AEPS Act - HMS Legal

Community Solar – Inching Its Way to Pennsylvania

Todd Stewart on August 6, 2019

There have been at least two bills recently introduced in the Pennsylvania General Assembly[1] introducing a new model for expanding the deployment of solar energy production in the Keystone State. Community Solar is not a technology but rather a business model that allows “community solar organizations” (community-based organizations or for-profit entities), to develop “Community solar facilities” (solar installations no larger than 3 MW under most circumstances) that have “subscribers” (individuals or businesses who pay a subscription fee to receive a specified percentage of the solar output). The subscription is transferable and provides a credit on the local electric utility bill for their subscribed portion of the output. Legislation is required because this arrangement is not contemplated by the current renewables law, the Alternative Energy Portfolio Standards Act (“AEPS Act”), 73 P.S. §§ 1648.1, et seq., or the Electricity Generation Customer Choice and Competition Act (“Choice Act”), 66 Pa. C.S. §§ 2801, et seq.,- creating new obligations for both electric distribution companies (“EDC”) and the Public Utility Commission (“PUC”).

[1] Senate Bill 705 sponsored by Sen. Scavello, and House Bill 531 sponsored by Rep. Kaufer.

The concept of Community Solar is not new, it has been deployed in other states for several years, largely as a means of democratizing access to renewable energy for those who: cannot afford the investment in the technology, have no physical ability to install such equipment, or rent. Consequently, many community organizations that advocate for, and/or provide services to low to moderate income customers, have branched into community solar as an approach to controlling the energy costs of their constituents while at the same time providing benefits to the community at large. In fact, both bills have provisions that require the PUC to: 1) establish targets for participation in Community Solar projects; 2) protect those customers who do participate from losing other low-income-related funding; and, 3) allow such funding to be used to support community solar charges. Despite this intention of ensuring that low- and moderate-income customers are able to participate in Community Solar, participation in Community Solar projects should not be viewed as a low-income only solution. Rather, it provides a platform for the efficient deployment of solar technology in a way than can serve an entire community and residents from all income strata as well as businesses. One of the many benefits of Community Solar is that it provides a means of financing solar installations while repurposing unused or derelict land, or large expanses of otherwise unused rooftops, which provides further benefits for communities, albeit for differing reasons.

How does Community Solar work? The mechanics of the Community Solar proposal are fairly simple — the households and businesses that subscribe to a project have their meters read every month, the same as before, and their bill is calculated at their regular electricity rates. The subscriber’s bill is then reduced by the bill credit provided by the Community Solar project. The bill credit is the actual cents-per-kilowatt hour charge established by the PUC, multiplied by the number of kilowatt hours credited to that subscriber for the month. That amount, the number of kilowatt hours credited, is the product of the total output of the facility for the month times the subscribed percentage of the output. For example, if a customer subscribed to .10% of the output of a Community Solar project, and the project produced 100,000 kwh per month on average, that subscriber would be credited for 1000 kwh per month. If the 1000 kwh is less than the subscriber’s total consumption, the credit is simply netted against the bill and they are responsible for the remaining usage. If, however, the 1000 kwh is in excess of the subscriber’s usage, they would receive a credit on their bill. If at the end of the year, the subscriber has a positive balance in their account, the utility would cut them a check. This example is demonstrative of a few points. First, even a relatively small solar installation can, over time, produce a significant amount of energy[2]. Second, a relatively small share of such a project can provide a substantial portion of the energy consumed by an ordinary household.[3] In this example the 1/10 of 1 percent share would produce more energy than an average household would use in a month, which could provide a modest amount of additional income that could be used to offset the initial cost of the subscription. Finally, Community Solar projects provide an opportunity for real people to invest in energy production close to home that provides actual financial benefits to them.

The primary external threat to Community Solar is the electric utility industry. Such projects will require the utilities to do extra work that they do not do now, and even though the current versions of the bill allow for full cost recovery, utilities are never happy about taking on new responsibilities that do not allow them the opportunity to earn a regulated rate of return – cost recovery is not the same thing. Second, utilities will not like the additional burden of adding new, larger scale, solar generation onto their distribution systems. Without storage, these types of projects can cause system operators the headache of having to supply power to support the households when the sun does not shine, which, ironically, is when the price of energy is typically at its lowest, meaning the fossil generating plants are not normally incentivized to generate. The anomalies that can be caused by adding large amounts of solar energy to a particular electric grid are well documented but can be addressed if the players are willing to adapt. Solutions include such diverse approaches as incentivizing larger customers to shift consumption to the peak production hours (the middle of the day), or coupling a solar project with battery storage that can level out the flow of energy into the grid and allow a facility to potentially earn additional revenue if it is able to provide additional services. Finally, utilities are always looking for capital projects to add to their rate base, and renewable generation has been a popular target as of late. If utilities want to build and own utility scale renewables projects, it cannot be on the customer’s dime, they must be separate affiliates that compete on a fair basis with all other market participants.

The bottom line is that there are no “problems” with community solar that have not been solved or cannot be solved. The concept is an excellent example of a clear win/win and should be promoted and passed through the General Assembly post haste.

[1] Senate Bill 705 sponsored by Sen. Scavello, and House Bill 531 sponsored by Rep. Kaufer.

[2] A facility that produced 100,000 kwh of energy per month would have a nameplate capacity of just over half a megawatt which cover about 1.5 acres.

[3] The average monthly electricity consumption across the US is about 900 kwh.

Commonwealth Court Denies PA PUC Authority to Rule on the Meaning of “Customer-Generator” under AEPS

Micah Bucy on October 24, 2016

In Sunrise Energy v. FirstEnergy Corp. and West Penn Power Company,[1] the Pennsylvania Commonwealth Court affirmed the lower court’s ruling, in a 5-2 decision, that the Pennsylvania Public Utility Commission does not have primary, let alone exclusive, authority to adjudicate claims arising under the Alternative Energy Portfolio Standards Act[2] (“AEPS”) because the General Assembly failed to delegate such authority to the Commission.

Before the Court, on interlocutory appeal, were FirstEnergy’s and West Penn Power’s (collectively “WPP”) preliminary objections (and an amicus curiae brief on behalf of the Commission) asserting that the Commission, not the Court of Common Pleas, has exclusive jurisdiction to hear Sunrise Energy’s contract dispute, or at the very least had primary jurisdiction to rule on whether Sunrise was a “customer-generator” under AEPS. The dispute arose after Sunrise, a solar developer, and WPP agreed to an Electronic Services Agreement (“ESA”) whereby WPP purchased electricity generated by Sunrise at a specified price.

However, shortly after the ESA was signed by the parties in 2014, the Commission proposed an amendment to its regulations that would “require customer-generators to maintain ‘an independent retail load.’”[3] In short, the Commission attempted to develop regulations setting forth the qualifications to participate in net metering. Although these proposed amendments have twice been rejected by the Independent Regulatory Review Commission and they have not yet been published, the Commission still appears poised to enact these amendments as evidenced by its filing of an amicus brief in this case.

As a result of the Commission’s proposed amendments, WPP terminated the ESA citing that Sunrise was not a “customer-generator” but was actually an Electric Generation Supplier and therefore would be paid at a rate different than what the parties had agreed upon. In turn, Sunrise initiated the underlying complaint.

WPP presented the Court with two unpersuasive theories as to why the Commission, not the Court of Common Pleas, was the proper venue to resolve Sunrise’s claims: 1) the Commission has “exclusive jurisdiction” to determine the meaning of “customer-generator” under AEPS, or alternatively, 2) the Commission has primary jurisdiction over the statutory issue of the meaning of “customer-generator.”

In responding to WPP’s first theory for Commission jurisdiction, the Court affirmed the trial court’s finding that Sunrise’s claim was a question of statutory construction and such an exercise is a matter for the courts. The Court also discussed, at some length, the law for when agencies or the courts have jurisdiction under legislative acts and concluded that an agency has exclusive jurisdiction over a matter “where the legislature has given it the power to adjudicate on a particular subject matter”[4] and when that remedy is “adequate and complete.”[5] In the instant case, the Court simply found that there was no “statutory remedy provided in [AEPS] for resolving disputes arising thereunder.”[6] And because agency jurisdiction is determined by a delegation in a given statute, lack of such delegation in AEPS is a bar to the Commission having jurisdiction over the meaning of “customer-generator.”

WPP’s second theory was that the Commission had primary jurisdiction to resolve the question of whether Sunrise qualified as a “customer-generator” and if the Commission determined Sunrise did qualify, then the Court of Common Pleas would retain jurisdiction to resolve the contract and quasi-contract claims.[7] The Commission in its amicus brief also argued that it should be permitted to determine the meaning of “customer-generator” under AEPS because, if the courts are left to construe the statute, “it will lead to different results … and thereby balkanize the electric service industry.”[8] Both WPP and the Commission pointed to Morrow v. Bell Telephone Company of Pennsylvania[9] in support of their positions. The Court rejected WPP and the Commission’s arguments because in Morrow, unlike the instant case, the subject at issue was a utility’s rates or tariff, to which the legislature expressly conferred jurisdiction to the Commission. And, despite WPP’s argument that its Net Energy Metering Rider is at issue as it is part of the ESA and WPP’s retail electric Tariff No. 39, the court sharply dismissed the argument, noting that tariffs state “what the utility will collect for its service”[10] but the net metering tariff states “what the utility will pay for electricity.”[11]

The Court went on to dismiss the policy arguments espoused by the Commission in support of its position for jurisdiction, stating that such concerns are appropriately addressed to the legislature and not the courts. Essentially, the Court ruled that without a statutory remedy included in AEPS, Commission jurisdiction cannot be found; and, only the legislature is equipped to add such a remedy, which is why the Commission’s concerns should be taken to the General Assembly.

In the dissent joined by Judge Covey, Judge Jubelirer criticized the majority for evaluating AEPS in a “vacuum” instead of in pari materia with the Public Utility Code and other applicable legislative acts. In support of its argument, the dissent pointed to Elkin v. Bell Telephone Company[12] which required “judicial abstention in cases where protection of the integrity of a regulatory scheme dictates preliminary resort to the agency which administers the scheme.”[13] In short, the dissent opined that, because the legislature granted the Commission with “the power to carry out the responsibilities delineated within [the AEPS] Act” and to “monitor the performance of all aspects of the act,” the Commission had at the very least primary jurisdiction over Sunrise’s claim.

Although the Commonwealth Court ruling does not put an end to the Sunrise Energy litigation and likely does not spell the end for the issues addressed in this interlocutory appeal – remanded to the trial court to continue with litigation – as of now, the Commission is left waiting to see what its role will be in administering AEPS in the future.

[1] Slip Op., No. 1282 C.D. 2015 (Oct. 14, 2016)(“Opinion”).

[2] Act of November 30, 2004, P.L. 1672, 73 P.S. §§1648.1 – 1648.8.

[3] Opinion, 4.

[4] Id. at 13.

[5] Id. at 12.

[6] Id. at 16.

[7] Id. at 16–20.

[8] Id. at 16.

[9] 479 A.2d 548 (Pa.Super. 1984). (sustaining preliminary objections and dismissing a civil action where the plaintiff sought damages for being overcharged for utility services because the claim necessarily implicated the utility’s rates, a subject in which jurisdiction was expressly conferred to the Commission).

[10] Opinion, at 19.

[11] Id.

[12] 420 A.2d 371 (Pa. 1980).

[13] Dissent, at 3.

IRRC Shoots Down AEPS Regulations a Second Time

Todd Stewart on July 7, 2016

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

Community Solar – Inching Its Way to Pennsylvania

Commonwealth Court Denies PA PUC Authority to Rule on the Meaning of “Customer-Generator” under AEPS

IRRC Shoots Down AEPS Regulations a Second Time

Our Socials

Resources

Contact Us