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Pa. PUC WON'T Relieve Retail Suppliers From Complying With Surprise Increase in RPS; Rejects Assignment of Obligation To EDCs

PUC Rebuffs Arguments From Retail Suppliers Concerning Existing Contracts

PUC Claims EDCs Will Raise Default Service Rates As Well (Is This Really Possible Under Full Requirements Contracts?)

October 7, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In a final order, the Pennsylvania PUC rejected a proposal to assign surprise RPS increases applicable to load serving entities, such as retail electric suppliers, to the electric distribution companies on behalf of all customers

Instead, the PUC will extend the true-up period from November 30, 2016 to May 1, 2017, for the non-solar Tier I adjustment obligations relevant to the 2016 AEPS Act compliance year.

EnergyChoiceMatters.com had exclusively reported on July 11 that the PUC had informed LSEs of an approximate seven percent increase in the otherwise anticipated annual non-solar Tier I obligations, due to the correction of past errors in calculating annual increases in the obligations, as such errors had resulted in the required increases not being fully put in place.

Since that time, the PUC has been considering what actions, if any, to take to mitigate the surprise increase.

One such option under consideration was assigning to the EDCs the responsibility for the increase in the otherwise anticipated RPS due to the calculation errors, on behalf of all distribution customers

However, in its final order, the PUC said that this option, "inappropriately shifts the responsibility to acquire and retire AECs to meet the AEPS Act annual requirements from EGSs to EDCs in a manner that is not only administratively burdensome, but also is one that does not ameliorate the costs for such compliance that will ultimately be borne by all ratepayers."

The PUC also said that supporters of the assignment to EDCs, "failed to provide any substantive legal authority or justification that would allow the Commission to shift the EGSs’ burden to acquire AECs equal to the required percentage of their total retail sales of electricity to the EDCs."

The PUC said that its ability to alter the requirements under the AEPS Act is limited to declaring a force majeure.

"No EGS or EDC has requested that force majeure be implemented and no party has provided any evidence demonstrating that AECs are not reasonably available to meet the 2016 compliance year obligations for the Commission to declare force majeure on its own initiative," the PUC said

"Accordingly, the AEPS Act requirements, including the non-solar Tier I adjustment as required by Section 2814 of the Public Utility Code, 66 Pa. C.S. § 2814, remain and all EDCs and EGSs must meet this requirement by retiring the requisite number of Tier I credits or paying the alternative compliance payment," the PUC said

Furthermore, the PUC said that it is concerned that the imposition of a non-bypassable charge would interrupt existing contracts between EGSs and their customers, which may already account for RPS costs.

"We note that no EGS has demonstrated that they do not already have or have not already obtained some or all of the additional Tier I credits. In fact, the Commission is aware that approximately 126,000 of the additional 513,000 Tier I credits needed to meet the adjustment statewide have already been retired by almost half the number of the EGSs with an AEPS Act compliance obligation," the PUC said

While retail suppliers cited challenges in recovering the additional costs due to existing fixed price contracts with customers, the PUC said, "All of these comments imply that EGSs have no way of recovering the unanticipated costs because they are all locked into existing contracts that did not incorporate these costs. The Commission is not persuaded by this assertion."

"To begin with, the EGSs failed to demonstrate that the number of customers in existing contracts for a fixed price that lasts one or more years is significant or that the number of existing contracts is static," the PUC said

Noting retail suppliers' comments that their customer base is not static, subject to migration, and that EGSs do not have the luxury of captive customers as EDCs do, the PUC instead concludes from these comments that, "As the supplier market is not static and as EGSs are constantly revising supply contracts and the contract price, the Commission finds that EGSs will have an opportunity to recover these costs, as well as future AEPS Act compliance costs through the market, without having to resort to an extraordinary and complicated process."

The PUC also said, "We also foresee EDCs adjusting default service pricing, the price-to-compare (PTC), to also account for its under-recovery of costs related to the 2016 AEPS Act compliance year correct adjustment. Any increase in an EDC’s PTC will provide an opportunity for EGSs to increase their offer prices and still stay competitive."

However, it was unclear how this would occur. In many cases, non-solar AECs are the responsibility of the wholesale default service suppliers, rather than the EDCs, and we presume the increase will be required to be shouldered by the wholesale supplier under their "full requirements" fixed price agreement.

For example, at PECO (per bidder documents), "full requirements service includes, without limitation, energy, capacity, transmission (excluding Network Integration Transmission Service), ancillary services, AECs for compliance with the AEPs Act, transmission and distribution losses, congestion management costs, and such other services or products that are required to serve the specified percentage of Default Load for a Class (except for distribution service)."

While PECO procures certain AECs separately (and allocates them to reduce a wholesale supplier's obligation), "[d]efault Suppliers are responsible for providing the AECs necessary for PECO to meet its obligations under the Alternative Energy Portfolio Standard ('AEPS') Act during the term of the Uniform SMA."

While the obligations of default suppliers in this regard are reduced by the AECs procured separately by PECO, we presume that any shortfall resulting from the surprise increase will reside with the wholesale suppliers and their obligation under full requirements contracts.

At the FirstEnergy EDCs (per bidder documents), excluding West Penn Power, "Winning bidders will assume all responsibilities of a Load Serving Entity ('LSE'). For Met-Ed, Penelec and Penn Power, Suppliers will provide Default Supply under the Supplier Master Agreement(s) ('SMA'), which includes all energy, capacity, ancillary services, transmission (including Network Integration Transmission Service ('NITS'), and Alternative Energy Portfolio Standards Act ('AEPS Act' or 'AEPS') Alternative Energy Credits needed to meet the non-solar requirements of the Companies’ Default Service Load as more specifically described in the SMAs."

Therefore, we do not see how, in most default service plans, there would be any opportunity for the PTC to increase directly as a result of the RPS increase (whether the surprise increase results in premiums in future procurements due to uncertainty created by this one-time RPS adjustment is another matter, and one which does not align with actual RPS costs which EGSs must recover, and we'd note this RPS issue appears to be a discrete issue which has been corrected, so we doubt any significant premium will result)

In any case, the PUC said, "Finally, we note that there are many things that impact the cost and price of electric supply and that varying strategies to address these many and varied costs and price drivers have been developed by the various EGSs, many of whom have not filed comments in this proceeding. As such, we find that addressing this one cost driver alone is more-likely-than-not to advantage some suppliers and disadvantage others. Accordingly, we decline to focus on one cost driver, that no party has demonstrated is more significant than any other cost driver, and address it through an extraordinary and complicated process that shifts the cost from the EGSs and directly onto the ratepayers."

To mitigate the impacts of the surprise RPS increase, the PUC will extend the true-up period for the 2016 AEPS Act non-solar Tier I adjustment obligation to May 1, 2017, which the PUC said is a full eight months after the close of the September 1, 2016, true-up period defined in the AEPS Act.

The PUC declined to extend the true-up period beyond May 1, 2017 for two reasons. "First, is the fact that the AEPS Act requirements are ongoing and extending the 2016 compliance determination into the 2017 compliance year true0up period could cause confusion and pose administrative difficulties in determining which credits are to be used for compliance with the 2016 and 2017 compliance year obligations," the PUC said

"Second, delaying the 2016 compliance year obligation any further will further frustrate the purpose of the Act 129 amendments to the AEPS Act, in an unreasonable manner. Act 129 amended the AEPS Act by moving some Tier II alternative energy sources into Tier I. This increased the supply of Tier I credits and, correspondingly, diluted the value of the Tier I credits. To reduce the impact on the value of Tier I credits this move had, the General Assembly required the Commission to increase the percentage share of Tier I alternative energy sources required to be sold by EDCs and EGSs to reflect the new Tier I resources," the PUC said

Docket No. M-2009-2093383

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