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.