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IRRC Shoots Down AEPS Regulations a Second Time

When Pennsylvania’s Independent Regulatory Review Commission (“IRRC”) voted unanimously at its June 30, 2016 meeting to disapprove for a second time the Pennsylvania Public Utility Commission’s (“PUC”) recent efforts to modify its regulations implementing the Alternative Energy Portfolio Standards(“AEPS”) Act,[1] it was aware that its action would at most place a speed bump in the PUC’s path, but it disapproved the regulations anyway.

The issue is the PUC’s proposed definition of “utility” and its impact on the future of Pennsylvania’s alternative energy market. Questioning the PUC’s representative, IRRC Commissioners tried repeatedly to get an admission that any sale of excess production from a net metered facility to an electric distribution company will make the seller a “public utility” under the PUC’s definition, to which he repeatedly responded “I disagree,” without elaborating.  In the end, IRRC was unconvinced by the PUC’s position and voted to disapprove the regulations.

Procedurally, if the PUC decides to promulgate the regulations, the only possible roadblock would be the speedy passage of a General Assembly concurrent resolution, that the Governor must then sign. This approach seems unlikely given the status of the budget and the current legislative recess.

What is clear from the discussions so far is that the PUC has declared war on “merchant generators”.  While the term “merchant generator” does not appear in the AEPS Act, and is nowhere defined in the proposed regulations, it nonetheless appears 21 times in the PUC’s Order that sent the proposed regulations to IRRC before this last rejection.  A fair reading of the PUC’s Order reveals that the PUC believes that merchant generators are receiving net metering subsidies to which they are not entitled.  Despite the efforts of IRRC to uncover the source of the PUC’s belief, the PUC produced no evidence to support this view.  When one considers that the PUC’s proposed regulations also include a requirement that the PUC approve all net metering applications for projects over 500 KW, it seems fairly certain that the PUC is proposing a methodology by which it can exclude those whom it determines to be “merchant generators” from participating in net metering.

The PUC’s anti-merchant generator strategy is two pronged.  First, it capped the size of entities that could participate in net metering at 200% of “independent load”[2]. Second, it defined “utility” in such a way as to allow the PUC to claim that “merchant generators” are “utilities”, and thus render them ineligible for net metering.  The definition of “utility” is important because the statute uses the term “nonutility” to modify the terms “owner or operator” in the definition of “customer generator.”[3] So an entity that is a “utility” cannot be a “customer generator”.  When the first prong (the 200% cap) was expressly rejected by IRRC, the definition of “utility” became critical.  This was born out at the IRRC hearing where the PUC representative said that currently there are only two types of entities that meet the definition of utility: EDCs (i.e., traditional electric companies that are undeniably utilities); and electric generation suppliers (“EGSs”).   The PUC is tossing EGSs into this game of “who is a utility” because EGSs provide electric generation supply service, which the PUC conveniently included in its definition of what makes you a utility. The rub is that the Public Utility Code makes it clear that EGSs are not public utilities except for very limited purposes enumerated in the code, and the AEPS Act is not one of those limited purposes.[4]  The PUC’s end game is to define “utility” such that any entity that is not an owner of a project, i.e., an operator, that sells excess electricity back to the EDC, is an EGS and thus is not eligible for net metering.  If allowed to be become effective, the changes will outlaw a business model employed by many renewables projects, both existing and planned, across Pennsylvania.

While we await the IRRC order disallowing the proposed regulations, it seems fairly certain that, failing the General Assembly and Governor moving very quickly, the only protection for project developers, particularly existing operating projects, may be to seek pre-enforcement review in the form of declaratory/injunctive relief from the Commonwealth Court.

[1] 73 P.S. §§ 1648.1, et seq.

[2] The term “independent load” also is not defined, or required, by the AEPS Act.

[3] 73 P.S. § 1648.2.

[4] 66 Pa. C.S. §§ 102, 2809, 2810

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