PSC Approves Model, Cost Recovery For Long-Term Renewable Contract Used For SOS Customers

Sets Margin For SOS Provider

PSC Expects To Expand Percentage Of SOS Served Under Long-Term Contracts, If Risks Can Be Minimized

April 9, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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The District of Columbia PSC has adopted a model and cost recovery mechanism for integrating a long-term renewable energy power purchase agreement (PPA) for a target quantity of five (5) percent of the Standard Offer Service (SOS) load into the SOS portfolio.

The PSC adopted the 95/5 Model of cost recovery for the 5% renewable long-term PPA pilot program

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, will have to procure the remaining components for that five (5) percent -- capacity, losses, congestion, load shaping, credit and risk, and ancillary services -- and provisions will 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.

All RECs from the PPA will be retired to meet the annual RPS obligations of all SOS suppliers, including Pepco. The details regarding how these RECs are to be distributed to suppliers and retired will be determined in a future order or rulemaking, the PSC said

The PSC confirmed that under the 95/5 Model, only SOS customers will pay for the long-term PPA

"[U]nder the 95/5 Model, the cost of the PPA is borne by the SOS ratepayers who are incurring the costs," the PSC said

"The Commission believes that since the SOS customers will receive the energy from the PPA, adopting the 95/5 Model is the most equitable option for procuring renewable energy through a long-term PPA," the PSC said

However, the PSC did use the term "non-bypassable" in discussing the PPA with respect to imputed debt (see discussion below)

As noted above, under the adopted 95/5 Model, Pepco, as the SOS Administrator, will have to procure the remaining components for the five (5) percent -- capacity, losses, congestion, load shaping, credit and risk, and ancillary services -- as well as engage in balancing given that the PPA will not follow load. Once energy is delivered under the PPA, which the Commission anticipates will be on June 1, 2024, Pepco, as SOS Administrator, shall file quarterly reports with the Commission detailing the costs it has incurred procuring the additional energy required to make up for the intermittent nature of the renewable energy (if needed) and the costs of procuring the remaining components described above. The details regarding the exact information that is to be reported by Pepco will be determined in a future Order or rulemaking procedure, the PSC said

Concerning Pepco's margin for administering the 5% PPA, the PSC said, "Pepco’s margin for administering SOS, including the PPA, shall be based on receiving the average margin calculated based on a three-year rolling average. Over the last three years, Pepco’s collections for the margin (including taxes) have been roughly 2.5 percent of SOS generation revenues. As SOS Administrator for the PPA, Pepco would, in addition, recover its incremental costs in administrating the PPA."

The PSC said that it will hire a consultant within 90 days of the end of the first year that the PPA has provided energy to SOS customers to assess the benefits, costs, and risks to SOS customers.

"The Commission will also use this information to analyze the feasibility of expanding the percentage of the District’s SOS load to be served by renewable energy PPAs beyond the initial five (5) percent," the PSC said

The PSC further said, "If we can minimize the risks to ratepayers, the Commission expects to expand the percentage beyond five (5) percent of the District’s SOS load served by long-term renewable PPAs."

While the PSC said that only SOS customers would pay for the PPA, the PSC in discussing potential imputed debt impacts on Pepco from the PPA said, "the Commission notes that the prospective PPA represents a 15-year to 20-year commitment. As such, we view the PPA as a non-bypassable component for billing purposes."

FC 1017

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