PSC Seeks Comment On Integrating Long-Term Contracts Into SOS, Cost Recovery
October 11, 2019 Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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The District of Columbia PSC has sought stakeholder comments on integrating long-term renewable energy contracts into SOS, and cost recovery mechanisms
However, as previously reported, in proposing to implement this directive, a working group could not reach consensus, and PSC Staff offered a proposal in which the long-term contracts equal to 5% of SOS would not be part of the portfolio used to serve SOS customers, but would instead be procured on behalf of all distribution customers (nonbypassable cost recovery), with the output sold into the wholesale market. Pepco offered a proposal under which the long-term contracts would be used to serve 5% of SOS load, but costs would be recovered from all distribution customers
The PSC noted stakeholders raised the following three (3) issues for which a consensus could not be reached: 1) which strategies/recovery mechanism should be employed to integrate the long-term renewable energy PPA into the SOS procurement portfolio; 2) what margin or return should Pepco receive; and 3) how the RECs generated as a result of the PPA are to be treated.
With respect to integrating the long-term contracts into SOS, the PSC noted that the working group discussed three strategies or cost recovery models: the 95/5 model; the Massachusetts model; and Pepco’s proposed Modified 95/5 model.
• The 95/5 Model. Under the 95/5 Model, the long-term renewable energy PPA provides the renewable energy to satisfy five (5) percent of the SOS load including the environmental attributes associated with that renewable energy. Pepco, as the SOS Administrator, would have to procure the remaining components for that five (5) percent – capacity, losses, congestion, load shaping, credit and risk, and ancillary services – and provisions would have to be made to accommodate the intermittent nature of the renewable energy provided by the PPA since the energy from the PPA will not strictly follow load demand. With this model, the cost of procuring the energy from the PPA, including the environmental attributes and the components listed above, would be borne by all SOS ratepayers. The SOS ratepayers would also consume the energy generated from the PPA. The remaining 95 percent of the SOS load is bid out as a full requirements service or product in the same manner as the current SOS procurement process.
• Massachusetts Model. Under this model, the current SOS procurement process remains unchanged since 100 percent of the SOS load would continue to be bid out as a full requirements service or product. The long-term renewable energy PPA would procure renewable energy, including the environmental attributes, equivalent to five (5) percent of the SOS load. With this model, the cost of procuring the renewable energy equivalent to five (5) percent of the SOS load, including the environmental attributes, would be borne by both SOS customers and customers of competitive electricity suppliers. Since the 100 percent of the SOS load would be procured as a full requirements product, the additional energy equivalent to five (5) percent of the SOS load generated from the PPA would be sold into the wholesale market at a gain or a loss. The net proceeds from those sales would appear as sur-credits or surcharges on all ratepayers’ bills depending on whether those sales result in profits or losses.
• Pepco’s Proposal: Modified 95/5 Model. Under this model, 95 percent of the SOS load would be bid out as a full requirements product, and the long-term renewable energy PPA would supply the remaining five (5) percent of the SOS load. The only difference between the 95/5 Model and the Modified 95/5 Model is who pays. Under this model, both SOS customers and customers of competitive electricity suppliers would be responsible for all costs. Whereas under the 95/5 Model, only the SOS customers are responsible for costs. According to Pepco, it would 'act as an agent, collecting funds from customers in advance of paying the renewable developer, much like Pepco does for various taxes and surcharges it collects for the District of Columbia.'
The Commission invited comments from interested persons on the three models described above or any other recovery model that the Commission should adopt.
Concerning any margin for Pepco's role in administering the PPA, the PSC said, "The Commission recognizes that, at a minimum, Pepco should be compensated for the incremental cost it would incur in administrating the PPA. The Commission therefore invites comments on the appropriate margin or return, if any, Pepco should receive for administering the PPA, in the event that Pepco serves in this role."
With respect to imputed debt concerns if Pepco serves as the PPA administrator, the PSC directed Pepco to file an analysis indicating the approximate level (percentage of SOS load) at which long-term PPAs represent a material credit and capital structure issue for Pepco and to provide supporting calculations. In addition, Pepco was directed to provide at least one empirical example where S&P or another rating agency has imputed debt from such long-term PPAs onto a utility’s balance sheet.
"The Commission is concerned about the issue of imputed debt and the impact that it could potentially have on customer rates. Thus, the Commission also seeks comments as to whether changes to the SOS regulations adopting an explicit cost recovery mechanism are needed as recommended by Pepco to minimize the risk associated with the PPA," the PSC said
The PSC also sought comment on the disposition of RECs procured under the PPA, with the PSC noting that, "if all of the RECs are sold separately from the energy produced pursuant to the PPAs, that energy would no longer be considered to be clean or renewable energy as the renewable attributes associated with the energy have been sold. The energy would, instead, be rendered 'null' energy."