Over the past few weeks, the Pennsylvania House of Representatives and Senate have passed most of the bills that make up the revenue package to fund the previously-passed appropriations in the budget.  Significantly, the proposals endorsed in July by the Senate and the Governor to increase the utility Gross Receipts Tax (“GRT”) on electricity, and to expand the GRT to natural gas service, are not included in the Tax Code portion of the final revenue package.  The final funding package also excludes the Marcellus Shale severance tax and the suggested application of sales tax to commercial storage services (which were very broadly defined).

We will provide more information regarding the entire budget and revenue package at a later date.  In the interim, if you have any questions, please feel free to contact Pam Polacek (717-237-5368) or Kathleen Duffy Bruder (717-237-5318).

In April 2017, Energy Secretary Rick Perry issued a request for the Department of Energy (DOE) to organize a study examining electricity markets and reliability.  The request was looking to explore three specific concerns: 1) The evolution of wholesale electricity markets, including the extent to which federal policy interventions and the changing nature of the electricity fuel mix are challenging the original policy assumptions that shaped the creation of those markets 2) Whether wholesale energy and capacity markets are adequately compensating attributes such as on-site fuel supply and other factors that strengthen grid resiliency and, if not, the extent to which this could affect grid reliability and reliance in the future; and 3) The extent to which continued regulatory burdens, as well as mandates and tax and subsidy policies, are responsible for forcing the premature retirement of baseload power plants.

As one may imagine, this request led a number of environmental and intermittent resource groups to question exactly what this exercise was attempting to accomplish and if its findings would be politically focused.  After months of abundant speculation, on August 23, 2017 the DOE released its findings.  While the principal conclusions of the study will not come as a surprise to those in the electricity markets, the study seems to take a solid “middle of the road” approach.

Perhaps most significant in this otherwise extensive and unclear report was that the DOE did not find that renewables are a threat to grid reliability and also did not obviously state that coal was necessary for grid reliability.  They specifically said, “Hydropower, nuclear, coal and natural gas power plants provide [essential reliability services] ERS and fuel assurance critical to system resilience”.  By grouping these fuel sources all together they relax the discussion around each of these fuel sources, predominantly coal and nuclear.

The main take away from the study is that favorable economics of natural gas-fired generation was the primary driver of baseload (i.e. coal and nuclear) power plant retirements.  Low growth in electricity demand (attributed to some permanent loss of load from the economic downturn and energy efficiency policies) coupled with the expansion of renewables on the grid have also played pertinent roles in baseload retirements.  The report also touched on adverse economic impacts of the requirements for regulatory compliance for some baseload plants.  DOE primarily named coal and nuclear costs to implement the  Mercury and Air Toxics Standard (MATS), the EPA’s Clean Power Plan and the Cooling Water Intake Rule as reasons cited for additional plant retirements.

The report was expected not only to analyze but also provide “concrete policy recommendations and solutions”.  In this space, the recommendations presented were less concrete and particularly vague.   The bulk of the recommendations focused on FERC.  Some of those suggestions included having FERC expedite their ongoing efforts with states, RTO/ISOs and stakeholder input to improve energy price formation , studying and making recommendations on regulatory mechanisms to compensate grid participants for services necessary to support reliable grid operations and working to expeditiously process LNG export and cross-border natural gas pipeline applications.  The report also calls on DOE and other Federal agencies to accelerate and reduce costs for licensing, relicensing and permitting of grid infrastructure like nuclear, hydro, and coal providing some hazy “specific reforms” for these technologies.

The DOE is looking for the public to submit comments regarding this study, although it is also unclear who is receiving these comments and how long this window will be open. The report will not end the ongoing debates in various states regarding whether nuclear and/or coal generation resources should be subsidized to ensure that all existing plants remain in operation, even if particular plants are inefficient or uneconomic.  It also fails to address whether wholesale market changes adopted after the Polar Vortex (such as PJM’s Capacity Performance product) are sufficient to provide the additional compensation and market signals to ensure generation reliability.

For additional information, please reach out to: Amy York (ayork@mcneeslaw.com) or Pam Polacek (ppolacek@mcneeslaw.com).

Recently, many large commercial and industrial enterprises have sought to reduce their operating expenses by shopping for their electric supply.  If you are negotiating an electric supply agreement with an electric supplier, there are a few key terms that you should consider.  Please click here to learn more about the following key negotiable terms: (1) price and product; (2) regulatory changes and other price change opportunities; (3) contract term and renewal; and (4) billing issues.  If you have any further questions, please contact us and we will be happy to assist you.

For many commercial and industrial companies, energy costs comprise a significant portion of their operating expenses.  Although many companies rely on their engineering, facilities management, and procurement departments to implement energy efficient strategies to reduce these costs, legal teams can also play an important role in ensuring that companies are making the most of every opportunity to reduce energy expenses.   For more information on how legal counsel can help companies create smart energy-management strategies, please click here for an in-depth report by Pamela Polacek, a Member of McNees Wallace and Nurick’s Energy and Environmental Group.