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PECO Petitions Pa. PUC for Extended AEC Banking Period

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November 22, 2010

PECO has petitioned the Pennsylvania PUC (P-00072260) for approval to apply non-solar, Tier I alternative energy credits (AECs) obtained and banked during its "cost recovery period" (the period during which rate caps were in place) under the Alternative Energy Portfolio Standard Act (AEPS) towards PECO's AEPS requirements in the first two full AEPS reporting periods following the end of its cost recovery period on January 1, 2011 (i.e., June 1, 2011 - May 31, 2012 and June 1, 2012 - May 31, 2013), instead of the seventeen month period specified in the Commission's AEPS regulations (i.e., January 1, 2011 - May 31, 2011 and June 1, 2011 - May 31, 2012).

PECO believes that a prior Commission order granted this extended period for the use of banked AECs, but is seeking Commission confirmation prior to using the banked AECs. "By permitting PECO to apply banked AECs to meet AEPS requirements during the first two full AEPS reporting years (i.e., twelve months) after its cost recovery period instead of the first seventeen months, PECO expects to be able to use all of its banked AECs and their full value will be realized for the benefit of its default service customers," PECO said.

PECO said that as a result of its successful early AEPS procurements approved by the Commission in Docket No. P-00072260, the amount of non-solar Tier I AECs banked by PECO is now projected to exceed both the AEPS requirements of the load for which PECO is responsible for AEPs compliance (the residential block load), as well as the amounts already allocated in PECO's full requirements default service procurements to reduce the AEC requirements of wholesale suppliers through May 31, 2012.

PECO stated that at the time of the Commission's approval of PECO's original petition for early procurement of non-solar Tier I AECs, the Commission's proposed AEPS regulations permitted an electric distribution company to apply AECs banked during its cost recovery period during the first two full, twelve-month AEPS reporting periods following its cost recovery period (e.g., through May 31, 2013 in the case of PECO). PECO noted that in its "AEPS I" petition to procure AECs, it specifically included a request to be able to apply banked AECs during the first two full consecutive AEPS reporting periods, as permitted under the Proposed Regulations, and such a provision was included in the final order.

However, the Commission's final AEPS regulations require EDCs to use credits banked during the AEPS reporting period in which their cost recovery period ends and the immediately following reporting period (e.g. through May 31, 2012 for PECO).

Thus far, PECO has allocated a total of 738,067 non-solar Tier I AECs among its procurement classes, as follows: residential "full requirements" (265,107); residential PECO Block Load Share (147,313); small commercial (119,000); medium commercial (108,669); and large industrial (97,977). The obligations of full requirements suppliers to provide AECs are reduced by these allocated AECs, which PECO applies directly to its AEPS requirements and does not transfer to suppliers.

Despite these allocations, PECO estimates that it will have over 237,000 banked AECs that will expire on May 31, 2012 unless PECO is permitted to use them to meet future AEPS requirements. "If the AECs are allowed to expire, PECO and its customers will receive no benefit from these AECs and the early AEC procurements. At a weighted average contract price of $20.42 per credit, the cost of these AECs is estimated at $4.8 million," PECO reported. All of the AECs are non-solar Tier I AECs.

"PECO recognizes that it may be possible to sell its banked Tier I non-solar AECs that expire on May 31, 2012. However, PECO would then be required to purchase nearly 150,000 additional AECs through a competitive procurement process to satisfy AEPS requirements for the PECO Share during the June 1, 2012 - May 31, 2013 AEPS reporting period. Both the sale of the expiring AECs and the purchase of new AECs would incur significant additional transaction costs for PECO's customers that can be entirely avoided if PECO is permitted to apply its banked AECs in the June 1, 2012 - May 31, 2013 AEPS reporting period," PECO said.

PECO is not seeking to extend the banking period for any solar AECs which were procured under a separate procurement.

Additional Procurements

Separately, PECO has petitioned the PUC for approval of (1) an annual procurement of supplemental alternative energy credits to meet AEPS requirements for the portion of PECO's residential load served by PECO through block energy contracts (the "PECO Share") and to replace any AECs not delivered through PECO's previously approved full requirements default service and AEC procurements; (2) an initial procurement of Tier II AECs to satisfy PECO's anticipated Tier II AEPS requirements for the PECO Share for AEPS Reporting Years 2010-2011 and 2011-2012 and for the portion of PECO's industrial customer default service load that PECO will be serving on a contingency basis during AEPS Reporting Year 2010-2011; (3) a second procurement to satisfy PECO's anticipated Tier II AEPS requirements for the PECO Share for AEPS Reporting Year 2012- 2013; and (4) the purchase of additional AECs PECO may require for AEPS compliance and the sale of excess AECs PECO may possess through independent third-party auctions and brokers experienced in the purchase and sale of AECs.

PECO said that it would use competitive RFPs to procure such AECs in the same manner as its prior procurements. Unlike the prior procurements, however, PECO is not seeking long-term contracts with bidders in Supplemental AEC procurements. "Instead, PECO will solicit bids for contracts to deliver AECs to PECO within thirty days of contract execution. PECO believes this shorter contract term is appropriate for its planned initial procurement of Tier II AECs since such AECs are readily available from existing Tier II resources," PECO said.

Additionally, PECO said that the procurements are consistent with its default service settlement.

All costs and proceeds (including losses, if any) from any AEC purchases or sales associated with the PECO Share will be credited to residential default service customers. Any other costs and proceeds (including losses, if any) associated with the purchase or sale of AECs associated with AEPS requirements for residential, commercial or industrial default service will be credited to the applicable default service procurement class consistent with PECO's existing default service and AEPS tariff provisions and the Default Service Order.

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