Pennsylvania Consumer Advocate Proposes All Capacity Costs Be Assigned To Utility, With Nonbypassable Cost Recovery

In proposals to ensure that non-large-load customers do not incur any costs due to the proliferation of large loads, the Pennsylvania Office of Consumer Advocate has offered three proposals addressing capacity cost allocation at PPL Electric Utilities, including a proposal for PPL Electric to assume all wholesale capacity costs for retail customers, with allocation to individuals customers addressed in a retail tariff

OCA's capacity cost proposals were included in a formal complaint filed against PPL Electric at the Pennsylvania PUC, in response to PPL Electric's previously reported petition, which was also made to shield non-large-load customers from large load costs, to make Network Integration Transmission Service (NITS) and certain other transmission costs nonbypassable, with PPL Electric assuming responsibility for such transmission costs for all customers, and with retail electric suppliers relieved of cost assignment for such costs

See full background on PPL Electric's NITS petition in ECM's prior story here

While supporting some of the changes in PPL Electric's transmission cost proposal, OCA filed a formal complaint alleging that PPL Electric's proposal does not go far enough to prevent data center costs from being shifted to non-large-load customers, with OCA proposing additional changes

Among other things, OCA proposes three options for a capacity cost policy to protect non-large-load customers from data center costs

Of most note is that one of these capacity cost proposals is the "direct assignment" of all capacity costs to the utility, irrespective of customer choice status, followed by subsequent reallocation under Pa. PUC-jurisdictional retail tariffs.

"This approach is akin to how many states currently assign all PJM-level transmission costs to EDCs," OCA said

While OCA and an expert retained by OCA did not endorse any of the three capacity options over the others presented by OCA, the "direct assignment" of all capacity costs to the utility, irrespective of customer choice status, was the only capacity cost proposal cited in OCA's narrative for the complaint, with the other options (discussed below) only included in a supporting affidavit

An expert retained by OCA further explained in the complaint filing that, under the "direct assignment" capacity cost option, the capacity costs would be collected via nonbypassable charges

"The Commission would have exclusive jurisdiction over the determination of the rates through which PPL Electric would recover its PJM capacity costs. In this scenario, EGSs (for shopping customers) and wholesale default service suppliers (for default service customers) would no longer be responsible for assuming PJM capacity charges on behalf of their corresponding retail customers/loads," OCA's expert stated

"Developing new retail tariffs for capacity cost allocation would involve cost-of-service analysis and retail rate design that reflects the unique impact of CLEs [computational load entities] on PJM planning parameters," OCA said

Such cost allocation by the PA PUC would be designed such that CLEs [computational load entities] would pay their respective "but-for" RPM capacity costs.

Note that, while not addressed by OCA or OCA's expert, the prevention of cost shifting under this utility "direct assignment" capacity cost proposal occurs through a combination of: (1) LSEs being relieved of wholesale capacity cost assignment, and (2) the PUC allocating capacity costs to individual customers (or classes of customers) in retail tariffs to ensure that large load costs are not shifted to other customers. The use of a nonbypassable surcharge, itself, appears to be proposed for expediency rather than having an inherent protection element embedded in the use of a nonbypassable surcharge itself, and it appears that a design under which the utility still assumes the wholesale capacity obligation for all retail customers, but with unique costs assigned by the PUC at retail based on shopping status and/or the customer's unique PLC, could be developed. In other words, once the PUC allocates capacity costs between data centers and non-large-load customers, and sets the bucket of capacity costs to be paid by non-large-load customers, the nonbypassable nature of the cost recovery within that bucket does not provide any further protection against cost shifting by large computational loads (but does entail other considerations which may favor or weigh against nonbypassable cost treatment)

OCA's expert said that the nonbypassable capacity cost allocation would be novel for those states in the PJM region with electric choice, though some states use a similar approach for NITS (including Pennsylvania under prior default service plans)

OCA's expert contrasted the use of a nonbypassable charge for a non-market-based charge such as NITS, with the use of a nonbypassable charge for a "market-based" cost such as capacity

"[W]hile NITS is a non-market-based cost, capacity is a market-based cost. Therefore, [a nonbypassable charge for capacity] is less desirable for capacity costs than it would be for NITS (and other non-market-based) costs. Nevertheless, it is a mechanically viable alternative that would allow the Commission to ensure that new CLEs’ [computational load entities] but-for capacity costs are never shifted to legacy customers," OCA's expert stated

OCA's expert also proposed two other options to ensure capacity costs from data centers are not shifted to non-large-load customers:

• A minimum PLC

• A capacity make-whole surcharge for the new computational load entity

Under the minimum PLC proposal, a new computational load entity (CLE) would be assigned a minimum PLC based on the contract demand stipulated in the Electricity Service Agreement governing the establishment and provision of the new CLE’s retail service. For example, if a new CLE was responsible for 100 MW of PPL Electric’s load forecast adjustment for the 2027/2028 delivery year, this new CLE’s PLC would be determined as the higher of 100 MW and the new CLE’s average metered load during PJM 5CP hours (both adjusted by loss and reconciliation factors as necessary).

Under the proposed capacity make-whole surcharge for new CLEs, an annually determined capacity make-whole surcharge would be established for each new CLE such that the capacity make-whole surcharge would prevent the shifting of the new CLE’s but-for capacity costs to legacy customers. The capacity make-whole surcharge would be part of the PUC-jurisdictional retail tariff (e.g., an ESA-mandated new CLE-specific nonbypassable charge). The utility collecting such surcharge would return the collected amount to other retail customers via a revenue-neutral rate mechanism for the EDC.

OCA's expert stressed that the three proposed capacity cost options are not intended to be a comprehensive list of the ways in which unreasonable capacity cost shifts could be prevented.

OCA also said that the PUC should investigate creating a new default service class specific to large computational load entities (CLEs), and that such new class should avoid imposing costs on other large default service customers that are not large computational loads (as well as all other non-large-load customers)

OCA's expert said that CLE customers that opt to take default service should be served "directly from the PJM spot market" on a full pass-through basis.

Notably, OCA's expert proposed a minimum stay (or required minimum "notice") for CLEs to leave default service, and for switching to default service. OCA's expert illustratively suggested "e.g., 12 months" for each minimum notice period, but given the "e.g." language, these periods appear to be examples of potential minimum stays, rather than a specific proposal to use 12 months for each notice period

OCA's expert recommended that loads of new CLE customers that opt to take default service should be settled by PPL Electric in dedicated PJM settlement subaccounts segregated from all other PJM settlements of PPL Electric.

OCA's expert recommended that PPL Electric should not be allowed to use its credit rating or utility-specific collateral to back dedicated PJM subaccounts for new CLE customers on default service.

OCA Complaint Case: Docket C-2026-3065756

PPL NITS Petition: P-2024-3047290, P-2026-3065185, P-2026-3065186