RESA Seeks Exemption for Current Retail Contracts Under Proposed Expansion of D.C. Solar RPS

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March 7, 2011  

A bill which would increase the District of Columbia solar RPS requirement must exempt previously executed retail contracts to provide a stable regulatory framework that incents investment in renewable energy solutions, the Retail Energy Supply Association said in testimony to the city council's Committee on Public Services and Consumer Affairs.

The bill, B-19-0010, would increase the solar RPS requirement starting in 2011 from 0.04% to 0.25% of retail sales. The new solar requirement would increase another 0.25 percentage points each year through 2020, at which time it would be 2.5% of sales (versus 0.4% under the current regulations).

As written, the bill would not exempt previously executed retail supply contracts from the new requirements. "[T]he ability of retail electricity suppliers to offer ... products is contingent upon a stable regulatory framework, that is, one in which the expectation of the benefits and promises of the bargain reached between supplier and customer will not be abrogated or eliminated by a law or regulation that retroactively operates to disrupt the contract price," said Jay Kooper, Director of Regulatory Affairs for the Hess Corporation, who was testifying on behalf of RESA.

Kooper reported that the financial exposure on existing contracts for complying with the proposed act’s increased solar RPS requirements, "will in the aggregate total well into the tens of millions of dollars." Hess alone has estimated that its exposure to the increased requirements, if its existing contracts are not grandfathered, is $3.6 million, Kooper said.

"While most, if not all, of the existing contracts address regulatory risk by including pass-through provisions that accommodate changes in law, enforcing the proposed Act’s provisions creates a lose-lose scenario that has significant negative implications for the customer, the supplier-customer relationship, the competitive electricity market in general, and the policy goals of the proposed Act itself. First, enforcement of change-in-law contract provisions against customers harms customers and disrupts the supplier-customer relationship. Second, even where the change-in-law provision is not enforced and the supplier absorbs the increased costs rather than the customer, the perceived inability to rely on existing requirements for contracts already executed will on a going–forward basis limit offers by suppliers to shorter-term propositions, increase the compliance burden for all participants in the District’s retail energy markets and increase the cost of procuring renewable energy. And finally, an unstable regulatory framework will provide less incentive to invest in and develop renewable energy solutions," Kooper said.

RESA recommended that language be added to the bill stating, "This Act shall be construed to apply only prospectively and may not be applied or interpreted to have any effect on or application to any contract existing before the effective date of this Act.”

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