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.

Across much of the United States, the number of municipalities imposing stormwater management fees upon property owners has increased dramatically in recent years.  The rising prevalence of stormwater management fees has predictably led to local and state court challenges by businesses, as non-residential property owners are typically more severely impacted by stormwater management fees in comparison to residential property owners.  Affected businesses have questioned whether parcel-based stormwater fees constitute legitimate fees for services rendered or are simply revenue-generating taxes in disguise.

State courts have issued conflicting rulings on this question.  In the heartland, the Supreme Court of Missouri issued a 2013 decision striking down stormwater management fees and requiring municipalities to fund stormwater management programs through tax revenues.  In the northeast, the Supreme Court of Maine conversely issued a 2012 decision affirming a stormwater management fee program as a fee for services rendered.

It now appears that Pennsylvania jurisdictions will have an opportunity to weigh-in on this critical debate.  In January 2018, the Chester Business Association filed injunctions seeking to block imposition of a stormwater management fee proposed by the Stormwater Authority of Chester.  Similarly, an attorney and property owner in the city of New Castle filed a complaint with the Lawrence County Court of Common Pleas requesting that the court void stormwater management fees to be collected by the New Castle Sanitation Authority.

While the outcome of these cases remains uncertain, any decisions in these jurisdictions may not be dispositive as to rulings in other Pennsylvania jurisdictions, as stormwater management fees are complex and can be developed based on a variety of different models.  For both municipalities and businesses impacted by stormwater management fees, effective stakeholder engagement can ensure that legitimate stormwater management fees serve their intended purpose and avoid overly burdening property owners.  Attorneys at McNees can assist with review, analysis, and if necessary, litigation of stormwater management fees.

In our November 6, 2017 post, Amy York alerted readers to the impact of Act 40 (an omnibus spending bill passed by the Pennsylvania Legislature on October 30, 2017) on the state’s Alternative Energy Portfolio Standards (AEPS).  AEPS requires Electric Distribution Companies (EDC) and Electric Generation Suppliers (EGS) to procure a portion of the electricity they sell from alternative energy resources, including solar.

Traditionally, EDCs and EGSs have been able to meet this requirement by purchasing solar energy sourced anywhere in the regional transmission grid.  Act 40 limits the solar AEPS requirements to solar generation physically located in Pennsylvania.  As indicated in our November 6 blog post, this could eventually eliminate over 80% of currently-qualified solar generation and increase the price of solar renewable energy credits (SRECs) in Pennsylvania.

With the ink of Act 40 already dry, it now falls to the Pennsylvania Public Utility Commission to determine how to implement the Act – especially its “grandfathering” provisions.  A broad interpretation could permanently allow out-of-state solar generators that are already certified to sell SRECs in Pennsylvania to continue to do so.  It could provide a temporary grandfathered status to out-of-state solar generators that were not certified before October 30, 2017, but nonetheless had a contract to provide SRECs in Pennsylvania.  Finally, it could allow for “banked” out-of-state SRECs to still count toward Pennsylvania requirements.

In contrast, the Commission could take a narrow interpretation of the Act.  In that case, all grandfathering would be temporary—only for the duration of existing contracts.  An out-of-state solar generator without both Pennsylvania certification and an executed contract before October 30, 2017, would likely receive no grandfathering status.  It is unclear whether “banked” SRECs from non-grandfathered facilities would continue to count toward Pennsylvania requirements.

On December 21, 2017, the Public Utility Commission (PUC) issued a Tentative Implementation Order to provide its tentative interpretation of the new AEPS rules and to ask for comments.  The Commission’s proposed interpretation is broad, allowing permanent grandfathering status for currently-certified out-of-state solar generators.  However, Commission Chairman Gladys M. Brown and Vice Chairman Andrew G. Place issued a joint statement proposing a narrow interpretation of the Act and seeking comments.

The Commission will accept comments on these issues until February 5, 2018.  Sometime after that date, we expect that the Commission will issue a new Order providing its definitive interpretation.

To learn more about how the Commission’s decision will impact the Pennsylvania SREC market and Pennsylvania electricity prices, please reach out to us and follow this blog.  If your organization is interested in submitting comments to the Commission on this issue, we may be able to help.  Please do not hesitate to contact us.

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 November 8, 2017, Aqua Pennsylvania (“Aqua”) filed a Complaint in the Pennsylvania Court of Common Pleas of Bucks County against the Bucks County Water and Sewer Authority (“BCWSA” or “Authority”), docketed at Case #2017-07215.  Joining Aqua as co-Plaintiff is J. Kevan Busik, a customer and ratepayer of BCWSA.

The Aqua Complaint alleges BCWSA (and ostensibly, all PA Municipal Authorities) has a significant competitive advantage for acquisition of water/sewer systems and seeks redress.  Specifically, the Complaint cites unfair competitive advantage of BCWSA (and other PA Municipal Authorities) in light of its exemption from property taxation, ability to raise capital via the issuance of tax-free bonds, and freedom from the substantial expense associated with regulation.  In addition, it notes that because no regulatory body has oversight of BCWSA to limit its rate setting capability, BCWSA is able to amass funds to give it a competitive advantage.

On an ironic note, the Complaint indicates that neither co-Plaintiff Busik, nor any other current customer of BCWSA, would benefit from acquisition of any other water/wastewater system.

The Complaint cites four separate Counts:

  • Count I seeks Declaratory Judgment requesting a Court Order in favor of the Plaintiffs declaring that, pursuant to the Municipal Authorities Act’s (“MAA”) Noncompetition Clause, BCWSA is prohibited from competing with Aqua (or any other privately owned public utility) that serves the same substantial purpose by bidding on acquiring any water or wastewater provider.
  • Count II seeks Permanent Injunctive Relief that enjoins BCWSA from bidding upon and being competitive with Aqua in the acquisition of any water and/or wastewater provider.
  • Count III seeks Declaratory Judgment declaring BWCSA’s expenditure of revenue generated by its service area to purchase and acquire any water or wastewater provider to be prohibited under the terms of the MAA.
  • Count IV requests Declaratory Judgment declaring BCWSA’s rates unreasonable and invalid under the MAA because of BCWSA’s use of funds to acquire water and wastewater systems rather than solely for providing for payment of expenses, construction, improvement, repair, maintenance, and operation of Authority facilities and properties.

Aqua is a public utility providing water and wastewater services to various Pennsylvania residents and is regulated by the Pennsylvania Public Utility Commission (“PUC”).  BCWSA originally provided water/sewer service to residential, commercial, and industrial customers solely in portions of Bucks County, and only recently expanded its services beyond Bucks County.

Aqua notes that in purchasing and acquiring water/sewer systems from Pennsylvania municipalities, it is specifically bound by provisions of Act 12 of 2016, which sets forth procedural requirements for determining fair market valuation of acquired water and wastewater systems for ratemaking purposes.  BCWSA, in contrast, is not regulated by the PUC for provisions of service, setting of customer rates, or acquisition of new water or wastewater systems.  BCWSA also does not fall under the oversight of any other legislative or regulatory body that can limit rate setting, nor is it constrained by any Act 12 requirements.  BCWSA’s authority and powers are instead set forth, governed, and controlled by the provisions of the MAA.

Aqua’s Complaint further notes that pursuant to MAA, BCWSA is exempt from paying taxes or assessments upon property acquired or used by BCWSA for purposes of performing essential government services.  Similarly, BCWSA is authorized to issue tax-exempt bonds to finance its acquisitions and improvements of municipal water and wastewater systems, and the income from these bonds, including any profits made on the sale of these bonds, are exempt from taxation.  BCWSA’s operating income comes directly from the service revenues it receives from its water and sewer customers.

The Complaint identifies two local prospective sales of water/sewer systems in which both Aqua and BCWSA appear to be enormously interested (Cheltenham Township Sewer System and Exeter Township (Berks County) Wastewater System).  The Complaint also cites, for background purposes, BCWSA’s recent acquisition of the Springfield Sewer System.  BCWSA overcame two competitors – privately owned public utilities – and paid $16,500,100.  Aqua alleges the actual value of the Springfield System was approximately $9 million.

This Complaint will surely receive attention from all Pennsylvania public utilities and Municipal Authorities that have been looking to expand, by acquisition or combination, their water and sewer service territories.

Governor Wolf has signed into law Act No. 40 under HB 118.  This Act, in addition to a number of other matters, adds language to modify the state’s Alternative Energy Portfolio Standards (AEPS).   For your convenience, the actual language from the Bill is included at the end of this post.

The AEPS became effective on Feb. 28, 2005.  It requires that a specific percentage of electricity sold to Pennsylvania retail customers by Electric Distribution Companies (EDC) and Electric Generation Suppliers (EGS) should be obtained from alternative energy resources.  The percentage amounts of electricity covered by the purchase of Tier I, Tier II and Solar Renewable Energy Certificates (SRECs) gradually increases each year through 2021.  By 2021, AEPs mandates that 18% of all electricity will come from alternative energy resources.

The Pennsylvania market for SRECs has been primarily oversupplied for several years.  This is in large part because PA was one of only two states that allowed sites outside of its geographical footprint to provide SRECs to satisfy the PA AEPS requirements. Currently there are a number of solar/photovoltaic sites in other states registered to provide SRECs to PA AEPS.  Below is a chart complied from the publicly available qualified facilities data on the PA PUC’s website:   (http://www.pennaeps.com/reports/)

 

 

You can see in the chart, at the present time, PA has only approximately 19% of the total nameplate capacity of facilities qualified to provide SRECs into the market coming from within its borders.   Despite this, Pennsylvania was the state of origin for 74.1% of the SRECs retired under the AEPS statute in the 2015 Reporting Year.

One of the expectations of restricting geographical eligibility to allow only those sites within the Commonwealth to provide SRECs to satisfy PA’s AEPS is that we will see an increase in the value of PA SRECs.  For reference, the current market price is approximately $5.00/2017 SREC and the alternative compliance payment (ACP) for 2016 was approximately $124/SREC.  In the 2015 Reporting Year, the weighted average credit price was $78.62/2015 SREC.  The ACP is calculated as 200% of the average SREC price paid over the compliance year which runs June to May.  The price impact of the restriction may take a few years to materialize because existing contracts with facilities outside of Pennsylvania are grandfathered.

The second expectation is that some of the in-state PA solar projects that may have previously been shelved due to financial decisions may now become viable.

If you need assistance with these projects, or any other renewable or on-site generation issues, McNees has a team of energy managers, engineers, accountants and attorneys to help you.  Please feel free to contact Amy York (ayork@mcneeslaw.com) or any of our attorneys in the Energy and Environmental Group for more information.

As promised, the actual language from the Bill:

This new language, effective as of the date of the Act, or October 30, 2017, added to AEPS requirements that solar systems satisfy one of the following:

(I) DIRECTLY DELIVER THE ELECTRICITY IT GENERATES TO A RETAIL CUSTOMER OF AN ELECTRIC DISTRIBUTION COMPANY OR TO THE DISTRIBUTION SYSTEM OPERATED BY AN ELECTRIC DISTRIBUTION COMPANY OPERATING WITHIN THIS COMMONWEALTH AND CURRENTLY OBLIGATED TO MEET THE COMPLIANCE REQUIREMENTS CONTAINED UNDER THE “ALTERNATIVE ENERGY PORTFOLIO STANDARDS ACT.”

(II) BE DIRECTLY CONNECTED TO THE ELECTRIC SYSTEM OF AN ELECTRIC COOPERATIVE OR MUNICIPAL ELECTRIC SYSTEM OPERATING WITHIN THIS COMMONWEALTH.

(III) CONNECT DIRECTLY TO THE ELECTRIC TRANSMISSION SYSTEM AT A LOCATION THAT IS WITHIN THE SERVICE TERRITORY OF AN ELECTRIC DISTRIBUTION COMPANY OPERATING WITHIN THIS COMMONWEALTH.

As to what will become of the facilities currently registered outside of the state to provide SRECs, the law says this:

NOTHING UNDER THIS SECTION OR SECTION 4 OF THE “ALTERNATIVE ENERGY PORTFOLIO STANDARDS ACT” SHALL AFFECT ANY OF THE FOLLOWING:

(I) A CERTIFICATION ORIGINATING WITHIN THE GEOGRAPHICAL BOUNDARIES OF THIS COMMONWEALTH GRANTED PRIOR TO THE EFFECTIVE DATE OF THIS SECTION OF A SOLAR PHOTOVOLTAIC ENERGY GENERATOR AS A QUALIFYING ALTERNATIVE ENERGY SOURCE ELIGIBLE TO MEET THE SOLAR PHOTOVOLTAIC SHARE OF THIS COMMONWEALTH’S ALTERNATIVE ENERGY PORTFOLIO COMPLIANCE REQUIREMENTS UNDER THE “ALTERNATIVE ENERGY PORTFOLIO STANDARDS ACT.”

(II) CERTIFICATION OF A SOLAR PHOTOVOLTAIC SYSTEM WITH A BINDING WRITTEN CONTRACT FOR THE SALE AND PURCHASE OF ALTERNATIVE ENERGY CREDITS DERIVED FROM SOLAR PHOTOVOLTAIC ENERGY SOURCES ENTERED INTO PRIOR TO THE EFFECTIVE DATE OF THIS SECTION.

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).

On May 18, 2017, House Bill 1405 was introduced into the Pennsylvania General Assembly.  The proposed legislation, which would restrict a municipality’s ability to utilize revenue generated by a municipal electric system, would significantly impact 35 municipalities in PA that purchase wholesale power on behalf of residents and distribute the power through municipal-owned electric distribution system.

Apparently, in response to complaints of high electric service costs from Ellwood City residents, HB 1405 was introduced to prohibit Ellwood City from using revenues from its purchased power and electric retail distribution services for any purpose other than paying the expenses for such services.  However, as currently drafted, HB 1405 would apply not just to Ellwood City, but to all 35 boroughs in the Commonwealth that purchase and distribute power for their local communities.  This bill would dramatically upset the status quo, as the Borough Code currently does not prevent boroughs from using electric service revenues to fund a variety of other operating expenses such as police, fire, and public works services.

In addition to banning the use of electric revenues to fund other municipal services or projects, HB 1405 would allow residents to challenge a borough’s electric rates in the local court of common pleas, restrict boroughs from adjusting electric rates more than quarterly, set rules for delinquent customer payment agreements, and prohibit termination of electric service for low-income customers during winter months.

Following its introduction to the House, HB 1405 was referred to the Committee on Local Government.  Various groups have announced support for the bill, including AARP, the Service Employees International Union, and the Pennsylvania Chapter of Americans for Prosperity (a tax reduction and deregulation advocacy group).  Opponents of the bill include the Pennsylvania State Association of Boroughs and the Pennsylvania Municipal League.

Of potential concern to many municipalities, HB 1405 would change the administration of borough-owned electric systems across the state based on complaints from customers in a single municipality.  Without expressing an opinion on the issues in Ellwood City, we note that many municipalities offer electric service to residents at competitive rates while also using electric revenues to fund general expenses that would otherwise require tax hikes for residents.

If you are interested in learning more about the status of HB 1405 and its impact on your municipal electric operations, please contact Adeolu Bakare at abakare@mcneeslaw.com or Kathy Bruder at Kbruder@mcneeslaw.com.

On July 8, 2017, The Pennsylvania Bulletin published a notice that the Pennsylvania Public Utility Commission (“PUC” or “Commission”) is seeking comments from stakeholders regarding electric distribution companies’ (“EDCs”) tariff provisions concerning the resale/redistribution of electric power to third parties.  Specifically, the PUC seeks comments regarding how those provisions would impact the operation and viability of electric vehicle (“EV”) charging stations.

Background on EVs in Pennsylvania

Over the past couple of years, the Commonwealth has witnessed an uptick in the number of registered EVs (rising from 1,653 vehicles in 2013 to around 3,600 EVs in 2016).  Although EVs continue to become more pervasive across the State, only 623 EV charging stations remain available to the public for recharging EV batteries.  As a result, the PUC believes all parties should take steps to foster increased investment in EV charging infrastructure across the State.  Accordingly, the PUC seeks comments from affected parties, particularly EDCs, on tariff provisions that account for EV charging stations.

Current Regulatory Framework Impacting EV Infrastructure

EV charging station owners purchase electricity from EDCs and resell that power to EV drivers with the goal of earning a profit from that sale.  The PUC believes that the current regulatory framework may restrict the ability of EV charging stations to earn a profit, which in turn would serve as a barrier to entry to this market.  Specifically, the PUC is concerned with Section 1313 of the Public Utility Code, 66 Pa. C.S. § 1313 (relating to price upon resale of public utility services), and EDCs’ tariff restrictions on resale/redistribution of purchased power.

Section 1313 indicates that an entity cannot resell power “to any residential customer” in an amount that exceeds what the EDC would bill its own residential customers for the same quantity of service under the EDC’s existing tariff.  On its face, this provision wouldn’t appear to impact an EV charging station owner because it resells power to an EV driver, not a residential customer. However, when viewed in connection with resale/redistribution provisions of EDCs’ tariffs, the PUC avers that Section 1313 may actually serve as a barrier to entry in this market by restricting EV charging stations’ ability to profit from sales of electricity to EV drivers.  EDCs’ tariffs vary widely and not all those tariffs address resales of power by a third-party EV charging station operators to EV drivers.  Further, some tariffs broadly permit the resale of power as long as it is compliant with 66 Pa. C.S. § 1313.

PUC Request for Stakeholder Comment on Potential EV Tariff Provisions

Because EVs continue to become more pervasive in Pennsylvania, the PUC believes all parties should take steps to foster increased investment in EV charging infrastructure.  As a result, the PUC seeks comments from affected parties, particularly EDCs, on the following topics:

  • What restrictions, if any, each EDC’s existing tariff places on the resale/redistribution of electric power by third-party EV charging.
  • The advantages and disadvantages of specific tariff provisions permitting unrestricted resale/redistribution of electric power when done for the purpose of third-party EV charging.
  • Whether it is appropriate to encourage EDCs across the state to move toward a tariff design which includes provisions permitting the resale/redistribution of electric power for third-party EV charging.
  • What other resale/redistribution tariff provision designs may aid in establishing clear rules for third-party EV charging stations.
  • What other regulatory options may aid in establishing clear resale/redistribution rules for third-party EV charging stations.

Comments on this issue are due to the Commission on August 22, 2017.  If you have any questions on this matter, please do not hesitate to contact any member of McNees’s Energy & Environmental Group or McNees’s Transportation, Distribution, and Logistics Group.

Under settlements approved by the Public Utilities Commission of Ohio (“PUCO”), many customers can reduce their transmission bills if they are capable of managing their contributions to the zonal single coincident annual transmission peak.

This opportunity arises out of the complicated system of regulation of electric services that has developed in Ohio.  As part of the introduction of competition in the sale of electricity in Ohio that became effective in 2001, Ohio law requires electric distribution companies to unbundle electric service into generation, distribution, and transmission services.

The price regulation of the services varies by service.  In general, the PUCO is without jurisdiction to regulate generation services prices, and generation service can be secured from competitive providers.  Distribution service can be secured only through the electric distribution utility and is priced through traditional cost-based regulation.

Transmission services, however, have developed in a more complicated legal environment.  Under Ohio and federal law, the electric distribution utilities retain ownership of transmission facilities, but operation of the facilities is placed with the regional transmission organization, PJM Interconnection.  The owners of the transmission facilities are compensated through federally mandated charges under the PJM Open Access Transmission Tariff (“OATT”).  The customers that pay these charges are load serving entities such as utility companies and competitive retail service providers and individual customers in states that have provided for competitive choice such as Ohio.  Under the OATT, these individual customers may contract either directly or indirectly through a competitive retail electric service provider for transmission service.

In recent years, however, several PUCO rate orders have frustrated the customer’s ability to contract for transmission services.  While the OATT authorizes a customer to directly or indirectly contract with PJM for transmission service and the Ohio Commission’s rules provide that transmission rates are to be bypassable (meaning that the customer may contract for transmission services when it contracts for generation service), the PUCO has approved for each electric distribution utility nonbypassable transmission rates for certain PJM costs including Network Integrated Transmission Service (“NITS”).

Because the PUCO has frustrated contracting for transmission services by authorizing nonbypassable transmission charges, customers lose the opportunity to manage their transmission charges.  This opportunity arises because the customer’s cost for NITS under the OATT is based on the customer’s contribution to the zonal single coincident transmission annual peak while the electric distribution utilities have been authorized by the PUCO to bill customers for NITS and other transmission costs based on a customer’s monthly billing demand.  For a customer that can manage its contribution to the zonal single coincident annual transmission peak, there is an opportunity to reduce the customer’s transmission cost.

A simple example demonstrates the potential for savings.  In the example set out in the table, the customer’s contribution to the zonal single coincident annual transmission peak is five MW, and its average monthly demand is 30 MW.  The example assumes that the OATT provides for a zonal single coincident annual transmission peak-based charge of $5/kW, while the electric distribution company charges $3/kW for transmission services based on the customer’s monthly billing demand.  Due to the differences in billing math under the OATT and PUCO approved rates for transmission service, the customer faces increased transmission charges of $780,000 annually under the PUCO approved rates than what it would pay under the OATT rate.

 

Monthly Demand Based Rate Monthly Demand Monthly Transmission Charge
$3/kW 30 MW $90,000
     
Zonal Single Coincident Peak-Based Rate Customer Contribution to the Zonal Single Coincident Annual Peak Monthly Transmission Charge
$5/kW 5 MW $25,000
     
Monthly Net Difference   $65,000
Annual Net Difference   $780,000

 

Because there are opportunities for substantial savings, McNees Wallace and Nurick attorneys have supported efforts for customers to have the opportunity to elect to purchase transmission service based on their contributions to the zonal single coincident annual transmission peak rather than their monthly demand.

These efforts have resulted in two approved transmission pilot programs that permit customers to seek to reduce the transmission portion of their bills.  A third pilot is under PUCO review.  The enrollment in each pilot program is limited, but the PUCO has indicated that it will entertain applications from additional customers.

One pilot program is available to a group of customers of the FirstEnergy utilities, Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company.  Under this pilot, a customer may elect to contract for transmission service through its competitive electric generation service provider.  The second pilot, developed under a settlement with the Ohio Power Company, provides for alternative tariff rates based on the customer’s contribution to the zonal single coincident annual transmission peak.  A third proposal that would be available for customers of Dayton Power and Light Company is currently under review by the PUCO.