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.

 

 

On May 17, 2017, the Pennsylvania Environmental Quality Board (“EQB”) greenlighted a proposal that would substantially increase fees for public water suppliers regulated by the Department of Environmental Protection (“PADEP”).  In addition to seeking the fee hike, the proposal would amend other regulations under the Pennsylvania Safe Drinking Water Act (“SDWA”), with some changes being even more stringent than federal standards.  The proposal now will be published in the Pennsylvania Bulletin followed by a public comment period of at least 30 days.

Stakeholders should carefully review the proposal and consider submitting comments, including all community water systems, noncommunity water systems, and bottled, vended, retail, and bulk water suppliers.  Those affected may include municipalities with water supply systems and businesses that supply water to the public or their own employees.

Fee Increase

The SDWA allows the EQB to establish fees for permit applications and certain services, as long as those fees bear a reasonable relationship to the actual cost of providing a service.  The proposal would amend the SDWA regulations by removing the current fee provisions and adding a new subchapter relating specifically to fees for each public water system.  PADEP has explained that the purpose of the fees is to increase the agency workforce tasked with inspecting public water systems, which would occur over the next few years.  When coupled with other costs of maintaining a reliable supply of water through permitting and technical requirements, such as those imposed by the Susquehanna River Basin Commission (“SRBC”), the financial impact on suppliers may be significant.

The proposed annual fees are generally broken down by type of water system and population served.  For community water systems, the proposed fees range from $250 to $40,000 depending on the population served.  The high end for noncommunity systems and vended, retail, and bulk water suppliers is $1,000, while the fee for bottled water systems is $2,500.  Public water suppliers will also be subject to additional fees for permit and technical reviews.  For example, application fees for construction or modifications would increase from the general $750 charge currently, to upwards of $10,000 under the proposal, again depending on system type and population served.

Other Amendments

Several other amendments have been proposed to keep pace with federal standards and, in some instances, go beyond federal standards.  Some of the regulatory proposals that are more stringent than federal requirements include:

  • Amended turbidity and filtration requirements to prevent turbidity spikes and pathogens.
  • System resiliency requirements for back-up power to ensure a continuous supply of water is delivered.
  • Clarifications to monitoring requirements for back-up sources and comprehensive monitoring plan requirements to ensure that all permitted sources are subject to routine compliance monitoring.
  • Requirements for responding to significant deficiencies through a protocol for notification and corrective action.

Public water suppliers should determine whether these and other provisions may apply to their systems and, if so, consider the potential impact.  McNees contacts that can provide assistance include:

We periodically report on matters that impact the costs large volume commercial, industrial and institutional customers pay for water/wastewater/stormwater service.  Below is information pertaining to a York Water Company matter before the Pennsylvania Public Utility Commission (“PUC” or “Commission”).

At the March 2, 2017, Public Meeting, the PUC voted to approve York Water Company’s (“York Water” or “Company”) plan for immediate replacement of both company and customer-owned lead service lines.  This permits York Water to replace customer-owned lead lines at its initial expense, and then recover the costs as a regulatory asset in the Company’s next rate case.

York Water’s most recent drinking water results exceeded the lead action level established by Pennsylvania regulations.  As a consequence, the Company became subject to a Consent Order with PaDEP that required specific action to reduce lead levels at customer taps.  Pursuant to the Consent Order, York Water proposed a two-phase plan to replace both company and customer-owned lead service lines.

The Commission granted the Company’s two-phase plan, permitting York Water to bear the costs of replacing customer-owned lead services lines, and to begin line replacement work immediately, consistent with the Consent Order.

Phase I involves replacement of customer-owned lead service lines discovered concurrently with York Water’s planned replacement of approximately 1,660 lead company-owned service lines in certain portions of the water system.  The estimated cost of replacing company-owned lead service lines is $2 million.  After replacement, the customer will continue to own the service line and be responsible for maintenance and repair.

Phase II involves annual replacement of 400 lead customer-owned service lines whenever they are discovered, over a period of nine years.  Under this phase, York Water would offer payment towards the replacement cost of the customer-owned lead service line.  As with Phase I, the customer will continue to be responsible for maintaining and repairing the service line after replacement.  In the event the number of Phase II replacements exceed those authorized, York Water must process them on a first-come, first-served basis.  However, if a water test exceeds 15 pbb of lead, then the Company may prioritize such replacement.

As to cost, York Water must make a payment towards the replacement cost of the lead customer-owned service line up to the Company’s average contracted cost.  For 2017, the average contracted cost is $1,150/service line replacement <10 feet and $1,250/service line replacement >10 feet.  Customers must pay any difference as a lump sum, or as an amount added to their bill, to be paid within one year.  The Company agrees not to charge interest on any payment period for the difference, other than late payment interest.  If the Company is unable to collect the difference from a customer, and the difference is written off as uncollectible, York Water will be permitted to include  uncollected amounts in the regulatory asset account.

The Company will offer a sliding-scale reimbursement to customers that have already replaced lead service lines within the past four years.  As such, a customer who replaced a line within one year may recoup 80% of the cost of replacement from the Company.  As the replacement grows older, reimbursement is less.

York Water must amortize amounts booked to the regulatory asset account in a base rate proceeding over a reasonable period (<6 years).  Amortization will begin on the effective date of new rates in a base rate proceeding.  York Water will reconcile amounts amortized to amounts incurred, and the difference must continue to be amortized in subsequent base rate proceedings.  The allocation among customer classes of the recovery of amortized costs will be determined in a base rate proceeding.

In closing remarks, Commissioner Powelson stated: “The importance of ensuring safe drinking water for all Pennsylvanians cannot be overstated.  However, in this post-Flint, Michigan world, it is not something we can take for granted.  I commend York Water for recognizing this, for taking the issue seriously, and for acting quickly to resolve it.  I encourage other utilities to do the same….”

However, it appears the PUC actions have not (yet) addressed the cost consequences on all ratepayers for lead-line replacement.  No legitimate reason exists for this cost to be passed on to large commercial or industrial customers; why this unvarnished fact was not now determined by this Commission is unclear, but suggests some contemplate these costs to be recovered volumetrically (as in the DSIC or CSIC) in which large commercial and industrial customers will shoulder most of the cost responsibility.

At McNees, Wallace, and Nurick, LLC, we often write of current or emerging issues that may have significant cost implications for large commercial, industrial and institutional end users in Pennsylvania.  We also closely monitor newly proposed legislation or regulation that may affect service rates, terms and use conditions.

For example, in 2016, we closely tracked HB 2114 introduced by Representative Mike Sturla (D-Lancaster).  It was captioned as follows: “Providing for registration of extraordinary nonagriculture and nonmunicipal water users; imposing a water resource fee; establishing the Water Use Fund; and providing for submission of a question to the electorate authorizing incurring of indebtedness for water-related environmental initiatives.”

This Bill defines “extraordinary water user” as “a person that withdraws more than 10,000 gallons of water a day from the waters of this Commonwealth for the purpose of for-profit business.”  In addition to a rather rigorous filing requirement, this Bill proposed a fee of $0.001 per gallon for water consumption greater than 10,000 gallons/day.”  In other words, this proposed legislation seeks to foist an additional $110,000/year on a large commercial/industrial customer using 10,000,000 gallons/month.  No mention is made in the Bill that some large volumes users (within the Susquehanna River Basin) have been paying a similar fee for some time. (See our earlier Blog articles regarding this issue.)

In 2016, this bill stalled in Committee; as such, by the end of the session, we believed the matter had been put downWe learned recently that plans exist for this same bill to be re-introduced later in 2017.  This is an important issue for large volume commercial and industrial users all of whom likely use far more than 10,000 gallons/day.

Recently, we learned that this bill is slated to be introduced in the second quarter of 2017 and may also include additional cost factors to be introduced in the upcoming Chesapeake Bay Commission meeting.  That meeting is currently slated for March 4 and 5, 2017, in Washington, DC.  Bill proponents are hoping to incorporate additional initiatives into what will be more expansive and far-reaching legislation.

This is yet one more example of the significantly increasing prices paid for provision of water and wastewater services, as they pertain to industrial, large commercial and institutional end-users.  This trend is likely, absent more vocal opposition from all affected end users, to continue in 2017 and beyond.

The Pennsylvania Statewide Water Users group is organizing an initiative to raise the awareness of lawmakers as to the potential impact of such legislation, and to coalesce if necessary, a group of impacted large volume users to provide testimony in opposition to such a significant cost increase.  If you would like more information, or if you have questions, please contact Jim Dougherty at 717.237.5249 or jdougherty@mcneeslaw.com.

As discussed in our blog post last summer, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) has been investigating the potential benefits of adopting alternative ratemaking methodologies over the past two years.  The PUC believes this proceeding will reveal: (i) whether other rate mechanisms may encourage utilities to better implement energy efficiency and conservation programs; (ii) whether such rate mechanisms are just and reasonable and in the public interest; and (iii) whether the benefits of implementing alternative rate mechanisms outweigh any associated costs.  As part of this proceeding, the PUC examined several forms of alternative ratemaking, including revenue decoupling, lost revenue adjustment mechanisms, and straight fixed/variable pricing, and invited members of the Commonwealth’s energy community to testify and file Comments on the merits of these proposed ratemaking methodologies.  Many of these proposed ratemaking methodologies, particularly revenue decoupling, generated spirited debate among members of the Pennsylvania energy industry.

After considering stakeholders’ initial Comments, on March 2, 2017, the Commission issued a Tentative Order indicating it will continue its “investigation into alternative ratemaking by seeking comments on, and potential processes to advance, alternative rate methodologies that address issues each utility industry is facing.”  The PUC acknowledged that not all rate methodologies and performance incentives are applicable to each type of utility or all utilities within a particular utility type.  Accordingly, the Commission issued a series of questions tailored to electric distribution companies, natural gas distribution companies, and water and wastewater utilities to assess the reasonableness and efficacy of employing certain rate methodologies tailored to each kind of utility under the PUC’s existing statutory authority.  The PUC asks these utilities to highlight what, if any, alternative rate methodologies could or should be used, and requests those utilities to denote the advantages and disadvantages of these approaches.  The Commission also requests that utilities denote the effects of proposed alternative rate methodologies on small and large customers across various rate classes.

Interested stakeholders have until Monday, April 17, 2017 to submit Comments on the PUC’s March 2, 2017 Tentative Order.  Once all Comments are filed, individuals will have until May 16, 2017, to submit Reply Comments addressing assertions made by other commenting parties.  If you are interested in submitting Comments on this issue, please contact Pamela Polacek (ppolacek@mcneeslaw.com), Alessandra Hylander (ahylander@mcneeslaw.com), or any other member of the McNees, Wallace, & Nurick, LLC, Energy and Environmental Practice Group.

As a result of guidance issued by the Pennsylvania Department of Revenue (“DOR”), solar generators may qualify for the sales and use tax manufacturing exclusion.  Accordingly, solar generators’ purchases of expensive machinery, equipment, parts and foundations, and supplies would be excluded from Pennsylvania’s sales and use tax.

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The DOR issued guidance in Sales Tax Bulletin No. 2010-01 and Sales and Use Tax Ruling No. SUT-10-0001 on tax exclusions for Pennsylvania-based solar generators.  As a result of this guidance, taxpayers constructing solar generation facilities in Pennsylvania could qualify for the state sales and use tax manufacturing exclusion.

Eligibility for the Exclusion:

The guidance suggests that in order to qualify as being “engaged in the business of manufacturing electricity,” the following must apply:

  • The electricity production is conducted in an independent, separate and distinct location, utilizing independent, separate and distinct machinery and supplies devoted predominately to electricity producing activities.
  • The electricity production is the responsibility of employees assigned to the job of electricity production and whose duties are predominately related to electricity production.
  • Separate accounting or interdepartmental billing is provided to reflect the cost of operating electricity production activities and to charge these costs against any other business activities conducted by the electricity producer.
  • The electricity production activities are separate and distinct from any other business activities of the electrical producer.
  • Electrical production activities are of sufficient size, scope and character that they could be conducted on a commercially viable basis separate and distinct from any other business activities of the electricity producer.

Accordingly, if a Pennsylvania solar generator meets all of the criteria listed above, it could claim the manufacturing exclusion from sales and use tax on the purchase of equipment, machinery, parts and foundations therefore, and supplies claimed to be directly used in electricity manufacturing.  The particular generator in the ruling planned to sell the output to the public utility.  It seems generators selling to the wholesale market or entities could also qualify; however, the DOR has not issued a specific guidance on this situation.

Claiming the Exclusion:

A contractor building a Pennsylvania solar generation facility could also claim the manufacturing exclusion on the purchase of equipment, machinery, parts and foundations therefore, and supplies to be installed pursuant to a construction contract.  The contractor would have to execute and tender a properly completed Pennsylvania exemption certificate (Form REV-1220) to the Pennsylvania licensed vendor.  The contractor must also obtain a properly completed Pennsylvania exemption certificate (Form REV-1220) from the person/entity with whom he enters into such construction contract in order to protect himself in case of a Pennsylvania sales and use tax audit.

Recovering Pre-paid Sales and Use Tax on Exempt Purchases:

If a Pennsylvania solar generator or a construction contractor has already paid sales and use tax on purchases that could have been exempt from taxation, they may be able to claim a refund of the tax paid on purchases made in the last three years.

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If you have any questions on whether your facility qualifies for the manufacturing exclusion or whether you may be entitled to sales and use tax refunds, please contact Paul Morcom, or any member of McNees’s tax group, to discuss.