Pennsylvania PUC to Amend Alternative Energy Portfolio Standards Regulations

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On February 20, 2014, the Pennsylvania Public Utility Commission (Commission) issued a proposed rulemaking1 in connection with its implementation of the Alternative Energy Portfolio Standards Act of 2004 (AEPS Act). While the Commission has proposed a number of changes that merely implement the requirements of Act 35 and Act 129, there are several new substantive provisions impacting net metering and large customer-generators and that merit close review by electric utilities, merchant generators and customers proposing to self-generate. The proposed rulemaking will be open for public comment for 30 days after publication in the Pennsylvania Bulletin.

Among other things, the rulemaking would add new definitions, including definitions for “aggregator” and “microgrid.” Important revisions to the existing terms for “distributed generation system” and “customer-generator” also have been proposed. The Commission has also proposed to change the net metering regulations and add a new approval process for interconnecting alternative energy systems that have a nameplate capacity of 500 kW or greater. Finally, the Commission has proposed qualification standards for large distributed generation systems (3-5MW) who seek Commission approval to be considered a customer-generator.

Pennsylvania’s Alternative Energy Portfolio Standard

The AEPS Act, as amended, established an alternative energy portfolio standard for Pennsylvania, implemented and enforced by the Commission. The AEPS Act requires electric distribution companies (EDCs) and electric generation suppliers (EGSs) source 18 percent of the electricity provided to customers using a mix of alternative energy sources by 2020. Compliance is demonstrated through the use of Alternative Energy Credits (AECs). In addition, the AEPS Act and the Commission’s implementing regulations establish rules and standards for interconnection and net metering, among others. The Commission’s implementing regulations can be found at Title 52, Chapter 75 of the Pennsylvania Code.2

Key Definitional Changes

The definition for “distributed generation system” as proposed by the AEPS Act is “the small-scale power generation of electricity and useful thermal energy.” This is the definition originally codified in the regulations. Finding that term to be ambiguous, the Commission has now defined what will qualify as “useful thermal energy” and further imposed a nameplate capacity limit of not more than 5 MW. Useful thermal energy is defined specifically to exclude use in a combined-cycle facility.

The Commission also revised the definition for “customer-generator” to make it clear that only retail electric customers that actually purchase electricity or electric service will qualify, and not electric utilities and merchant generators in the business of selling energy. Entities whose primary business is to provide energy or energy services to others, at wholesale or retail, cannot be considered customer-generators. Existing system capacity limitations are retained (i.e., 50 kW, 3 MW, 5 MW).

In a new Section 75.16, the Commission has proposed standards that apply to distributed generation systems with a nameplate capacity of between 3 and 5 MW and that wish to qualify as a large customer-generator. One condition requires that all or part of the large generator’s system be able to provide grid support as a formally designated grid emergency resource by PJM. In addition, large generators must also be able to either increase or curtail entirely their output to the grid in parallel with the EDC’s system. If located within a microgrid, the large generator must comply with IEEE standard 1547.4 and document that its primary or secondary purpose is to maintain critical infrastructure.

Newly defined terms include “grid emergency” and “microgrid.” The Commission has adopted the definition for grid emergency provided in PJM Manual 13 Emergency Operations. As for microgrid, the Commission has adopted the approach of the IEEE Guide for Design, Operation, and Integration of Distributed Resource Island Systems with Electric Power Systems. Recognizing that a number of AEC transactions are facilitated by third parties, the Commission also added to the regulations the concept of an “aggregator,” defined as someone who contracts with individual energy system owners to facilitate the sale of AECS for multiple owners.

Net Metering

Notable revisions have also been proposed to the net metering regulations, particularly with respect to the conditions under which EDCs are required to offer net metering to customer-generators on a first come, first served basis. The current regulations require EDCs to offer net metering to customer-generators and provide that EGSs may do the same under negotiated terms. No other requirements are imposed, except that the customer-generator must be a Tier I or Tier II behind-the-meter resource.

The Commission has proposed to revise the obligation of EDCs so that offers to net meter are made subject to specific conditions. One condition makes explicit the requirement that the customer-generator have an independent load (i.e., one that does not support the operation of the generation facility itself). Another key condition is that the generation system must not be sized to provide in excess of 110 percent of the customer-generators annual electric consumption at the interconnection meter location. These measures seek to ensure that merchant generators cannot circumvent the wholesale market and benefit from retail rate subsidies at the expense of retail ratepayers.

The Commission is also proposing to establish an approval process to allow alternative energy systems of 500 kW or greater to net meter as a customer-generator. On application from such a resource for net metering, an EDC would be required to forward the application to the Commission’s Bureau of Technical Utility Services within 20 days, together with its own recommendation of whether the applicant’s system complies with Commission rules and the EDC’s own net metering tariff. The applicant would have 20 days to provide the bureau with a response to the EDC’s recommendation. The bureau must in turn provide a detailed decision to either approve or disapprove the application within 30 days of when the application was submitted. The determination may be appealed to the Commission within 20 days after it is served.

Several changes also have been proposed to the definition and application of virtual meter aggregation by customer-generators. Originally intended to allow aggregation of distributed generation, specifically anaerobic and methane digesters in the agricultural sector, the Commission found that virtual net metering was being proposed for a number of improper applications. As such, the revised definition provides that all locations to be aggregated must (1) receive retail electric service from the same EDC and (2) have a load independent from the customer’s generation system.

Solar Metering, Credit Certification

Through a proposed revision of primary relevance to solar photovoltaic systems, the Commission revised the definition of “electric nameplate capacity” to refer to the output limits of any system inverters, and not the generation device, which in the case of solar systems would be the panels. This shift allows customer-generators with solar panels to get the most benefit out of their systems. Another revision to the regulations would disallow new small solar systems (less than 15 kW) from using estimated readings to verify alternative energy credit certification and will require the use of metered data. Limited grandfathering is allowed for existing systems. Where metered data is available, the proposed regulations would also clarify that a solar photovoltaic system may begin earning credits on the date it submits a complete application.

Going Forward

The Commission’s proposed rulemaking must be reviewed by the Office of Attorney General, the Governor’s Budget Office and the Independent Regulatory Review Commission. Utilities, merchant generators and retail electric customers considering behind-the-meter alternative energy projects should review the proposed regulations closely and consider the potential impacts on existing and planned investment. For example, the critical infrastructure support requirement has the potential to limit generator qualification in some microgrid applications. It is also unclear whether the 110 percent sizing restriction will be applied to existing customer-generators. As noted above, public comments may be submitted for 30 days after the rulemaking is published in the Pennsylvania Bulletin.

1 Proposed Rulemaking Order, Docket No. L-2014-2404361 (Feb. 20, 2014).

2 52 Pa. Code §§ 75.1, et seq.