PUC - HMS Legal

PA Senate Ponders Bill to Give PUC Unlimited Authority

Todd Stewart on May 14, 2024

On April 30, 2024, the Senate Consumer Protection and Professional Licensure Committee passed SB 1174, which was introduced by its Chairman, Senator Stefano. The bill is now awaiting third consideration in the Senate. The Bill, if passed and signed into law, would allow the Public Utility Commission (“PUC”), without consideration of any other law, to grant a waiver of ANY statute over which it has any authority, including the Public Utility Code, the Alternative Energy Portfolio Standards Act and others, so long as the waiver “enables the utility to reduce its ratepayer impact and operate in a more effective, efficient or economical manner.” With those simple words the Bill would create a standard (more effective, efficient, or economical), that could arguably be met by any utility for just about any reason. The practical impact would be that any requirement of the Public Utility Code would become optional. The PUC would have the authority to not enforce mandatory provisions, such as their requirements that rates be just and reasonable, or that rates don’t unreasonably discriminate, or more fundamentally that utilities not provide reasonably continuous service. And to make it happen, the PUC would have to do nothing, because if they did not act within 60 days of a utility petition asking for such a waiver, the request would become effective without any PUC action being required.

This is a far reaching and unwise bill, that would abdicate the General Assembly’s exclusive authority to pass legislation to the PUC. Under SB 1174, the PUC would be free to waive whatever it chose to waive. That the low bar for granting the waiver makes it even worse. No agency should ever be authorized to allow itself to break free from the constraints that enacting legislation necessarily imposes. To do so is to delegate the authority to make law, since the ability waive a statute is the same as that of General Assembly to repeal legislation, even if it is more limited in scope.

The only comfort here is that this bill would violate the PA Constitution’s ( Article 3, Section 1) express assignment of the exclusive authority to legislate to the General Assembly – not to any agency.

Commonwealth Court Confirms Affirmative Public Benefits Standard Still Has Teeth in Fair Market Value Acquisitions (Reversing PA PUC Approval of Aqua Acquisition of East Whiteland Township)

Whitney Snyder on July 31, 2023

In Cicero v. Pennsylvania Public Utility Commission, ___ A.3d ___, (Pa. Cmwlth., No. 910 C.D. 2022, filed July 31, 2023) (“Cicero”), the court reversed the Pennsylvania Public Utility Commission’s (PUC) approval of Aqua Pennsylvania Wastewater Inc.’s acquisition of East Whiteland Township’s wastewater system assets. The court found Aqua had not proven that the acquisition would provide affirmative public benefits and confirmed that proving net benefits outweigh detriments of a transaction remains the standard for approving fair market value (FMV) acquisitions of municipal assets. Cicero, slip op. at 21 (“[I]n every Section 1329 case, it must be shown that the affirmative public benefits that arise from and are specific to a transaction outweigh the harms of the transaction, such that approval of the transaction will ‘affirmatively promote the service, accommodation, convenience, or safety of the public in some substantial way.’”).

Cicero does not change the law; it finds the PUC failed to apply the law and provides clarification on fact-specific application of the affirmative public benefits test in FMV acquisition proceedings where the selling entity is already providing safe and adequate service. The court reasoned that the PUC cannot merely rely upon benefits derived from the technical, managerial, and financial fitness of a utility like Aqua because general fitness characteristics: (1) are not specific to the system being acquired and thus do not arise from the transaction; and (2) do not outweigh the burdens to consumers of Aqua’s FMV acquisitions. Cicero, slip op. at 19 (“Holding that a transaction will result in substantial affirmative public benefits because it will provide the same services as already being provided is not a benefit, let alone a substantial affirmative public one as required by statute and our caselaw.”). The court further held that while “aspirational statements” are substantial evidence of an affirmative public benefit, the benefit must be considered in context and here the benefits do not outweigh the burdens to consumers of Aqua’s FMV acquisitions. Cicero, slip op. at 20-21(“[T]hese cases[1] do not support a conclusion that the public benefits arising from aspirational statements will always constitute affirmative public benefits that will be substantial enough to outweigh known harms.”).

The burdens on consumers derive from changes to how a utility can earn profit and recover costs from a municipal acquisition. Act 12 of 2016 added Section 1329 to the Public Utility Code, which allows for utilities to acquire municipal or municipal authority assets at FMV and recover transaction and transition costs of the acquisition with a truncated six-month approval process. Section 1329 incentivizes utilities to acquire municipal/authority assets through various changes. The most drastic of which is allowing the acquiring utility to include the FMV of the assets in its rate base on which it earns a profit; whereas prior to Section 1329, the value of the assets includable in rate base was original cost minus depreciation. As opponents to various Aqua 1329 acquisitions have pointed out, Aqua’s acquisitions at FMV of systems that are already operating adequately and safely needlessly increase customer rates because unlike a municipality or authority which does not earn a profit, does not pay taxes, and has a generally lower cost of debt, Aqua is entitled to a profit on its investments, pays taxes, incurs higher debt costs, and then recovers these profits and costs from ratepayers. Thus, a 1329 acquisition will result in higher costs to ratepayers than if the acquisition had not occurred.

That is not to say that all FMV acquisitions are a net detriment to the public. Section 1329 acquisitions can have affirmative public benefits that outweigh the higher rates under public utility ownership. For example, where a municipal system is failing to provide safe service and the municipality is unwilling or unable to make improvements, a Section 1329 acquisition can provide much needed investment in infrastructure and customer service.

Despite a lack of net affirmative benefits in some transactions, the PUC has approved every Aqua 1329 acquisition to date. Thus, Cicero disrupts the PUC’s repeated refusal to appropriately apply the affirmative public benefits standard to Aqua’s 1329 acquisitions and likely results in enhanced opportunities to challenge acquisitions and prevail.

Whitney Snyder, a partner at HMS legal, represents a variety of entities dealing with Public Utility Commission regulation and litigation, such as utilities, large customers, and municipalities, including opposing Aqua 1329 transactions.

[1] Popowsky v. Pennsylvania Public Utility Commission, 937 A.2d 1040 (Pa. 2007); City of York v. Pennsylvania Public Utility Commission, 295 A.2d 825 (Pa. 1972).

Interest Group Petitions Pa Commission for Policy Statement on EV Charging Infrastructure

Todd Stewart on February 14, 2022

An interest group claiming a broad and diverse membership has petitioned the Pennsylvania Public Utility Commission (“PaPUC”) to issue a policy statement on how to recover the costs of EV charging stations in utility rates.[1] The interest group, ChargeEVC-PA, includes entities ranging from environmental groups including Sierra Club and Natural Resources Defense Council, to EV charging industry members, electric cooperatives, and utilities alike. In the Petition, the Group argues that now is the time for the Commission to act to ensure that Pennsylvania has a coherent policy that promotes and supports the adoption of Electric Vehicles (“EV”) by implementing policies (primarily utility rate structures) that encourage deployment of EV charging stations, both public and private. The Petition claims that there will be 18 million EVs on the road by 2030 and that auto manufacturers now produce more than 90 EV models, and those numbers are expected to grow dramatically in the coming years to bolster the urgency of its request. The Petition also notes the recently enacted Infrastructure and Jobs Act — which includes $7.5 billion for EV charging infrastructure – positions Pennsylvania to receive at least $171 million to build out EV charging stations across the state’s high volume traffic corridors, as further impetus to promulgate a state-wide policy now.

The Petition notes that while some electric utilities have issued tariffs with EV charging Time-of-Use (“TOU”) rates, those rates apply to all energy consumed in a household and may not provide appropriate incentives for adoption. The Petition also notes that not even these TOU tariffs address the delivery portion of the customer bill, that reflect the benefits to the distribution system of having large numbers of customers using energy off-peak, which helps to level off the demand curve. The Petition points out that home EV chargers draw significant current (7.2 kW) and that without incentives to charge off-peak, use of these chargers could amplify existing peaks and put strain on the grid which would accelerate the need to shore-up the grid.

The Petition highlights a number of potential rate structures including TOU rates, Critical Peak pricing where a higher price is triggered by specific events, real time pricing, time-limited demand charges to incentivize build-out of commercial charging stations, and others. The point is there is no one-size solution, and it may be wise to adopt more than one approach, depending on the specific goals.

The Petition also provides principles to consider when preparing a policy statement, including lowering electricity rates for all customers through more efficient use of existing assets, avoiding unnecessary grid upgrades, reducing emissions by aligning charging with renewable energy production, encouraging adopting of EVs by reducing charging costs, and, to create a viable business model for public charging infrastructure.

The Petition proposes the Commission issue a policy statement after seeking comment on the proposal, ultimately leading to a tailored, reasoned result for uniformity across the industry. It is clear that if the Commonwealth is going to achieve the decarbonization necessity of electrifying its transportation system, EV adoption rates must increase dramatically. As part of the process, it is necessary to implement policies that lead to abundant publicly available charging infrastructure as well as private EV charging at reasonable rates. The Petition does not address the issue of who owns the charging infrastructure and that avoids one potential pitfall that could slow the process. The point of the proposed policy statement is more focused on how the roll-out will impact the grid and seeking policies to incentivize buildout while reducing unneeded strain on the delivery system. The ball is now in the Commission’s court, and it must decide what, if anything happens next.

#EVCharging #IIJA #PaPUC #decarbonization

[1] https://www.puc.pa.gov/pcdocs/1733312.pdf

Crystal Ball .21

Todd Stewart on January 14, 2021

A new year is upon us; and while that may facially seem like a good thing, the continued uncertainty has people anxious. I feel challenged to consider what issues, concerns, and hot topics are likely to rise the surface in the next twelve months. With the pandemic still at the top of the news queue most of the time, and with many people still working from home, if they are working at all, picking the possible hot-button issues is no easy task. The trick, if there is one, is to narrow down the range of probable outcomes – in this case, to things that were begun and not finished. What follows are my predictions for those industries regulated by public utility commissions – and the Pennsylvania Public Utility Commission (“PaPUC”) in particular.

With a new administration taking the reins of government in Washington and the President’s party set to control both the House of Representatives and the Senate for at least the next two years, there can be no doubt that the direction of federal energy policy is going to change. At a high level that means a shift to less reliance on fossil fuels and greater emphasis on renewables. While this trend shift is nothing new, many expect it to accelerate during Joe Biden’s Presidency.

In the past several years, the Federal Energy Regulatory Commission (“FERC”) has made it easier for small scale generation and storage projects to interconnect with the grid, and with distribution systems, depending on the service to be provided: i.e., voltage support, reserves, etc. At the same time, PJM, at FERC’s behest, has made things more difficult – its Minimum Offer Price Rule (“MOPR”) has complicated the ability of projects that might participate in state mandated renewable portfolio programs to participate in capacity markets and also receive revenue from renewables credits. How that quandary shakes out remains to be seen. But in PJM at least, it seems likely that we will see small scale renewable energy projects continue to participate in Renewable Portfolio Standard(“RPS”) programs that may include net metering, and larger scale projects that forgo the RPS revenue in favor of participating in what are typically the more lucrative capacity markets. There are a number of appeals pending on the MOPR orders that hopefully will be resolved soon.

Storage also is likely to come to the fore in 2021. The PaPUC issued a request for comments late last year, seeking industry feedback on the use of electricity storage resources to enhance distribution system resiliency and reliability. Unfortunately, the focus is on utility-provided storage that would be included in utility rate base, rather than considering that others in the market are already providing economic solutions that can enhance resilience, and provide additional benefits, without saddling ratepayers with substantial increased costs that may outlive the usefulness of today’s technology. While the PaPUC’s singular focus on distribution systems is a disappointment, there are multiple extant avenues for firms to bring storage to bear; to support renewables, or to support the grid by providing FERC regulated ancillary services. The future clearly has a place for more storage. Moreover, storage in the future may not mean solely batteries. Other technologies – pumped storage for instance – have received renewed attention recently and may be a more environmentally friendly means of providing a large-scale storage solution in the proper application. In any event, storage has a bright future.

From a purely Pennsylvania perspective, I hope we finally see the passage of a community solar statute.[1] Many other states in our region have had such programs for years, and they appear to be quite successful at democratizing access to the benefits of ownership of a renewable energy project. In Pennsylvania’s last legislative session, two bills were introduced in the General Assembly to bring these same benefits to Pennsylvanians, but they went nowhere, presumably due to opposition from utilities that grouse about the burdens of administering the Alternative Energy Portfolio Standards Act.[2]

I think we can also look forward to the General Assembly moving the bill that was introduced last legislative session as SB 1365. This bill was introduced by Senator Phillips-Hill, along with its sibling, HB 2555 that was introduced by Representative Metzgar. These bills address some of the significant and more controversial competitive issues that remain on the PaPUC’s plate after all these years, including supplier consolidated billing, removing the subsidies to default service that are hidden in distribution rates, and allowing customers to enroll with suppliers wherever they may be. These have proven to be thorny issues. For example, utilities are intent on retaining their present monopoly over the ability to communicate with customers via their energy bill and the customer relationship that goes along with that power.[3] Suppliers have long recognized that such a relationship is vital for them to be able to continue to participate in competitive markets.[4] It seems fairly certain that these bills will be back on the General Assembly’s calendar for the coming session, and while the outcome is uncertain, it is clear that Pennsylvania’s energy markets will not see sustainable competition until these issues are fairly addressed.

One critical and often overlooked aspect of last session’s SB 1365 is that it includes provisions that seek to ramp-up compliance efforts. It has not gone without notice that yet again, what appears to be a small group of competitive energy suppliers have been flouting the law and engaging in illegal and market-damaging customer engagement efforts. It seems that no one in the Commonwealth is safe from the “this is an apology from your electric utility” scam calls or their close kindred. These types of calls clearly violate the existing PaPUC regulations, and also violate the newly passed anti-robo-call provisions of the Telemarketer Registration Act.[5] One of the centerpiece provisions of SB 1365 was to require suppliers to annually go through training and to certify that they understand the laws that apply to their behavior and to agree to abide by those laws. The PUC also is likely to take up the issue of telemarketing and may seek to push the envelope with even more restrictive requirements for energy telemarketers, perhaps expanding the requirement that suppliers not confuse customers as to the origin of a call, not mis-identify themselves as representing the utility, and possibly creating a more complete list of actions that it considers illegal. It appears that the bad conduct of a handful of marketers could inspire such changes, which will make life more complex – i.e., more difficult and more expensive – for all marketers regardless of their conduct; and that would be unfortunate. Tracking down and prosecuting the offenders, however, is not easy because the offender typically hangs up when challenged. The only way to find out which suppliers are behind this scam is to agree to the switch the scammer is proposing and then file a formal complaint against the new supplier once the switch occurs and its identity is revealed. But that is a path few are willing to go down. Let’s hope we can come up with tools to abate the efforts of these bad actors without harming the majority of suppliers that follow the rules.

A one time-critical issue that has been getting more press lately, most of which is long-overdue, is the effort to deploy broadband internet to un-served and under-served areas of this country. Pennsylvania has many rural areas, with connectivity infrastructure from a bygone era, where internet reliability and speeds are inadequate to support our modern world of online learning and rural household and business data consumption. The problem, as we all know, is that the last mile[6], and often the middle mile[7] in very remote areas, are simply too capital intensive to allow serving those areas to be profitable over any reasonable time horizon. That is about to change. On December 7, 2020, the FCC announced the results of the Rural Digital Opportunity Fund Phase I Auction that will award $9.2 billion in support dollars to 180 bidders that will allow the providers to deploy broadband to 5.2 million homes across the country over the next 10 years.[8] The support is derived from the universal service surcharges that land-line telephone customers pay. The better news is that $368 million of that money will be put to work in rural places in Pennsylvania! This level of support will be a substantial aid in ensuring that the digital divide no longer prevents rural kids from going to school online during a pandemic, or a rural business from having a workable website. With the supports being allocated in the auction, and the efforts of other community organizations in the Commonwealth the have put rural broadband deployment at the top of their agendas,[9] this problem can be eliminated. A number of localities are seeking whatever funding is available to allow them to deploy solutions in the first quarter of 2021 that will provide broadband access to the most citizens possible. These efforts are timely, if not overdue, in light of a pandemic that has forced millions of Pennsylvania students, from kindergarten to college, to do school remotely.

Finally, I would be remiss if I did not mention the impact that COVID-19 has had on the PaPUC and the utilities it regulates. In response to Pa Governor Wolf’s Emergency Proclamation that was initially issued March 6, 2020, the PaPUC took several actions that have had serious repercussions for the industries it regulates. First, on March 16, 2020, the PaPUC suspended the ability of Electric Generation Suppliers and Natural Gas Suppliers to market to customers door-to-door.[10] Despite a number of attempts and repeat attempts, the PaPUC held firm and has to date not allowed door-to-door marketing to return. It seems likely that at some point in the coming year the PaPUC will change direction on the issue. The PaPUC also issued an order that banned electric, gas, water, sewer and steam utilities from terminating customers for non-payment.[11] The moratorium was the subject of a number of animated discussions at PaPUC public meetings and was finally lifted on November 9, 2020.[12] For customers whose annual household income is at or below 300% of the federal poverty level, the moratorium continues, as these are considered “protected customers” who are not subject to shut-off in the winter; or from November 30 to April 1.[13] As part of the emergency order and the Order lifting the moratorium, the PaPUC recognized that utilities could be facing extraordinary non-recurring expenses related to COVID-19 and required them to record these expenses as a regulatory asset. The Commission has yet to announce how it would expect utilities to recover these expenses (i.e., in a rate case or some other manner) and that issue almost certainly will be on the agenda for 2021.

Remembering the old curse, “may you live in interesting times,” I hesitate to suggest that any of my predictions will come to pass, because something more urgent and/or important can always lurk behind the next news cycle. I do feel confident, however, that eventually these issues will be decided. Time will tell.

[1] https://www.hmslegal.com/community-solar-inching-its-way-to-pennsylvania/

[2] 73 P.S. § 1648.1, et seq.

[3] https://www.puc.pa.gov/docket/C-2019-3013805

[4] https://www.hmslegal.com/why-the-skeptics-are-wrong-about-supplier-consolidated-billing

[5] https://www.hmslegal.com/revamp-of-telemarketer-act-cuts-into-robo-calls-but-falls-short-of-needed-changes/

[6] https://en.wikipedia.org/wiki/Last_mile

[7] https://en.wikipedia.org/wiki/Middle_mile

[8] https://www.fcc.gov/document/fcc-auction-bring-broadband-over-10-million-rural-americans

[9] https://sapdc.org/2020/11/07/sapdc-announces-broadband-study-kick-off-meetings/

[10] https://www.puc.pa.gov/pcdocs/1658467.pdf

[11] https://www.puc.pa.gov/pcdocs/1658422.pdf

[12] https://www.puc.pa.gov/pcdocs/1682379.doc

[13] The 300% level specified in the PaPUC’s October 13, 2020 Order at Docket M-2020-3019244, differs from the requirements listed at 14 Pa. C.S. § 1406(e)(1), which sets a 250% of federal poverty level threshold for electric and gas utilities subject to the ordinary winter termination restrictions. Moreover, this restriction would appear to apply to all utility shutoffs, including water, sewer and steam.

Which Pennsylvania utility will be the first to test the waters of alternative Ratemaking?

Todd Stewart on August 27, 2019

After a long, complex path, Pennsylvania has finally arrived as an alternative ratemaking state. But who will be the first utility to avail itself of the options now available? Both the Wolf administration (“Administration”) and the Public Utility Commission (“Commission”) seem eager to have a test subject, I mean a willing participant, to propose an alternative ratemaking design. . But there are specific steps a utility must take in order to comply with, and obtain approval from, the Commission.

Back in March 2016, the Pennsylvania Public Utility Commission (“Commission”) held an en banc hearing in Harrisburg, to gather information on alternative ratemaking methodologies. The purpose of the hearing was to hear from experts and interested industry participants on esoteric issues such as rate decoupling and other non-traditional ratemaking approaches; whether such methodologies could produce “just and reasonable” rates; and, whether the benefits of such approaches outweighed the costs. Many witnesses appeared and many interested parties offered comments. Almost a year passed before the Commission issued a Tentative Order (On March 2, 2017) seeking further comment on industry specific proposals for alternative ratemaking. Finally, on May 3, 2018, the Commission issued a Proposed Policy Statement, 52 Pa. Code §§ 69.3301-3303. The proposed policy statement requested further comments, due within 90 days of publication in the Pa. Bulletin.

Only a few weeks after the Commission issued its proposal, on June 28, 2018, Governor Wolf signed Act 58 of 2018 into law, amending Chapter 13 of the Public Utility Code, by adding Section 1330, 66 Pa C.S. § 1330. Act 58 affirmatively authorized alternative ratemaking in Pennsylvania, while at the same time recognizing that such methodologies had already been implemented, and not disturbing those schemes. In response to the legislative mandate, on August 23, 2018, the Commission issued a Tentative Implementation Order at Docket M-2018-3003269 and issued a Final Implementation Order on April 25, 2019. To close the loop, just a few day ago, on August 24, 2019, the Final Policy Statement was published in the Pennsylvania Bulletin.

The Final Policy Statement, in lieu of regulatory requirements, lists 14 factors that the Commission expects to address in the course of reviewing proposals for alternative rates. These factors range from how the proposed ratemaking design will impact customer incentives, to whether such rates and rate design will improve reliability. Any fixed utility filing for an alternative mechanism should strongly consider expressly addressing these 14 factors in the initial filing or be prepared for the inevitable negative reaction from the Commission’s own prosecutory arm (Bureau of Investigation and Enforcement or BI&E for short), the Office of Consumer Advocate (“OCA”), and the Office of Small Business Advocate (“OSBA”) commonly referred-to in the collective as the Statutory Parties, other industry specific groups of large customers as well as competitive suppliers in the gas and electric sectors.

In contrast to the cost/benefit analysis type questions of the Policy Statement, the Implementation Order is far more “nuts and bolts” and focuses on the form of alternative rate filings and the mandatory notices that accompany them. The Order contains a substantial amount of discussion devoted to the form and content of customer notices for filings under 66 Pa. C.S. § 1330(c), with the customer advocates seeking more content and the utilities predictably seeking less. The Commission’s conclusions closely track the exact statutory language and do not require utilities proposing alternative ratemaking methodologies to provide proposed tariff pages as part of the notice to customers, as had been suggested by some commenters. Likewise, with regard to the form of the filing that is addressed in 66 Pa. C.S. § 1330(d) the Commission adopted a narrow interpretation of that section and decided that filings for alternative ratemaking proposals, regardless of the form they take, must be filed pursuant to the requirements of § 1308 of the Public Utility Code, the section that provides requirements for base rate filings. Invoking § 1308 imposes extensive filing requirements on the filer and provides a statutory shot clock on the proceeding, which a number of utilities sought to avoid.

Now that the Policy Statement and the Implementation Orders are completed, the question is which utility will be the first in the door and what sort of proposal will they make? The electric industry would seem to be the natural choice for alternative ratemaking, due to the rapidly evolving technology and the need to deploy infrastructure that changes constantly, with decreasing throughput and the host of factors such as increasing buildout of renewables and shifting generation portfolios reshaping the industry on what seems like a daily basis. Or will it be the water industry, seeking financial incentives for improving water quality or the sewer service providers seeking alternative funding mechanisms for the increasingly large capital investments that are required to keep treatment facilities up to date. Only time will tell, but be assured that the first utility through the door will have the blessing and the curse of being first; of being the one that sets much of the precedent for all who follow. Whichever utility(s) take on that role, they should be visionary and seek to address both the policy and procedure of this new alternative, while being prepared to be flexible when needed.

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.

Is the PUC Preparing to Address Utility Rates in Light of the Recent Tax Cut?

Todd Stewart on January 10, 2018

Most US taxpayers are by now conscious of the passage of President Trump’s signature tax legislation which dramatically reduces the corporate tax rate from 35% to 21%. What many folks may not know is that the rates they pay to their local utility include recovery for the income tax expense of those utilities. This raises the question that some states, notably Kentucky and Oklahoma, have already begun to address: “How do regulators make sure that utility rates promptly reflect the substantial reduction in tax liability?” In Oklahoma, the Attorney General has called upon the Oklahoma Corporation Commission to address the tax savings issue which he estimates to total $100 million statewide. The Kentucky Public Service Commission already has ordered utilities to track their savings due to the tax change and to timely pass these savings on to customers. Montana and Michigan are taking similar actions.

It appears that the Pennsylvania Public Utility Commission (“PUC”) is preparing to address the issue as well. On January 5, 2018, the PUC opened Docket Number M-2018-2641242, with a case description of “THE TAX CUTS AND JOBS ACT: TAX REFORM BILL SIGNED INTO LAW ON DECEMBER 22, 2017”. The matter has been assigned to the Bureau of Technical Utility Services (“TUS”). So far there is no indication of the priority of this effort or what direction the PUC might take. It is clear, however, that the legal landscape in Pennsylvania, as it relates to utility ratemaking, may provide more of a challenge than regulators face in other states. In Pennsylvania, with few exceptions, utility rates are set prospectively and must always avoid the pitfall of “single issue ratemaking.” Single issue ratemaking is where a utility, or a customer, seeks to adjust rates based upon a change, often a dramatic change, that impacts an isolated cost center, without subjecting the whole of expenses, revenues, and allowed percentage of return on investment, to scrutiny and/or adjustment. The PUC and courts have consistently rejected this approach and instead have required utility rates to be set in consideration of all expenses, revenues, and authorized return. Consequently, it may prove to be a challenge for the PUC to reach the goal of having rates promptly reflect the reduced tax rate, while avoiding on one hand a claim of single issue ratemaking and on the other hand the time-consuming and costly process of adjusting each utility’s rates through either a PUC-initiated or utility-initiated general rate proceeding.

A utility’s costs of setting new rates are generally borne by ratepayers and are thus “baked into” the new rates, and so any plan to change rate should include a cost-benefit analysis of making a utility go through the process on a single ratemaking issue versus making a utility adjust rates to include not only new tax rates but all other changes to revenues, expenses and allowed return/profit. For small and mid-sized utilities, the cost of the ratemaking process—which can involve multiple parties, voluminous discovery, PUC staff data requests, expert witnesses, and potential hearings, often approaches, and sometimes exceeds, the amount of the dollar adjustment to rates: upward or downward. What is clear is that the PUC will have much to consider in determining the best way to approach the issue.

Commission Sets Precedent to Extend Uber’s and Lyft’s Authority to Operate in Pennsylvania

Micah Bucy on July 12, 2016

On June 30, 2016, at its most recent public meeting, the Pennsylvania Public Utility Commission (“Commission”) set a precedent important to Pennsylvania Uber (operating in Pennsylvania under its subsidiary Raiser-PA) and Lyft users alike by granting Yellow Cab Company of Pittsburgh, Inc. (“Yellow Cab”), a temporary extension of one year of operating authority to provide Transportation Network Service (“TNC”) in Pennsylvania.[1] Although Yellow Cab may no longer be a household name like Uber and Lyft, the service that it provides is identical. In fact, Yellow Cab was the first Transportation Network Service (“TNC”) or app-based transportation provider that was granted temporary authority to operate in Pennsylvania.[2] But under the Commission’s regulations, TNC authority is considered “experimental” and therefore is temporary and only valid for two years.[3] Yellow Cab was granted authority to operate beginning in July 2014 and without the Commission’s June 30^th Order, it would have been required to cease operating on July 1, 2016.

However, the Commission believed that disrupting Yellow Cab’s services while the legislature is attempting to work towards a framework[4] for TNC providers such as Yellow Cab, Uber, and Lyft would be “unnecessary” and detrimental to the public.[5] In justification of its decision, the Commission stressed that an extension to Yellow Cab’s authority was appropriate because, during its two years of operation, Yellow Cab has remained vigilant in its compliance with Commission regulations.[6]

By granting Yellow Cab this temporary one-year extension, the Commission has provided itself with precedent to provide a similar extension to Uber (Raiser-PA) and Lyft when their respective two-year periods run out in January 2017. Only time will tell whether Uber (Raiser-PA) and Lyft are granted a one year extensions of their temporary authority to operate. At least in the case of Uber (Raiser-PA), however, one is left to wonder, whether the Commission, after having stressed Yellow Cab’s continued compliance with Commission regulations as a justification for granting its extension, will grant Uber such an extension given that the Commission recently fined it $11 million dollars for having “deliberately engaged in the most unprecedented series of willful violation of Commission orders and regulations in the history of this agency.”[7] A more detailed discussion of the fine imposed on Uber (Raiser-PA) can be found here.

[1] Application of Yellow Cab Company of Pittsburgh, Inc., t/a Yellow Z, Order Granting Petition for Waiver of Commission Regulation 52 Pa. Code § 29.352, Docket No. A-2014-2410269 (June 30, 2016).

[2] Application of Yellow Cab Company of Pittsburgh, Inc., t/a Yellow Z, Order Granting Application, Docket No. A-2014-2410269 (May 22, 2014).

[3] See, 52 Pa. Code § 29.352.

[4] Both chambers of the Pennsylvania General Assembly have considered TNC-framework legislation in the 2015 – 2016 session, but such a framework has not been passed to date. Senate Bills considered include SB 984, 749, and 763; House Bills considered include HB 1065, 1290, 2445, 2453, and 241.

[5] See, supra note 1, Chairman Brown’s Motion to Grant One-Year Extension.

[6] Id.

[7] Pa. Publ. Util. Comm’n v. Uber Technologies, Inc., et al., Joint Motion of Chairman Brown and Commissioner Coleman, Docket No. C-2014-2422723 (Apr. 21, 2016).

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

Uber Week for Uber in PA – Commonwealth Court Affirms PUC’s Authorization of Raiser’s Service (an Uber Subsidiary) and PUC Decreases Recommended $49 Mil Civil Penalty to $11 Mil

Whitney Snyder on April 25, 2016

In an April 19, 2016 Opinion, the Pennsylvania Commonwealth Court[1] affirmed the Public Utility Commission’s (PUC) grant of a certificate of public convenience (CPC) for experimental authority to operate as a common carrier to Raiser-PA, LLC (Raiser) in Pennsylvania, excluding Philadelphia.[2] Raiser is a subsidiary of Uber Technologies, Inc. (Uber), which licenses the technology to Raiser that allows users to request a ride via smartphone app.

Raiser requested PUC approval of its services in June 2014, although Uber and some of its subsidiaries had been illegally operating in Pennsylvania since February 2014, for which the PUC fined Uber approximately $11 million on April 21, 2016 in a 3-2 vote, as discussed below.

Raiser’s services do not fit squarely into traditional common carrier service and thus it applied for experimental service because, among other things, it does not own the cars used for service or employ the drivers and it utilizes smartphone app technology to allow customers to request service. The PUC approved Raiser’s application for experimental services on December 5, 2014, imposing numerous conditions on its grant of a CPC and denied reconsideration of its order.[3]

Commonwealth Court Opinion

Various competing “traditional” taxi companies petitioned for review of the PUC’s grant of Raiser’s CPC, arguing the PUC failed to follow its own regulations when it found jurisdiction over Raiser, abused its discretion in granting Raiser’s CPC, lacked substantial evidence in granting Raiser’s CPC, erred in applying its own regulations concerning the requisite rate specificity, erred in reversing the administrative law judge’s initial decision without substantial evidence, and abused its discretion in denying reconsideration. The court rejected all challenges and affirmed the PUC.

First, the court ruled that the PUC has great discretion in applying its experimental service regulation at 52 Pa. Code § 29.352 to find jurisdiction because Raiser is proposing to provide transportation services to the public for compensation. Rejecting the cab companies’ argument that Raiser is not a common carrier because it does not have custody of any vehicles, the court reasoned that Section 102 of the Public Utility Code does not require a carrier to own or operate its motor vehicles.

Second, the court ruled that the PUC’s decision was supported by substantial evidence because there is demand for Raiser’s services, Raiser will not bring unrestrained or destructive competition to the marketplace, and it is technically and financially fit. The court pointed out that the policy statement is just that, and not a binding norm, and dismissed the taxi companies’ arguments regarding competitive harm out of hand, finding that they had not carried the heavy burden required. The finding of demand for Raiser’s services is unsurprising – Raiser-type services are, at least for the tech savvy, undeniably easier and more convenient to utilize, and rates can be lower than traditional taxi rates depending on location and demand.[4] Moreover, as the court and PUC reasoned, there was evidence of other TNC service competitors’ success and multiple witness testimony of the need for service (the evidence usually relied upon to show demand for service in taxi certificate proceedings). The finding of technical and financial fitness concerning propensity to comply with PUC regulations and orders was a more interesting question given Uber’s noncompliance with PUC regulations and orders in the past. However, the court reasoned that since Raiser is now compliant with its PUC authorization “the mere fact of prior violation does preclude a carrier form obtaining lawful authority.”[5] The court upheld the PUC’s finding of adequate capital and resources and technical expertise and experience based on Raiser’s access to Uber’s resources and successful operation in other US cities. For the final prong of technical fitness, insurance coverage and driver and vehicle safety, the court concluded that the PUC could rely on the conditions imposed in the order granting Raiser’s CPC that require Raiser to comply with applicable PUC regulations and establish an ongoing reporting obligation to ensure Raiser is doing so.

Third, the court rejected the argument that the PUC owed deference to the ALJ’s decision because the PUC may supersede ALJ decisions where, as here, the PUC’s order is based on substantial evidence.

Fourth, the court held the argument concerning specificity of tariff rates was waived because it was not properly raised and preserved before the PUC, and that even were the court to address the issue the claim was meritless because “Raiser’s tariff reflects the circumstances of Pennsylvania’s TNC market, i.e., the economic climate in which Raiser will operate.”[6]

Fifth, the court dismissed the argument that the PUC abused its discretion in denying reconsideration because the PUC had already addressed each argument raised in the request for reconsideration in its original order granting Raiser’s CPC, and because the petitioner who raised the argument only appealed the order on reconsideration, not the PUC’s original order granting Raiser’s CPC, thereby depriving the court of jurisdiction to consider challenges to the original order.

PUC Civil Penalty

On April 21, 2016 the PUC voted 3-2[7] to decrease penalties recommended in the November 17, 2015 ALJ Initial Decision[8] regarding Uber and its subsidiaries’ (Gegen, LLC, Raiser, LLC, and Raiser-PA, LLC[9]) operations in Pennsylvania prior to obtaining PUC authorization via a CPC. The Initial Decision recommended fining Uber approximately $49 million based on the PUC’s statutory power to penalize up to $1,000 per violation[10] (each trip provided by Uber was one violation) and the PUC’s regulations at 52 Pa. Code § 69.1201(a), which describes nine factors the PUC will consider when imposing penalties. The ALJs held Uber clearly violated the Public Utility Code and were especially concerned with Uber’s flagrant disregard of the PUC’s July 24, 2015 Order requiring Uber to cease and desist operations in Pennsylvania.

The PUC chose to decrease the penalty to approximately $11 million, voting 3-2 to adopt Chairman Brown and Commissioner Coleman’s Joint Motion, which reasoned Uber and its subsidiary’s ongoing compliance with PUC regulations and conditions pursuant to the CPC for experimental service is a mitigating factor favoring a significant reduction in the penalty. The majority defended the appropriateness of this still record-breaking penalty, stating that Uber “deliberately engaged in the most unprecedented series of willful violation of Commission orders and regulations in the history of this agency.”[11]

Commissioners Witmer and Powelson both issued statements arguing for an even lower penalty, focusing on Uber’s continued compliance, lack of customer complaints, and the fact that the largest penalties imposed by the PUC in the past have involved actual harm to customers, including a $500,000 penalty for a gas explosion resulting in 5 deaths[12] and a $1.4 million penalty for deceptive practices in failing to honor savings guarantees made to customers for electricity supply resulting in actual financial harm to customers.

All of the Commissioners agreed that the service Uber provided was a common carrier public utility service, and thus jurisdictional, echoing the result the Commonwealth Court reached in its April 19, 2016 Opinion concerning Raiser’s similar service.

[1] Case Nos. 238 C.D. 2015, 240 C.D. 2015, 253 C.D. 2015. Judge Cohn Jubelirer authored the opinion in which Judges Leadbetter, Simpson, Leavitt, Brobson, and McCullough joined. Judge Pellegrini concurred in the result only.

[2] Taxi service in Philadelphia is regulated by the Philadelphia Parking Authority.

[3] Application of Rasier-PA LLC, Docket No. A-2014-2416127 (Dec. 5, 2014), reconsideration denied, Docket No. A-2014-2416127 (Jan 29, 2015).

[4] http://www.cnbc.com/2015/08/31/whats-cheaper-in-your-city-cabs-or-ride-shares.html

[5] April 19, 2016 Opinion, slip op. at 16-17 (citing Brinks, Inc. v. Pa. Pub. Util. Comm’n, 456 A.2d 1342, 1344 (Pa. 1983)).

[6] April 19, 2016 Opinion, slip op. at 21.

[7] The PUC’s final order is not available at this time.

[8] Pa Pub. Util. Comm’n v. Uber Technologies, Inc., et al., Initial Decision, Docket No. C-2014-2422723 (Nov. 2015) (“ID”).

[9] Raiser-PA, LLC did not provide any transportation services during the timeframe in question. Uber was precluded from asserting any claim that subsidiaries or affiliates were the provider of service in order to avoid liability as a discovery sanction. ID at 9-10.

[10] ID at 20-22 (citing e.g., Newcomer Trucking, Inc. v. Pa. Pub. Util. Comm’n, 531 A.2d 85 (Pa. Cmwlth. 1987) (interpreting 66 Pa. C.S. § 3301)).

[11] Joint Motion at 2.

[12] At the time, $500,000 was the maximum penalty the PUC was enabled to impose under 66 Pa. C.S. § 3301(c).