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Pa. PUC Issues Order On Grandfathering Of Existing Retail Supplier REC Supply Contracts Under Legislative Changes; Address "Written Contract" Requirement For Grandfathering

May 11, 2021

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Pennsylvania PUC last week issued an order providing the Commission’s interpretation as well as implementation of Sections 10 and 14 of Act 114 of 2020, which includes geographical limits on energy resources that qualify as Tier II resources under the Alternative Energy Portfolio Standards (AEPS) Act, and the ability of retail suppliers to grandfather existing contracts for RECs

The grandfathering provisions relevant to retail suppliers are as follows:

Section 1799.10-E(a)(2)(ii)

This subsection addresses the scenario where a Tier II AES had received a Pennsylvania certification as an AES eligible to meet the Tier II share requirement prior to November 23, 2020, the effective date of Act 114. Specifically, this subsection grandfathers certification of a Tier II AES with a binding written contract for the sale and purchase of Tier II AECs derived from Tier II energy sources for the remaining term of the contract as of the effective date of this section, but only until the current term of the contract terminates.

In a prior Tentative Order, the PUC proposed to interpret the language used in Section 1799.10-E(a)(2)(ii) consistently with the Commission’s interpretation of the same language used in Section 2804(2)(ii) of the Administrative Code of 1929 in relation to the Commission’s treatment of solar photovoltaic resources. 71 P.S. § 714.

Specifically, in a prior Tentative Order, the PUC has interpreted this section to only permit out-of-state facilities that are (a) already certified as a Tier II AES and that (b) have entered into a contract with a Pennsylvania EDC or EGS serving Pennsylvania customers, for the sale of Tier II AECs, to maintain certification until the expiration of the contract. If the Commission deems the existing contract for Tier II AECs eligible, eligibility will be valid for the term of the contract and in accordance with the banking. Specifically, in a prior Tentative Order the PUC interpreted this section to only permit out-of-state facilities that are (a) already certified as a Tier II AES and that (b) have entered into a contract with a Pennsylvania EDC or EGS serving Pennsylvania customers, for the sale of Tier II AECs, to maintain certification until the expiration of the contract. If the Commission deems the existing contract for Tier II AECs eligible, eligibility will be valid for the term of the contract and in accordance with the banking provisions. For open-ended contracts or contracts that automatically renew, the PUC proposed that eligibility will terminate at the end of the current term of the last renewal that occurred prior to November 23, 2020.

In comments on the tentative order, Constellation commented that contracting for AECs is rarely accomplished through a single contract between a facility and an EDC or EGS. Constellation suggested that the PUC clarify that all contracts with EGSs, EDCs and/or their wholesale suppliers, as well as any other entity holding contracts entered into prior to November 23, 2020 and within the chain of production of the Tier II AECs supplying those contracts may file a petition.

Dominion Energy had filed comments asserting that there is no requirement in Pennsylvania contract law to support the Commission’s proposed requirement that there be a binding written contract to qualify for the agreement being in existence prior to November 23, 2020. Dominion Energy argued that there is no intent in the legislation that any specific type of written contract is required and that there are no preconceived notions as to how or in what form the parties must contract. Constellation recommended that the Commission recognize broker confirms as binding written contracts under Act 114.

In its final order, the PUC said that it will adopt the Tentative Order’s proposed interpretation of Section 1799.10-E(a)(2)(ii) with clarification.

"The Commission agrees with Constellation/ExGen and Dominion Energy that clarification is needed regarding how we will interpret the grandfathering provision in Section 1799.10(a)(2)(ii). A key phrase in this section is 'for the sale and purchase of alternative energy credits.' AECs are defined in the AEPS Act and our regulations as '[a] tradable instrument that is used to establish, verify and monitor compliance with [the AEPS Act].' The definition goes on to state that '[a] unit of credit shall equal one megawatt hour of electricity from an alternative energy source.' See 73 P.S. § 1648.2 and 52 Pa. Code § 75.1. A Tier II system that produces electricity is an alternative energy source under the AEPS Act. See 73 P.S. § 1648.2 (definition of alternative energy source). Therefore, one megawatt hour of electricity produced by a Tier II system can produce one AEC, if it is used to meet the requirements of the AEPS Act and meets all the other requirements of the AEPS Act, as amended," the PUC said

"We clarify that Section 1799.10-E(a)(2)(ii) specifically requires that the contract relate to the sale and purchase of AECs. Accordingly, in order to qualify under Section 1799.10-E(a)(2)(ii), the sale and purchase of a Tier II AEC must be connected, in some way, to use by an EDC or EGS for compliance with the AEPS Act before it can even be considered an AEC. We further clarify that Section 1799.10-E(a)(2)(ii) only applies to the amount of credits committed to by an out-of-state certified facility to an EDC or EGS," the PUC said

"We agree partly with Constellation/ExGen, and we clarify that all contracts with EGSs, EDCs and/or their wholesale suppliers, as well as any other entity holding contracts entered into prior to November 23, 2020, and within the chain of production of the Tier II AECs supplying those contracts may qualify for recognition as a Tier II AEC under the AEPS Act. However, the Commission will only accept and review petitions for such contracts from regulated entities, i.e., EDCs and EGSs. In the Implementation of Act 40 of 2017, the Commission accepted petitions for recognition of out-of-state AEPS Act Tier I solar photovoltaic share from unregulated entities i.e., AEC wholesale suppliers. The submissions from unregulated entities made it challenging for the Commission to exert its authority over what information it received from such unregulated entities. This ultimately resulted in an inefficient process of reviewing the validity of grandfathered out-of-state solar share Tier I AECs and in instances of duplications of petitions for the same AECs. Therefore, in implementing the grandfathering provision for Tier II AECs, the Commission will only accept petitions for recognition of out-of-state Tier II AECs from EDCs and EGSs," the PUC said

"The petitions that EDCs and EGSs submit may seek to have the AECs covered by the contracts with their wholesale supplier certified for compliance with the AEPS Act Tier II requirement. We emphasize that only the AECs directly attributable to an EGS serving load in Pennsylvania, an EDC serving load in Pennsylvania or its wholesale supplier will be eligible to be used for the AEPS Act Tier II share requirement pursuant to Section 1799.10(a)(2)(ii)," the PUC said

"Additionally, to ensure certainty among marketplace participants, the Commission will accept petitions to qualify eligible out-of-state Tier II AECs no later than one-hundred-and-eighty (180) days from the date of the entry date of this order. The Commission will not review petitions for eligible out-of-state Tier II AECs after the one-hundred-and-eighty (180) days from the entry date of this order," the PUC said

Addressing concerns about the labeling and use of grandfathered AECs, the PUC said, "The Commission will ... reinstate a facility’s Pennsylvania AEPS Act certification in PJM-GATS when the Commission grants a petition to approve a preexisting contract for Tier II AECs generated by an out-of-state facility after November 23, 2020. Accordingly, there is no need for a new labeling system for Tier II AECs generated out-of-state."

"With respect to Dominion Energy’s comments regarding binding written contracts, the Commission disagrees that the Tentative Order creates an artificial requirement for a binding written contract," the PUC said, as the PUC noted that Section 1799.10-E(a)(2)(ii) expressly states: "(ii) Certification of a Tier II source with a binding written contract for the sale and purchase of alternative energy credits derived from Tier II energy sources for the remaining term of the contract as of the effective date of this section, but only until the current term of the contract terminates."

"Despite Pennsylvania case law recognizing the formation of contracts without a written agreement, the statute the Commission is tasked with implementing expressly directs that contracts for Tier II AECs must be written binding contracts. Therefore, the Commission will not stray from the plain meaning of the requirements in the statute," the PUC said

Section 1799.10-E(b)

This section provides that contracts entered into or renewed on or after the effective date of Section 1799.10-E, are subject to the provisions of Section 1799.10-E. In the Tentative Order, the Commission proposed to interpret this subsection as limiting the eligibility of systems certified under the contract exception in Subsection 1799.10-E(a)(2)(ii) to the duration of the contract for the sale and purchase of AECs where the contract was entered into prior to November 23, 2020. The PUC also proposed to limit a Tier II AES owner from extending its facility’s eligibility through a renewal of the original contract or subsequent contracts. However, the Commission further proposed that the AECs generated and transferred to an EDC or EGS prior to expiration of the contract would continue to be eligible to be used by that EDC or EGS to meet their Tier II share requirements in accordance with 52 Pa. Code § 75.69 (relating to the banking of AECs).

The Commission said that it will adopt the Tentative Order’s proposed implementation of Section 1799.10-E(b) with clarification.

"With respect to the comments received pertaining to the entities that may file petitions for out-of-state Tier II AECs, the Commission clarifies that it will accept petitions from EDCs and EGSs only. As previously stated, supra, this will enable the Commission to review petitions more efficiently for out-of-state Tier II AEC contracts and ensure that all of the regulated entities have recourse before the Commission. However, we emphasize that only the AECs directly attributable to an EGS serving load in Pennsylvania, an EDC serving load in Pennsylvania or its wholesale supplier will be eligible to be used for the AEPS Act Tier II share requirement pursuant to Section 1799.10-E(a)(2)(ii). To do otherwise would make Section 1799.10-E(a)(2)(ii) meaningless by making the exception become the rule, in that it would permit the sale and purchase of all credits generated by out-of-state facilities eligible and include contracts not entered into prior to November 23, 2020," the PUC said

"The Commission is cognizant that it will take additional time for review of petitions for recognition of existing contracts for Tier II AECs generated by an out-of-state facility. As such, the Commission further directs EDCs and EGSs submitting petitions for authorizing contracted for Tier II AECs generated by an out-of-state facility to also submit a petition to extend their AEPS Act compliance true-up period for Tier II compliance, if necessary. Such request for extension will only apply to the EDCs or EGSs Tier II compliance obligations, not their Tier I or Tier I Solar compliance obligations," the PUC said

Docket M-2020-3023323

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