  The commission shall approve an independent entity to serve as the alternative energy credits program administrator. The administrator shall have those powers and duties assigned by commission regulations. Such powers and duties shall include, but not be limited to the following:

   (i)  To create and administer an alternative energy credits certification, tracking and reporting program. This program should include, at a minimum, a process for qualifying alternative energy systems and determining the manner credits can be created, accounted for, transferred and retired.

   (ii)  To submit reports to the commission at such times and in such manner as the commission shall direct.

73 P. S. §§ 1648.3(e)(1) and (2) (Emphasis added).

   The Commission tentatively concludes that Section 1648.3(e) vests the Commission with the power to promulgate regulations establishing standards and processes for resource qualification and alternative energy credit creation. Final determinations on resource qualification will therefore be made by the Commission or its agent, the program administrator.²

C.  DEP's Role in Qualification of Alternative Energy Systems

   As noted in the prior section, the Commission does not conclude that 1648.7(b) should be read to find that DEP adjudicates resource qualification decisions. Rather, DEP is to ensure that alternative energy systems comply with all environmental standards. Additionally, DEP is to ''verify'' that sources comply with the standards found in Section 2 of the Act, which includes the definitions for the various ''alternative energy sources.'' 73 P. S. § 1648.2. The Commission interprets this language as directing it to utilize DEP's expertise in environmental matters as part of the resource qualification process. Two different approaches can be taken: certification of questions of fact and law to DEP; or DEP as the expert witness.

1.  Certification of Questions of Fact and Law

   An analogy can be made to the Commission and DEP's shared responsibilities regarding water supply. The Public Utility Code includes a provision that allows the Commission to certify questions of fact to DEP on water purity:

§ 318.  Commission to cooperate with other departments

   (a)  VEHICLE REGISTRATION PLATES.--The Department of Transportation and the commission are hereby authorized and directed to cooperate in the issuance by the Department of Transportation, under the provisions of Title 75 (relating to vehicles), of registration plates for commercial motor vehicles, which will classify and identify motor vehicles operated under certificates or permits issued by the commission, without the necessity of the requirement of separate identification plates in addition to registration plates required under Title 75.

   (b)  PURITY OF WATER SUPPLY.--The commission may certify to the Department of Environmental Resources any question of fact regarding the purity of water supplied to the public by any public utility over which it has jurisdiction, when any such question arises in any controversy or other proceeding before it, and upon the determination of such question by the department incorporate the department's findings in its decision.

   (c)  POWERS OF CERTAIN GOVERNMENTAL AGENCIES UNAFFECTED.--Nothing in this part shall be construed to deprive the Department of Health or the Department of Environmental Resources of any jurisdiction, powers or duties now vested in them.

66 Pa.C.S. § 318 (Emphasis added)³

   The Commission finds that DEP should be utilized in the qualification process in a manner similar, though not necessarily identical, to what Section 318 provides for regarding water purity. When a generator applies for alternative energy status, the program administrator would review the application to determine if sufficient information has been provided, and if the resource is geographically eligible.⁴ The administrator would then refer the question of whether the resource is consistent with the Section 1648.2 definition of ''alternative energy source'' to DEP. DEP has already released certain technical guidelines on standards for compliance with the ''alternative energy source'' definition.⁵

   Once DEP had completed its review of a particular facility, it would report its findings to the program administrator. Those findings would be incorporated into the administrator's determination of whether a facility was qualified or not. The scope of DEP's findings might vary depending on the application. For municipal solid waste, it appears that the Act is requiring DEP to make a finding of law and fact as to whether such a facility is in compliance with various state and federal environmental laws. The program administrator would probably need to incorporate both these findings in its initial determination. Other determinations are purely fact based. For example, DEP would need to confirm that waste coal came from appropriate waste coal refuse sites and that low-impact hydropower did not adversely impact aquatic systems.

   It must be recognized that by certifying a question to DEP, the Commission is delegating some of its authority to another state agency. The program administrator would be bound by DEP's findings of fact or law on a particular application in its initial determination.

2.  DEP as Expert Witness

   An alternative to certifying questions to DEP would be to utilize them an expert witness. DEP would offer written or oral testimony as the occasion dictated on whether they thought a particular resource met the Section 1648.2 definition. The difference from the certification approach is that their findings, presented by an expert witness, would not necessarily be incorporated into the determination of the program administrator. If there was some disagreement on a particular point, the administrator would be free to reject DEP's testimony if it found other information to be more persuasive.

   The Commission tentatively finds that the certification approach is more consistent with the plain language of the Act. The Act mandates a more prominent role for DEP in the resource qualification process than merely serving as a source of information.

3.  Confirmation of Compliance with Environmental Regulations

   As noted earlier, DEP is to ensure that all alternative energy facilities comply with all applicable environmental standards. 73 P. S. § 1648.7(b). This raises the issue of whether noncompliance would jeopardize the alternative energy status of the facility. For example, would a waste coal facility that was in violation of air quality standards lose its alternative energy status? Or would it simply be subject to the normal fines and penalties available to DEP under its regulations? The Act is not entirely clear on this point.

   The Act does provide that failure to comply with environmental standards would result in denial or loss of alternative energy status in at least one instance. The definition of ''municipal solid waste'' includes the requirement that the facility be in compliance with applicable environmental laws. 73 P. S. § 1648.2. The Commission believes that the General Assembly intended a uniform approach on this issue. Accordingly, we tentatively find that compliance with environmental regulations is a condition for the grant of ''alternative energy system'' status. Failure to maintain compliance with applicable environmental laws would therefore lead to a loss of qualified status for a facility.

D.  Process for Approval and Review of Alternative Energy System Qualification Decisions

   After receiving all necessary information, the program administrator would render a decision on alternative energy system qualification. The Commission finds that this initial review process is a paper proceeding only, involving an application form and accompanying documentation. Reasonable notice of applications would be provided to the public.

   The administrator's decision on qualification would be subject to appeal and review by the Commission. The most proper analogy is probably that of a staff determination consistent with 52 Pa. Code § 5.44(a):

(a)  Unless otherwise provided in this part, actions taken by a subordinate officer, other than a hearing officer, under authority delegated by the Commission may be appealed to the Commission by filing a petition within 10 days after service of notice of the action, unless a different time period is specified in this chapter or in the act.

The Commission would delegate decisions on alternative energy system qualification to the administrator. The administrator's decision would be deemed a final adjudication if it was not appealed to the Commission itself. Interested parties could challenge the determination by filing a petition within 10 days, or another designated time period as may be designated by the Commission, following the decision.

   The Commission would then resolve the challenge, either on the pleadings, or after a referral to the Office of Administrative Law Judge (''OALJ'') for hearings as may be necessary. A final adjudication by the Commission on resource eligibility could be appealed to the Commonwealth Court, and there defended by the Commission.

E.  Maintaining Alternative Energy System Status

   A generating facility that has been qualified as an alternative energy system will need to take certain steps to maintain its status. In a Secretarial Letter issued at this docket on December 20, 2005, the Commission established an interim resource qualification process. The attached application identified certain forms that a generator would need to provide on an annual basis to Pennsylvania DEP. Failure to provide this information will result in the loss of alternative energy system status for a generation facility. Material changes in the opera-tions of a facility (e.g. fuel source, environmental compliance issues) may also result in the loss of alternative energy system status. The Commission will provide a notice and an opportunity to be heard before revoking the alternative energy system status of a facility.

F.  The Alternative Energy System Qualification Standard

1.  Fuel Source Requirement

   Section 1648.2 identifies the energy sources whose use will qualify a generation facility for alternative energy status. These resources are classified as either a Tier I or Tier II resource. They include new and existing sources that rely on the following forms of energy or conservation:

Tier I
Solar Photovoltaic
Solar Thermal
Wind Power
Low-impact Hydropower (incremental development only)
Geothermal Energy
Biomass Energy
Biologically derived methane gas
Fuel Cells
Coal Mine Methane

Tier II
Large-Scale Hydropower
Waste Coal
Demand Side Management/Energy Efficiency
Distributed Generation Systems
Municipal Solid Waste (existing facilities only)
Byproducts of pulping and wood manufacturing
Integrated Combined Coal Gasification Technology

   In order for a facility to qualify for alternative status it must use one of these fuel sources. Section 1648.2 does not provide specific definitions for each of these terms. DEP has developed draft technical guidelines for the fuel source requirement.⁶ It may be appropriate to incorporate these guidelines into the Commission's Act 213 related rulemakings.

2.  Geographic Requirement

   Applicants for alternative energy system status must also satisfy certain geographic criteria. Section 1648.4 of the Act states:

Energy derived only from alternative energy sources inside the geographical boundaries of this Commonwealth or within the service territory of any regional transmission organization that manages the transmission system in any part of this Commonwealth shall be eligible to meet the compliance requirements of this act.

73 P. S. § 1648.4. Clearly, all facilities located within Pennsylvania satisfy this test. During the course of this implementation proceeding, different interpretations have been advanced for the eligibility of facilities that lie outside Pennsylvania, but within the service territory of a regional transmission organization (''RTO'') managing transmission systems in Pennsylvania. There are two entities currently managing transmission systems in Pennsylvania that have been granted RTO status: PJM Interconnection, LLC (''PJM'') and the Midwest Independent Transmission System Operator, Inc. (''MISO''). PJM Interconnection, L.L.C., et al., 101 FERC ¶ 61,345 (2002); Midwest Independent Transmission System Operator, Inc., 97 FERC ¶ 61,326 (2001).

   PJM manages the transmission systems for the following electric distribution companies: Allegheny Power, Citizens Electric Company, Duquesne Light Company, Metropolitan Edison Company, Pennsylvania Electric Company, PECO Energy Company, PPL Electric Utilities, Inc., UGI Utilities, Inc.--Electric Division, and Wellsboro Electric Company. MISO manages the transmission system of the Pennsylvania Power Company.

   Whether the New York Independent System Operator (''NYISO) is an entity that qualifies under Section 1648.4 requires more detailed analysis. Pike Country Power & Light Company (''Pike'') is owned by Orange & Rockland Utilities, Inc., a New York electric distribution company that is a member of the NYISO. However, the Commission has been advised by NYISO staff that the NYISO does not manage Pike's transmission system.

   However, there are two 345 kV transmission lines that run from the Homer City generation station located in Indiana County, Pennsylvania and into New York. These lines are owned by New York State Electric and Gas (''NYSEG''). According to the transmission agreement between NYISO and New York transmission owners, these two NYSEG lines are under the operational control of NYISO.⁷ Thus, the Commission needs to determine whether NYISO resources would qualify under Section 1648.4

   Section 1648.4 specifically used the phrase ''regional transmission organization'' in determining geographic eligibility. Regional transmission organization is defined by the Act as:

An entity approved by the Federal Energy Regulatory Commission (FERC) that is created to operate and manage the electrical transmission grids of the member electric transmission utilities as required under FERC Order 2000, Docket No. RM99-2-000, FERC Chapter 31.089 (1999) or any successor organization approved by the FERC.

73 P. S. § 1648.2. While the NYISO was granted ISO status by the Federal Energy Regulatory Commission (''FERC'') consistent with Order 888, its request for RTO status pursuant to FERC Order 2000 was rejected. New York Independent System Operator, Inc., et al., 96 FERC ¶ 61,059 (2001).

   Therefore, an argument can be made that the NYISO is not an RTO within the meaning of the statute, and that resources located within the NYISO cannot qualify. One can argue that the definition of RTOs should not be read to exclude ISOs. The major distinction between ISOs and RTOs relates to governance issues. In terms of operation and management of transmission assets, which the Act appears to focus on, they are very similar. However, the plain language standard we are applying appears to mandate a finding that NYISO located resources do not satisfy the Act's geographic criteria. 1 Pa.C.S. §§ 1903, 1921(b).

   Another issue involves the eligibility of facilities located outside of Pennsylvania, but within the service territories of PJM and MISO. One view is that facilities may only be qualified for compliance purposes in the RTO service territories that they are physically located in (sometimes referred to as ''MISO to MISO/PJM to PJM''). Therefore, a wind facility located in Wisconsin, which is in MISO, would only qualify for compliance purposes in Penn Power's service territory, because that EDC is also in MISO. A wind facility located in Maryland, which is in the PJM control area, would qualify for compliance in the service territories of all Pennsylvania EDCs that belong to PJM (i.e., all but Penn Power and Pike County). Because Pike County does not belong to an RTO, out-of-state alternative energy systems in PJM or MISO could not qualify for Pike County under this interpretation.

   An argument in favor of this interpretation would stress the following portions in Section 1648.4:

Energy derived only from alternative energy sources inside the geographical boundaries of this Commonwealth or within the service territory of any regional transmission organization that manages the transmission system in any part of this Commonwealth shall be eligible to meet the compliance requirements under act.

(Emphasis added). The General Assembly's use of the highlighted word ''only'' could be interpreted to narrowly construe the geographic eligibility limits that follow in this sentence. Specifically, ''only'' could be linked with the phrase ''in any part'' to limit energy for compliance purposes from out-of-state resources in MISO and PJM to those portions of the same RTO service territory in Pennsylvania. Thus a facility located in the MISO service territory in Ohio would ''only'' qualify for alternative energy system status in the Penn Power service territory, as that is the only portion of MISO that is ''in any part'' of the Commonwealth of Pennsylvania.

   The opposing argument is that alternative energy systems physically located within the PJM and MISO service territories meet the geographic eligibility criteria in Section 1648.4.

   The plain language of Section 1648.4 could be interpreted as not including a restriction on the geographic eligibility of alternative energy systems located in the service territories of qualifying RTOs. The phrase ''in any part of this Commonwealth'' could be read as identifying which RTOs meet the geographic standard of Section 1648.4, not which portions of Pennsylvania may be served by facilities located in those RTOs. Additionally, Section 1648.4 seems to place the emphasis on the physical location of facilities. Specifically, Section 1648.4 speaks of energy ''derived'' from certain locations (e.g., Pennsylvania or the service territories of RTOs that manage Pennsylvania's transmission system), not where the energy is delivered to. Attempting to read an intra-RTO delivery requirement into Section 1648.4 of the Act may be contrary to its plain language. 1 Pa.C.S. § 1903.

   As PJM and MISO are each an RTO that ''manages the transmission system in any part of this Commonwealth'', all facilities located in these RTO service territories arguably '' . . . shall be eligible to meet the compliance requirements of this act.'' 73 P. S. § 1648.4. (Emphasis added)⁸ .

   The Commission is aware of the policy arguments advanced in favor of the more restrictive interpretation. By limiting MISO facilities outside of Pennsylvania to serving only the Penn Power territory, it effectively renders them non-participants in Pennsylvania's alternative energy market. Penn Power only has about 157,000 ratepayers out of roughly 5,518,000 statewide, or about 3%. Therefore, a more restrictive interpretation is advanced based on the belief that Pennsylvania would accrue significant economic benefits resulting from the construction of more alternative energy systems in Pennsylvania than might otherwise occur.

   The Commission makes the following observations on this issue. One, even if MISO facilities are largely excluded from the Pennsylvania market under a more narrow interpretation, this does not guarantee that a large number of alternative energy systems will be built in Pennsylvania. Facilities out-of-state will still qualify to serve better than 95% of the Pennsylvania load if they are located in the PJM service territory, which now includes all of Maryland, Delaware, New Jersey, Virginia, West Virginia, D.C. and large portions of Ohio, North Carolina, Illinois and Indiana. This territory may expand even further in the future, especially given the expected increase in the merger and acquisition of utilities resulting from the recent repeal of the Public Utility Holding Company Act of 1935 pursuant to the Energy Policy Act of 2005.

   Two, the geographic qualification test at Section 1648.4 is somewhat suspect under the ''Commerce Clause'' of the U.S. Constitution. Generally, states may not unduly burden or restrain interstate commerce, which includes the sale of electricity in wholesale markets. Banning some generators from Pennsylvania's alternative energy market on purely geographic criteria could be viewed by some as a violation of the Commerce Clause. We note that the U.S. Supreme Court recently struck down laws in Michigan and New York that allowed direct sales of wine to their residents from in-state wineries, but which prohibited the same practice by out-of-state wineries. Granholm, et al. v. Heald, et al., 125 S. Ct. 1885 (2005). The Supreme Court concluded that the state's actions in protecting local wineries amounted to unconstitutional discrimination against out-of-state competitors. In all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Id. As we noted earlier, the Commission is to presume that the General Assembly intended the entire statute to be constitutional and effective. 1 Pa.C.S. § 1922. The Commission will therefore attempt to interpret this provision in the way most likely to withstand any constitutional challenge.

   Three, the Commission remains obligated to carry out the provisions of the Competition Act. The General Assembly concluded that Pennsylvania's economy and its retail customers would receive economic and financial benefits over the long term from the efficiencies of competitive wholesale energy markets. 66 Pa.C.S. §§ 2802(4), (5), (6), (7). It is a generally accepted that the larger the market for a particular good or service, the more competitive the price for that good service. While the Commission has not yet issued standards on cost-recovery for the Act, we note that these costs are identified '' . . . as a cost of generation supply under 66 Pa.C.S. 2807.'' 73 P. S. § 1648.3(a)(3). Section 2807(e)(3) of the Public Utility Code, 66 Pa.C.S. § 2807(e)(3) includes a ''prevailing market price'' standard for energy acquisition by EDCs. In discerning legislative intent, the Commission is to presume that the General Assembly intended the public interest to be favored over the private. 1 Pa.C.S. § 1922. As the costs associated with the Act are to be recovered from Pennsylvania's ratepayers, one could argue that the Act should be interpreted in a way that ensures the most competitive price for alternative energy.

   Four, the Commission is constrained by the rules of statutory construction in determining legislative intent. As noted earlier in this Tentative Order, the Act does not include a purpose section, a statement of legislative intent, or any declarations of policy. In the absence of such guidance, the Commission will interpret the Act consistent with its plain language. 1 Pa.C.S. § 1903. The plain language of a statute may not be ignored in pursuit of its spirit or unstated legislative intent when its words are clear and free of ambiguity. 1 Pa.C.S. § 1921(b).⁹ The Commission welcomes comments on which interpretation is most consistent with the applicable legal standards.

G.  Alternative Energy Credit Certification Standard

   After a facility has been qualified for alternative energy system status, the energy it generates is eligible for alternative energy credits. A credit is equal to one megawatt hour of qualified alternative energy generation. 73 P. S. §§ 1648.2 and 1648.3(e)(4)(i). The Act places some additional restrictions on the creation of credits.

   One, the same alternative energy may not be used to satisfy both Pennsylvania and another state's alternative or renewable portfolio standard. 73 P. S. § 1648.4. For example, if a facility's alternative energy has already been used to satisfy New Jersey's renewable portfolio standard, it may not also seek certification of a credit for this energy from the Pennsylvania program administrator. Two, the energy must also satisfy what is known as a ''delivery requirement.'' Specifically, the energy associated with an alternative energy system must be delivered to a particular boundary in order to be eligible for credits.

   Some parties have expressed concern that EDCs and EGSs may largely satisfy compliance with credits generated from facilities outside of Pennsylvania. They believe that the public interest is better served if new alternative energy facilities are constructed in Pennsylvania to meet the demand for alternative energy. Therefore, they have advanced the interpretation that energy from qualified facilities must meet a delivery requirement in order for credits to be awarded. This delivery requirement can take different forms. As noted in the prior section, the Act includes no policy declarations to guide the Commission on this point. Accordingly, the Commission will interpret the Act consistent with its plain language in reaching a resolution.

   Those in favor of a Pennsylvania delivery requirement could cite to Section 1648.3(a), titled ''General Compliance and Cost Recovery,'' which states:

From the effective date of this act through and including the 15th year after enactment of this act, and each year thereafter, the electric energy sold by an electric distribution company or electric generation supplier to retail electric customers in this Commonwealth shall be comprised of electricity generated from alternative energy sources, and in the percentage amounts as described under subsections (b) and (c).

(Emphasis added). Because of the use of the phrase ''sold . . . to retail customers'' it could be argued then that compliance is measured in terms of the quantity of energy delivered to retail customers in Pennsylvania. However, Section 1648.3 of the Act goes on to state that:

An electric distribution company or electric generation supplier shall comply with the applicable requirements of this section by purchasing sufficient alternative energy credits and submitting documentation of compliance to the program administrator.

73 P. S. § 1648.3(e)(4)(i) (emphasis added). Compliance is therefore measured in quantities of alternative energy credits. The next section then provides that these credits may be acquired with the energy commodity, or separately through a tradable instrument:

For purposes of this subsection, one alternative energy credit shall represent one megawatt hour of qualified alternative electric generation, whether self-generated, purchased along with the electric commodity or separately through a tradable instrument and otherwise meeting the requirements of a commission regulations and the program administrator.

73 P. S. § 1648.3(e)(4)(ii) (Emphasis added). This language does not mean that there is no delivery requirement within the Act. The word ''delivers'' does appear in the definition for ''alternative energy system,'' which states:

A facility or energy system that uses a form of alternative energy source to generate electricity and delivers the electricity it generates to the distribution system of an electric distribution company or to the transmission system operated by a regional transmission organization.

73 P. S. § 1648.2. As noted earlier in this memorandum, ''alternative energy systems'' are the generation facilities whose electricity is eligible for alternative energy credits. 73 P. S. § 1648.3(e)(2)(i).

   The Commission tentatively finds that this definition may be interpreted to require that electricity from a qualified facility be delivered to a Pennsylvania EDC's distribution system or to a transmission system managed by an RTO that manages a portion of the Pennsylvania transmission system in order to qualify for credits. Therefore, electricity must be delivered to or consumed within either the MISO or PJM control area, or to the Pike County distribution system, in order for an alternative energy credit to be created.¹⁰

   There also appear to be certain technical problems with mandating a Pennsylvania delivery standard. Specific electrons produced by a generation facility are not tracked from a generation station across political boundaries or to a physical location. PJM can measure the energy metered into its system from another control area, but it does not track whether an electron from a Wisconsin wind facility is going to a specific retail customer in Pennsylvania or Maryland. The only apparent way to enforce a Pennsylvania delivery requirement would be to require a contract for energy and credits between an out-of-state alternative energy systems and Pennsylvania EDCs. Yet this interpretation would seem to be contrary to Section 1648.3(e)(4), which provides that compliance can be satisfied by the acquisition of credits, ''whether self-generated, purchased along with the electric commodity or separately through a tradable instrument.'' (Emphasis added).

   In resolving any apparent conflict between Section 1648.3(a), with its potential in-state delivery requirement, and the definition of ''alternative energy system,'' we look to the rules of statutory construction, particularly Section 1933:

§ 1933.  Particular controls general

Whenever a general provision in a statute shall be in conflict with a special provision in the same or another statute, the two shall be construed, if possible, so that effect may be given to both. If the conflict between the two provisions is irreconcilable, the special provisions shall prevail and shall be construed as an exception to the general provision, unless the general provision shall be enacted later and it shall be the manifest intention of the General Assembly that such general provision shall prevail

Consistent with 1 Pa.C.S. § 1933, the Commission tentatively finds that the language of Sections 1648.3(e)(4)(i) and (ii), and the definition of ''alternative energy system'' must be given effect. Namely, compliance may be satisfied by the acquisition of credits separable from the energy. The energy itself need only be delivered to or consumed in the PJM or MISO control areas, or the distribution system of a Pennsylvania EDC in order for a credit to be generated.

   The Commission also seeks comments on the issue of matching periods for deliveries. For example, New York has a monthly matching approach for energy delivered into NYISO by external generators. New York also considered strict delivery, quarterly matching, and annual matching during its review of this matter. The Act does not directly address this issue.

H.  Health and Safety Standards

   The Act identifies one other standard with which facilities must comply. Section 1648.6 states:

The department shall cooperate with the Department of Labor and Industry as necessary in developing health and safety standards, as needed, regarding facilities generating energy from alternative energy sources. The department shall establish appropriate and reasonable health and safety standards to ensure uniform and proper compliance with this act by owners and operators of facilities generating energy from alternative energy sources as defined in this act.

73 P. S. § 1648.6

   The Act does not specify in any additional detail what is intended by this provision. Given the reference to the Department of Labor and Industry, the Commission believes that this provision is intended to address worker safety. The language of this section, with phrases like ''as needed,'' strongly suggests that the promulgation of these standards is at the discretion of DEP. Existing standards may therefore be satisfactory.

   The Act does not expressly state that resource qualification is contingent on compliance with health and safety standards. The Commission welcomes comments on whether additional standards are needed, and whether facility qualification should be made contingent on com-pliance. To the extent that compliance is necessary, it may be appropriate to certify these questions to DEP as part of the recommended resource qualification process.

CONCLUSION

   The Commission welcomes comments from all interested parties on the issues addressed within this Tentative Order. At the conclusion of the public comment period, the Commission will issue a further order on standards and processes for alternative energy system qualification and alternative energy credit certification; Therefore,

It Is Ordered That:

   1.  Interested persons may submit an original and 15 copies of written comments regarding the issues addressed in this Tentative Order to the Office of Secretary, Pennsylvania Public Utility Commission, P. O. Box 3265, Harrisburg, PA, 17105-3265, within 30 days of the publication of this Tentative Order in the Pennsylvania Bulletin. A copy of all comments should be forwarded through electronic mail to Carrie Beale at cbeale@state.pa.us.

   2.  This Tentative Order shall be posted to the Commission's public internet domain, published in the Pennsylvania Bulletin and a copy served upon all electric distributions companies, all licensed electric generation suppliers, the Office of Consumer Advocate, the Office of Small Business Advocate, the Office of Trial Staff, and the Pennsylvania Department of Environmental Protection.

JAMES J. MCNULTY,   
Secretary

[Pa.B. Doc. No. 06-261. Filed for public inspection February 10, 2006, 9:00 a.m.]

_______

¹  An ''alternative energy system'' is a facility that produces electricity from an alternative energy source. An ''alternative energy credit'' is the tradable instrument used for measuring compliance with the Act and equals one megawatt hour of electricity from an alternative energy system. 73 P. S. § 1648.2.

²  The Commission and DEP initiated an interim resource qualification process for generators via a Secretarial Letter issued on December 20, 2005. This interim process will continue until final standards are adopted.

³  The Commission may also certify environmental questions to DEP in the context of power plant construction or conversion. 66 Pa.C.S. §§ 517(b), 518(c), 519(c). See also 66 Pa.C.S. § 2802(21).

⁴  DEP is responsible for verifying that the standards '' . . . set forth in Section 2'' of the Act are met. 73 P. S. § 1648.7(b). The geographic test is in Section 4 of the Act, not Section 2. 73 P. S. § 1648.4. Accordingly, the Commission finds that the program administrator should determine whether the geographic test is met.

⁵  http://www.dep.state.pa.us/dep/deputate/pollprev/PDF/Section %20Techncial 3.10728E-309uidanceFinal.pdf

⁶  http://www.dep.state.pa.us/dep/deputate/pollprev/PDF/Section %20Technical 8.2327E-67uidanceFinal.pdf

⁷  Agreement Between New York Independent System Operator And Transmission Owners, Appendix A-1 http://www.nyiso.com/public/webdocs/documents/regulatory/agreements/nyiso_agreement/nyiso_to_agreement.pdf

⁸  Under statutory construction precedents, by definition, the word ''shall'' is mandatory, and accordingly entertains no room to overlook a statute's plain language to reach a different result. Lake Naomi Club, Inc. v. Monroe County Board of Assessment Appeals, 782 A.2d 1121 (Pa. Cmwlth. 2001), petition for allowance of appeal denied, 793 A.2d 911 (2002).

⁹  Legislative history, including statements of legislators, cannot act as a rationale for contradicting the plain language of a statute. Golden Triangle News, Inc. v. Corbett, 702 A.2d 1056 (Pa. Cmwlth. 1997).

¹⁰  This ''control area'' delivery standard is consistent with what most other jurisdictions have chosen, particularly in PJM and the northeastern United States. Massachusetts only requires that energy be delivered into the ISO-NE control area, as does Rhode Island. 225 C.M.R. § 14.05; R.I. Gen Laws § 39-26-5. New York requires energy to be delivered into the NYISO control area for its RPS. Proceeding on Motion of the Commission Regarding a Retail Renewable Portfolio Standard, Case 03-E-0188 (September 24, 2004). New Jersey, Maryland, the District of Columbia, and Delaware only require energy to be delivered into the PJM control area to satisfy their RPSs. N.J.A.C. 14:4-8.7; Maryland Public Utilities Code, § 7-701(i)(1) and (2); D.C. Code § 34-1431(10); 26 Del. C. § 352(6). Unlike Pennsylvania, these jurisdictions are served by only one RTO.

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