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Pennsylvania Utility Opposes Moving Compliance Obligation For 7% Surprise Increase in RPS From Retail Suppliers To EDCs Via Nonbypassable Charge

August 30, 2016

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

Duquesne Light has opposed a proposal to relieve Pennsylvania retail electric suppliers from complying with a surprise 7% increase in the non-solar Tier I AEPS (Alternative Energy Portfolio Standards) obligations

Click here for background on the surprise 7% increase

As previously reported, the PUC proposed that one mechanism to address the surprise AEPS increase would be for the electric distribution companies to procure the AECs associated with the increase, with costs recovered via nonbypassable surcharge.

Duquesne Light said that the AEPS Act requires that an annually increasing percentage of electricity sold to retail customers by electric EDCs, "and EGSs," shall be derived from alternative energy resources. 73 P.S. §1648.3(a)(1)

"The only contemplated deviation from this responsibility of EDCs and EGSs in the AEPS Act is when the Commission determines a 'force majeure' exists. That is not the case here. In this instance, an administrative miscalculation has resulted in an approximate seven percent increase of Tier I non-solar credits for the 2016 compliance year. While the Commission is charged with using its general powers to carry out, execute and enforce the provisions of the AEPS Act, it is beyond the scope of the PUC’s statutory authority to relieve EGSs from the responsibility to procure credits on their customers’ behalf without a force majeure present," Duquesne Light said

"Duquesne Light does not support any option that relieves EGSs of their statutorily required obligation to procure AECs on their customers’ behalf. Not only does this suggestion overstep the Commission’s authority under the AEPS Act (see discussion supra), but it also is wrought with difficulties from an implementation perspective. In addition to the statutory limitations that prohibit such a proposal, the Company’s practical concerns include but are not limited to: the time it takes to verify all the data for an entire zone, the contractual (and other) issues for relieving default service EGSs and other LSEs of responsibility for what they are otherwise statutorily obligated to provide, the potential cost inflation that could occur when the market knows that only the EDC will be procuring the Tier I non-solar shortfall and the additional cost and resources required to properly bill this issue. At a minimum, these additions include the creation and filing of an implementation plan and tariff supplement as well as the potential communication and customer call-center impact when the new charge is implemented," Duquesne Light said

"Despite the Commission’s belief that this option could ameliorate market effects, for all the reasons listed above, Duquesne Light believes that this course of action is arguably more disruptive than the second suggestion to delay the true-up period until November 30, 2016, the 2017 compliance year or later. First, EDCs do not have any more 'leverage' to purchase these Tier I non-solar credits than any other purchaser. EDCs and EGSs alike will go through similar processes (whether on the spot market or through competitive bid) to make up this administrative shortfall. Secondly, there are numerous EGSs operating in the Company’s service territory (at last count approximately 88), so redistribution of AECs when otherwise not necessary is administratively burdensome," Duquesne Light said

"Moreover, while it sounds like a simple proposition to have EDCs recover costs through pre-existing non-bypassable charges, in reality, at least for Duquesne Light, this is not a preferred solution. The Company currently has three non-bypassable reconcilable riders applicable to all customer classes – Rider 1, Retail Market Enhancement Surcharge ('RME'); Rider 15A- Phase III Energy Efficiency and Conservation Surcharge ('EEC') and Rider 20 – Smart Meter Charge ('SME'). The EEC and SME are not options for AEC charge additions because Duquesne Light does not believe that those costs should be mixed with either energy efficiency or smart meter program costs, which could create unnecessary complexity for audit purposes," Duquesne Light said

"While the RME is a possibility, it is currently structured as a fixed charge per month. For AEC costs, however, we believe that recovery on a per kWh basis would be more appropriate to fairly assign cost recovery. This would require changes to the Company’s billing system. Additionally, distribution rates for Large commercial and industrial ('C&I') rate classes and street lighting rate classes are demand based ($/kW/month) and fixed charges per month, respectively. If ordered by the Commission, the preferred approach would be to create a new non-bypassable rider to address cost recovery," Duquesne Light said

"Lastly, because of the rate issues articulated above, any charges that are created will have bill presentation implications. A kWh based charge could be combined with existing kWh charges for Duquesne Light’s residential class as the Company does with other surcharges. However, depending how structured, non-residential classes may require a separate line item, which would need to be created. Because of this addition, it is likely that messaging, definitions and explanations would also need to be created. All of these considerations, including costs and administrative burden, need to be evaluated prior to the Commission pursuing this type of solution. Conversely, none of these issues arise if the Commission chooses instead to delay the true-up period and have EDCs, wholesale default service suppliers and EGSs, respectively obtain and bill for the AECs they are otherwise statutorily obligated to provide," Duquesne Light said

In contrast, the National Energy Marketers Association favored requiring the EDCs to procure the AECs associated with the increase resulting from the miscalculation.

"It is important to note the negative impacts of the unexpected, retroactive application of these charges against EGSs. EGSs (unlike utilities) do not have a constant customer base against which they can retroactively recover these costs from customers. In addition, the Commission’s 2013 decision about the definition of 'fixed price' products ('fixed means fixed') and the use of regulatory out clauses already imposed a substantial risk premium on EGSs that offer such products. The unexpected charges will also impact EGSs in future years for which their product pricing was previously determined and set. Another negative market implication of the calculation error is the creation of an artificial shortage of the credits because market participants are entering the market in reaction to the Commission’s actions," NEM said

"[A] one-time, extraordinary measure," such as EDC procurement, "is appropriate to fix the calculation error because it is competitively neutral in its impact to the marketplace and does the least to distort the economics between competitors," NEM said

EDC procurement, "also does the most to minimize the negative impacts of the unexpected charges against EGSs," NEM said

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