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Pa. PUC Rejects 25-Year Contract As Part Of Default Service Plan

Two Commissioners Voice Support For Long-Term Contracts


December 22, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In a binding poll on a proposed default service plan for Citizens' Electric Company of Lewisburg and Wellsboro Electric Company, for the period of June 1, 2018 through May 31, 2021, Pennsylvania PUC Commissioners voted to reject a proposed 25-year solar PPA as part of the default service portfolio at Citizens', and will adopt changes set forth in a recommended decision from two ALJs

The results of the binding poll were used to develop a final order in the proceeding

For the most part, the Citizens'/Wellsboro default service plan for the period beginning June 1, 2018 continues the methodology of the current plan

As voted to be adopted by the PUC, Citizens'/Wellsboro will rely on load following, full requirements contracts, procured via competitive RFP, for default service, under which a single wholesale supplier would serve each EDC's default service load for the 3-year period beginning June 1, 2018

Residential customers and non-residential customers with demands below 400 kW will receive a fixed-price default service rate that changes every six months. Non-residential customers with demands above 400 kW will receive hourly default service pricing.

As is the current practice, the small customer default service rate will be based on an index of average wholesale prices, plus various adders. The default service product will include the following components: 1) an energy component that is priced using an index; 2) a Supplier Adder; 3) a direct pass-through of Network Integrated Transmission Service (NITS) costs for default service customers; 4) a direct pass-through of RTEP/TEC costs for default service customers; and 5) a direct pass-through of Capacity Costs (Locational Reliability and Capacity Performance) for default service customers

For Residential and Small Commercial customers, the energy component will set a fixed price to be adjusted every six months based on the PJM Interconnection LLC West Hub on-peak monthly forward pricing as such pricing exists on a series of "trigger dates" set forth in the adopted plan

For example, the energy component for small customer default service, for the period June 1, 2018 to November 30, 2018, will reflect 50% of the 6-month average forward price (June 2018 - Nov. 2018) and 50% of the 12-month average forward price (June 2018 - May 2019), as priced on a trigger date which will fall between April 1, 2018 and April 15, 2018 (exact date to be determined)

In addition to the respective energy component charges, Citizens' and Wellsboro will pay a Supplier Adder to each wholesale supplier, which is a uniform cents-per-kWh charge fixed for the duration of the 3-year contract. The Supplier Adder covers all other costs to deliver default service power (both fixed and hourly energy) to the wholesale meter at the Citizens' or Wellsboro Aggregate Bus. This includes congestion, marginal losses, Alternative Energy Portfolio Standards ("AEPS") Act compliance, and transmission losses as well as all risks associated with default service customer usage variability, customer migration (switching to an Electric Generation Supplier ("EGS") for supply service or returning to default service as permitted under the EDCs' tariffs and Pennsylvania law), and deviations between the forward pricing and actual costs.

In a change from the current default service plan, Citizens' had proposed a 2% carve-out in its portfolio for energy purchases from a 25-year solar PPA with DG Solar Pennsylvania LLC, an indirect and wholly-owned subsidiary of NextEra Energy Resources, Inc., which was selected via an RFP to finance, construct, own, operate, and maintain a solar project which would include at least 1.5 MW of solar PV generation

As proposed, Citizens' would commit to purchase from the facility during the entire PPA term all energy output at an annual fixed price of 7.399 cents per kWh. The solar developer would retain all rights to any Solar Alternative Energy Credits generated by the solar project. The energy output purchased from the solar project was proposed to be used to serve Citizens' default service customers on the GSSR-1 residential and small commercial rate at Citizens'.

The PUC voted via binding poll to reject the solar PPA as part of the default service plan, with all default service instead to be served via the load following, full requirements contracts discussed above

In the poll, all five of the PUC Commissioners voted to reject the solar PPA. Four of the Commissioners did so based on the recommendations of the ALJs; Chairman Gladys Brown also voted to reject the PPA but would have adopted the position of the Office of Consumer Advocate (which opposed the solar PPA but on grounds that varied in part from the ALJs' conclusions)

In a recommended decision supported by a majority of Commissioners, the ALJs had noted that Section 2807(e)(3.2)(iii) of the Public Utility Code, "is clear that the long-term contracts must be limited to 20 years and the Companies have not demonstrated that the 20-year limit should be extended because the contract is necessary to ensure adequate and reliable service at least cost to customers over time."

"The Commission has broad latitude, but such latitude must still be within the confines of the Public Utility Code. The Commission does not have the discretion to violate the Public Utility Code. Likewise, we find that the 25-year contract contains too many risks and uncertainties to be used to satisfy Citizens’ obligations as a default service provider. I&E has presented substantial evidence that demonstrates that the terms of the contract are too uncertain and that default service customers may be harmed by the contract instead of benefitted. As a result, the Solar PPA does not meet the obligations of the Competition Act," the ALJs had said

"The 20-year limit imposed by Section 2807(e)(3.2)(iii), however, can be extended if the Commission determines that 'a contract is required to be extended for a longer term of up to 20 years, if the extension is necessary to ensure adequate and reliable service at least cost to customers over time.' 66 Pa.C.S. § 2807(e)(3.3). As Citizens’ has not demonstrated that the Solar PPA is necessary to ensure adequate and reliable service at least cost to customers over time, the Solar PPA must be denied," the ALJs had noted

"Furthermore, we agree with the OCA and I&E that the benefits of the Solar PPA claimed by the Companies are unclear. As I&E argued, 'there are risks associated with any long-term, must-take, fixed-price power contract that requires the buyer to take and pay for all output for the duration of the contract, even if the buyer’s needs change or market prices change unfavorable over such contract term.' I&E M.B. at 8, citing, I&E St 1 at 13; see also, I&E R.B. at 6-10. I&E noted that one risk is that the capacity and transmission rates assumed in Citizens’ avoided cost calculations do not materialize exactly as projected and there is also a risk that future market prices turn out to be lower than Citizens’ projected forecast over the entire term of the contract, greatly reducing or even eliminating the Solar PPA’s projected benefits. Id. I&E’s analysis further showed that, even accepting the best-case-scenario data presented by Citizens’, the first 8 years of the Solar PPA will result in costs being imposed on the default service customers who will not begin to see a net benefit from the Solar PPA until year 16 of 25-year contract. Id. at 8-9. I&E analyzed the data used by Citizens’ to support the Solar PPA and showed that the default service customers bear the risk of overpaying if the actual costs of constructing the facility are significantly lower than those projected. Id. at 9-10; see also, OCA M.B. at 12-16 and OCA R.B. at 5-7," the ALJs had noted

"The Companies have failed to adequately rebut these arguments," the ALJs had concluded

While Brown voted to reject the PPA, she did so because of the specific circumstances of the instant proposal (including the unsupported deviation from statute in seeking a PPA exceeding 20 years), and Brown continued to support the use of long-term contracts in default service portfolios.

In a statement, Brown said that as neither Citizens' nor Wellsboro's plan include a long-term contract (with the rejection of the solar PPA), neither plan comports to the "prudent mix" standard of 66 Pa. C.S. § 2807(e). Accordingly, Brown dissented from approval of the final default service plan.

"I commend Citizens' for proposing a long-term PPA contract. This is the first proposed long-term contract I have seen within a default service plan in my tenure as Commissioner," Brown said in a statement

"Moving forward, I encourage Citizens' and Wellsboro to consider filing amendments to this DSP proposing inclusion of long-term contracts in each Companies' portfolio. These could include PPAs, alternative energy credit contracts, block energy contracts, or futures index strip contracts in excess of four-years but no longer than 20. I also encourage consultation with any interested stakeholders, including those active in this proceeding, on the design of such contracts or PPAs and associated procurement procedures in an effort to foster compliance with §2807(e) and §54.188(a)," Brown said

Commissioner David Sweet also said in a statement that his vote should not be seen as a rejection of long-term solar contracts.

"I would like to reiterate my support for solar energy resources and for long-term contracts, both for energy generally and for solar specifically. My vote today rejecting the proposed PP A should not be construed as a rejection of long-term solar contracts, as I believe such contracts do have an important role to play. Such contracts enhance renewable energy development and the associated employment and environmental benefits that result. I encourage all electric utilities and renewable energy developers to continue pursuing new and outside-of-the-box ideas for incorporating renewables into their energy portfolios," Sweet said in a statement

The Commissioners voted in the binding poll to adopt modifications recommended by the ALJs to the EDCs' contingency plan in the event an RFP fails to procure supplies.

The EDCs had proposed relying on the PJM spot market in the event a default supplier fails to meet their obligations, and, during an interim period as needed, if an RFP fails to procure adequate supplies (while the EDCs develop a further contingency plan)

OCA raised concern with the exposure to spot market volatility under this approach, and proposed that the EDCs be required to develop a replacement plan within a short and fixed time period, such as 14 calendar days

The ALJs adopted the OCA's recommendation, and recommended that a replacement plan be developed by the EDCs within 14 days if the contingency plan is activated and spot market purchases are procured. A majority of PUC Commissioners voted to adopt the ALJs' recommendation.

Furthermore, the ALJs, in adopting a proposal from OCA, recommended that, in the case where the contingency plan is activated and spot market purchases are procured, and the EDCs are unable to develop an alternative plan for an extended period of time, the EDCs shall recover supply costs over a period of 12 months, not 6 months, to smooth out rate fluctuations. A majority of PUC Commissioners voted to adopt the ALJs' recommendation.

Docket P-2017-2596815

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