On August 15, 2016, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) entered a Tentative Order seeking solutions to address an unanticipated 7% increase in the non-solar Tier I Alternative Energy Credit (“AEC”) for the 2016 compliance year.[1]  The Commission is charged with using its general powers to execute and enforce AEC obligations under the Alternative Energy Portfolio Standards Act of 2004 (“AEPS Act”).  A 2008 amendment to the AEPS Act expanded the types of qualifying Tier I resources, including low-impact hydropower and biomass, and required the Commission to increase, at least quarterly, the percentage share of Tier I resources to be sold by electric distribution companies (“EDCs”) and electric generation suppliers.  Recently, the Commission became aware of a recurring error over the past six years regarding the calculation of the non-solar Tier I AEC obligation quarterly adjustment. Correcting the mathematical error for the 2016 compliance year results in the approximate 7%increase in the otherwise anticipated Tier I AEC obligations.  In order to mitigate the impact of the 7% increase, the Commission has proposed two possible solutions.

First, because of the EDCs’ leveraged purchasing power and billing functionality, the Commission proposes requiring EDCs to procure the additional needed AECs through the spot market or a competitive bid process and to then transfer the procured credits to all load serving entities.  EDCs would have the opportunity to recover “the costs of this procurement through a preexisting non‑bypassable charge[2], such as a competitive enhancement rider, solar photovoltaic alternative energy credit rider, or other tariff mechanism as deemed optimal by individual EDCs, so long as the charge is applicable to all rate classes.”[3]  Each EDC would then submit a compliance filing regarding the procurement and cost recovery.

As second solution, the Commission suggests delaying the obligation to settle the adjustment amount associated with the non‑solar Tier I credit obligation for an appropriate time period.   Delaying the adjustment would give entities more time to procure the additional AECs necessary to meet the unanticipated 7% increase.

Aiming to minimize the effect on stakeholders while upholding its duties under the AEPS Act, the Commission seeks public comments on those two proposals, as well as any other proposals to mitigate the impact of the seven percent increase in the non-solar Tier I AEC.  After analyzing the public comments, the PUC will issue its Final Order.

While having the EDC procure the extra credits has appeal because it may be easier to implement, this proposal may result in customers paying for costs that could not or would not be imposed under their contracts with electric generation suppliers.  It also creates a troublesome precedent by relying on a regulatory surcharge to “save” electric generation suppliers from an obligation and risk that is placed on them by Pennsylvania’s restructuring statute.   As an alternative solution, large commercial and industrial customers have suggested to delay the effectiveness of the increased AEPS obligation until the current reporting year, rather than having it apply to a year that was completed prior to the PUC’s announcement.

If you have any questions or concerns regarding this PUC proceeding and how it may potentially impact your business, please do not hesitate to contact us.

[1] The 2016 AEPS compliance year ran from June 1, 2015 through May 31, 2016.  In response to stakeholder concerns, the PUC extended the true-up period from September 1, 2016 to November 1, 2016. The extended true-up period only applies to non-solar Tier I obligation, not to solar Tier I or Tier II obligations.

[2] Non-bypassable charges are assessed on all customers accessing the electric utility’s distribution network, even those customers who shop for electric supply and are taking electric generation supply service from a supplier other than the default supplier (i.e., the electric utility).

[3] See Proceeding to Evaluate Transition to Corrected Non‑Solar Tier I Calculation Methodology, Docket No. M-2009-2093383, at p. 5 (Tentative Order entered Aug. 15, 2016).