PennFuture Seeks to Mandate Net Metering Compensation Paid by Electric Suppliers; Alternative AEPS Mechanism

June 3, 2011
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If the Pennsylvania PUC removes the default service role from the electric distribution utilities, it must require, "that any default service provider(s) and all EGSs [electric generation suppliers] offer full net metering compensation to their customers," PennFuture said in comments to the PUC (emphasis added).

PennFuture's comments came in response to the PUC's investigation of alternative methods of default service (I-2011-2237952), though PennFuture took no position on the model for default service and instead focused on net metering and Alternative Energy Portfolio Standards (AEPS) compliance issues under various models.

Currently, electric suppliers in Pennsylvania are not compelled to offer net metering to customers, and, as such, the rate for any excess generation is not mandated by the PUC or statute.

"We have found that some EGSs are voluntarily providing net metering to their commercial and industrial customers but there are very few extending this benefit to residential customers," PennFuture said.

"Full" compensation for net metering would include, "ensuring the customer-generator receives credit at the full retail rate (distribution, generation and transmission) for each kilowatt-hour produced, up to the amount consumed; allowing for carry-over credits from one month to the next; and paying the customer-generator for any accumulated excess generation at the end of the year at the price-to-compare," PennFuture stated.

PennFuture further said that legislative change is required to mandate that EGSs offer "full" net metering benefits to their customers.

PennFuture said that five retail access states mandate that suppliers offer net metering; however, PennFuture did not elaborate as to whether each of these states also mandates the rate to be paid for excess generation purchased by a competitive supplier. While some states require any excess generation to be paid at the contracted generation rate (and further require that net metered customers be offered non-discriminatory rates), it was not apparent whether all five states regulate excess generation pricing.

Separately, PennFuture sought to alter the compliance mechanism for the AEPS program to facilitate the use of long-term contracts for AEPS compliance, while not harming the retail market.

Initially, PennFuture suggested that electric distribution companies (EDCs) should be directed to procure alternative energy credits (AECs) and solar alternative energy credits (SAECs) to meet the AEPS requirements for both their default service load and the load of any EGSs in their service territory. As the EDCs would be procuring AECs for all load, a non-bypassable charge would be used to recover such costs. Since a non-bypassable charge would be used in a competitively neutral manner, there would no longer be any issue with EDCs using long-term contracts to source AECs.

"Long-term contracts are critical to the successful implementation of the AEPS ... In order for new renewable projects to be built, developers must have access to long-term contracts," PennFuture said.

"This procurement model could be set up in the following manner. The EDCs would issue RFPs for AECs and SAECs needed to cover their default service load and the load of any EGSs in its service territory. The AECs and SAECs would then be distributed on a pro-rata basis to each EGS depending on their retail load, with costs recovered through a nonbypassable charge."

Any future entity or entities performing the default service role should similarly be required to enter into long-term contracts for AECs and SAECs for a significant portion of its AEPS requirements, PennFuture said.

Alternatively, PennFuture suggested taking the model one step further by placing the full AEPS compliance obligation on the EDC through distribution rates, rather than generation rates, since distribution rates are not subject to customer migration and would not be affected by any future regulatory changes to default service.

In turn, the cost of AEPS compliance would no longer be included in the price to compare, "allowing for more accurate price signals in the market." This model would be similar to the RPS in New York where the compliance obligation is not imposed on individual ESCOs and default service providers, although PennFuture did not specifically advocate for replacing the obligations imposed on individual EDCs with a state-run RPS procurement as used in New York.

However, in order to implement this further step, legislative changes are required since the AEPS statute mandates that compliance costs be recovered by an automatic energy adjustment clause under 66 PA.C.C. 1307 as a cost of generation supply under 66 PA C.C. 2807.

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