On April 5, 2018, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) issued a Final Policy Statement Order on Combined Heat and Power (“CHP”).  The Commission seeks to promote and advance the development of CHP systems and facilities in Pennsylvania.  The Commission will require electric distribution companies (“EDCs”) and natural gas distribution companies (“NGDCs”) to file biennially a report that documents the utility’s strategies, programs, and other initiatives in support of CHP.  Importantly, the Final Policy Statement does not require or encourage the public release of CHP project-specific cost or usage data.

Background

In the Final Policy Statement, the PUC affirmed that CHP is an efficient means of generating electric power and thermal energy from a single fuel source, providing cost-effective energy services to commercial and industrial entities like hotels, universities, hospitals, manufacturing, and other businesses.  CHP also provides enhanced reliability for the end-user, improves manufacturing competitiveness, and reduces greenhouse gas emissions.  Other PUC-stated benefits include increased diversification of resources for generating electricity, expansion of natural gas and associated economic development, and increased security due to multiple points of power generation.

In the Final Order, the Commission established a biennial reporting requirement to reduce barriers to the development of CHP in the Commonwealth, such as 1) perceived difficulty in justifying capital investment in CHP; 2) costs of purchasing backup power during planned plant maintenance and unplanned downtime; and 3) lack uniform standards, fees, and procedures for the interconnection of distributed generation technologies.

Funding and Financial Incentives for CHP

The Commission emphasized that mechanisms to promote CHP projects should only apply to cost-effective projects and not uneconomical projects.  Because not all mechanisms for promoting CHP are administered under the Act 129 Energy Efficiency and Conservation program, the Commission expressed openness to other mechanisms but declined to establish new utility-based incentives to encourage CHP.

Creation of PUC CHP Working Group

The Commission ordered its Bureau of Technical Utility Services to initiate a CHP Working Group within 90 days of issuance of the Final Policy Statement Order. The temporary working group will discuss CHP reporting, processes, and related topics.

Definition of CHP in the Policy Statement: 52 Pa. Code § 69.3201

The PUC revised the definition of CHP by incorporating the Department of Energy’s definition, which defines CHP as the concurrent production of electricity or mechanical power and useful thermal energy (heating and/or cooling) from a single source of energy.  CHP is a type of distributed generation located at or near the point of consumption (unlike central station generation).  CHP consists of “a suite of technologies that can use a variety of fuels to generate electricity or power at the point of use, allowing the heat that would normally be lost in the power generation process to be recovered to provide needed heating and/or cooling.”[1]

The Utility Biennial Reports: 52 Pa. Code § 69.3202

In the Final Policy Statement, the Commission determined that CHP project-specific data “will not be reported or released to the public.”[2]  The Commission also emphasized that the reports will “only require the reporting include known information” as utilities will not need to generate or acquire information not known to the utilities.[3]  Further, individual customer information will be kept confidential and proprietary.[4]

All jurisdictional EDCs and NGDCs will report on proposed CHP strategies, programs, and initiatives rather than focus on historic efforts.  The report for both EDCs and NGDCs must include:

  • The utility’s detailed plans to encourage CHP development;
  • Identification of CHP systems interconnected with the utility;
    1. The location, nameplate capacity (MW), and basic operation of each system
    2. Payments made to the utility associated with the CHP interconnection
    3. Estimated projected annual energy and costs savings over life of CHP system
    4. Reliability benefits of CHP system
  • Identification of CHP systems scheduled for interconnection;
  • A discussion of challenges for CHP development;
  • A description of efforts made by the utility to obtain information for the report; and
  • The utility’s CHP system development communication strategy

In addition to the above requirements, EDCs must also report:

  • Interconnection terms and conditions (e.g., efforts to streamline procedures and contracts, dispute resolution, efforts to help larger CHP systems meet applicable interconnection standards, and recent changes to terms and conditions);
  • Monthly usage information regarding electric generation delivered to all customers with CHP;
  • The customer accounts with CHP systems; and
  • Tariffed rates for those customer accounts (including the rate design methodology for each customer, demand, and energy rate element).

NGDCs must also report:

  • Any separate rates for customer accounts with CHP systems;
  • Monthly usage information regarding natural gas delivered to all customers with CHP; and
  • NGDC capital costs incurred and not recovered from CHP customers as well as estimated incremental annual revenues associated with the CHP system interconnection.

PUC Staff Biennial Reports: 52 Pa. Code § 69.3203

The Final Policy Statement requires the Commission’s Bureau of Technical Utility Services to provide a biennial report to the Commission that summarizes and analyzes the EDC/NGDC reports, identifies government agency programs for financial incentives for CHP, and provides recommendations for further developing CHP in Pennsylvania.

Questions on CHP and the PUC Final Policy Statement

If any energy end users and customers are interested in CHP or have any questions or concerns regarding the Commission’s Final Policy Statement on Combined Heat and Power, please feel free to contact us at your convenience.

[1] Final Policy Statement on Combined Heat and Power at p. 12-13, Annex A.

[2] Id. at p. 16, Annex A.

[3] Id. at p at p. 16-17.

[4] Id. at p. 19.

On January 5, 2018, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) reserved a public docket to review the impact of the Tax Cuts and Jobs Act, the federal tax reform bill that was signed into law on December 22, 2017, on utilities and companies under the PUC’s jurisdiction.  The PUC has not issued a tentative order or any further guidance or details regarding the scope and objectives of the proceeding.

The Tax Reform Act of 2017 lowers corporate tax rates from 35% to 21%.  Because income taxes are a significant component of a public utility’s revenue requirements, the Commission will be investigating potential means by which to provide the benefits of the Tax Reform Act of 2017 to customers.  Regulators and consumer advocates in other states, including Oklahoma, Kentucky, Michigan, and Montana, have already begun taking steps to investigate the impact of the Tax Reform Act of 2017, including potential refunds or rate reductions for consumers.

We will provide additional information through this blog once the PUC issues more information regarding its proceeding.

On October 6, 2016, the Pennsylvania Public Utility Commission entered a Final Order in the Proceeding to Evaluate the Transition to Corrected Non‑Solar Tier I Calculation Methodology, Docket A-2009-2093383.  The October 6 Final Order evaluated the public comments regarding the Commission’s proposals to address an unanticipated seven percent increase in the non-solar Tier I Alternative Energy Credit (“AEC”) for the 2016 compliance year.  The Commission is charged with using its general powers to carry out, execute, and enforce AEC obligations under the Alternative Energy Portfolio Standards Act of 2004 (“AEPS Act”).  As we explained in a previous blog entry, the Commission had become aware of a recurring error over the past six years regarding the calculation of the non-solar Tier I AEC obligation quarterly adjustment.

In the Final Order, the PUC rejected the solution that would have required electric distribution companies (“EDCs”) to procure the additional needed AECs, transfer those procured credits to all load serving entities, and recover the costs of the procurement through a preexisting non-bypassable surcharge.  The Commission explained that this solution (1) inappropriately shifts the responsibility to acquire and retire AECs from electric generation suppliers to EDCs under the AEPS Act and Commission regulations; (2) is administratively burdensome; (3) incurs unnecessary time and resources; and (4) does not ameliorate the costs for compliance, which would ultimately be borne by all ratepayers.

Based on the high level of support in the comments, the Commission determined that the second solution – delaying the true-up period for the non-solar Tier I adjustment credits — is the most reasonable solution.  Accordingly, the Commission further extended the true-up period for non‑solar Tier I adjustment obligations for the 2016 AEPS compliance year from November 30, 2016 to May 1, 2017.

If you have any questions or concerns regarding the PUC’s Final Order and how it may potentially impact your business, please do not hesitate to contact us.

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).

The Pennsylvania Public Utility Commission (PUC or Commission) recently proposed a Policy Statement on Combined Heat and Power (CHP) to promote and advance the development of CHP systems and facilities in Pennsylvania.[1]

The United States Department of Energy also actively tracks CHP Deployment, promotes CHP, and facilitates CHP development.[2]

CHP Systems

Combined Heat & Power systems, also known as cogeneration, apply multiple technologies to generate electricity and useful thermal energy in a single, integrated system more efficiently than conventional generation.[3]  Heat that is normally wasted in conventional generation is recovered as useful energy under a CHP system approach, thereby avoiding the losses that would otherwise be incurred from separate power generation. By integrating power and thermal generation, CHP systems can provide economic, environmental, and energy system infrastructure benefits.[4]  CHP is used in steel, chemical, paper, and petroleum-refining industries, and in universities, hospitals, and light manufacturing industries like food and pharmaceuticals.

Pennsylvania PUC Policy Statement

The PUC Proposed Policy Statement seeks to (1) promote CHP investments; (2) encourage electric distribution companies (“EDCs”) and natural gas distribution companies (“NGDCs”) to incorporate CHP into their energy efficiency and resiliency plans and marketing plans; (3) encourage the use of tariffs governing interconnection and standby rates for owners/operators of CHP facilities; and (4) promote special natural gas rates for owners/operators of CHP facilities.

The Commission explained that CHP benefits include increased energy efficiency and conservation, reduced energy costs through reductions in peak demand and mitigation of price volatility, reduced air emissions, improved grid reliability, increased diversification of generation resources, increased economic development, increased national security (due to power generation diversification), and increased natural gas distribution service for customers.

The Commission contends that CHP can serve as a comprehensive measure for consideration by EDCs as part of their requirements under Pennsylvania’s Act 129 Energy Efficiency & Conservation programs.[5]  Accordingly, the Commission now proposes requiring all jurisdictional EDCs and NGDCs to submit biennial reports to the Commission that detail the efforts of the utilities to support the development of CHP, especially with respect to food supply, hospitals, nursing homes, water and wastewater facilities, and government services.  Those reports will discuss energy efficiency benefits and projections of reduced costs for customers.  The utilities will also need to provide information on interconnection processes and fees and distribution charges that “recognize costs but provide flexibility for owners and operators of CHP facilities.”[6]

Timeline

The Commission’s Proposed Policy Statement order was published in the Pennsylvania Bulletin on April 16, 2016.  Public comments are due on May 31st.  Reply comments are due on June 27th.  After analysis of the comments, the Commission will issue a Final Order, thereby effectuating the CHP Policy Statement.

Questions on CHP and the PUC Policy Statement?

If any energy end users and customers are interested in CHP or have any questions or concerns regarding the Commission’s Proposed Policy Statement on Combined Heat and Power, please feel free to contact us at your convenience.


McNees Wallace & Nurick LLC

[1] See PUC Proposes Policy Statement on Combined Heat and Power, Press Release (Feb. 25, 2016), available at http://www.puc.state.pa.us/about_puc/press_releases.aspx?ShowPR=3665.

[2] See http://www.energy.gov/eere/amo/chp-deployment.

[3] See http://aceee.org/topics/combined-heat-and-power-chp.

[4] See id.

[5] See Energy Efficiency and Conservation Program, Docket No. M-2014-2424864, at page 61 (entered Aug. 20, 2015).

[6] Joint Motion Re Proposed Policy Statement on Combined Heat and Power, at page 5 (Feb. 25, 2016), available at http://www.puc.pa.gov//pcdocs/1418181.pdf.