A look at the changes in Pennsylvania’s energy sector legislation for 2021 and beyond.
TL;DR
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SB 232 deals with revenue decoupling, which allows utilities to frequently adjust rates instead of being paid by volume, which has discouraged energy efficiency in the past.
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SB 600 mandates renewable energy quotas through 2030, with minimum (and progressively increasing) amounts of alternative energy generation each year.
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SB 600 compliance fees will only be used to increase the share of renewable energy in Pennsylvania.
Navigating your way through legalese and the texts of government legislation can be trying at the best of times, let alone when the legislation in question deals with the energy sector.
In this article, we’ll look at the key takeaways in Pennsylvania’s Senate Bill 232 and Senate Bill 600.
SB 232
Senate Bill 232 includes the implementation of a full revenue decoupling mechanism, which is described in the legislation as:
“A rate mechanism that adjusts or reconciles authorized distribution rates or revenues for differences, whether positive or negative, between revenues approved in a base rate case and actual revenues, including, but not limited to, customer adjustments or other adjustments, such as collars or caps, deemed appropriate by the commission.”
Revenue decoupling is a way for utilities to frequently adjust rates so that revenue is neither more or less to cover costs and provide a fair return.
Under traditional payment systems, electricity providers are paid by the volume of energy they sell, which disincentivizes investment in energy efficiency programs, since doing so would mean lower revenues due to lower demand.
SB 232 allows for decoupling as a way to provide market incentives to promote energy efficiency, and the legislation limits upward rate adjustments to no more than 2% of rates approved by the most recent base rate case.
SB 232 also states that electric distribution companies can include financial incentives for themselves in their energy efficiency and conservation plans.
These incentives are limited to either; 10% of the net benefits experienced by customers due to the implementation of energy efficiency and conservation plans, or; 8% of an electric distribution company’s actual expenditures on energy efficiency and conservation programs for that year, whichever is lower.
Electric distribution companies can also claim the benefits from one-third of energy savings from building codes as part of their energy plans if;
- the company played a direct role in achieving those savings; the savings are quantified and independently measured;
- the savings are not directly related to transportation or transportation infrastructure;
- the measures meet an approved total resource cost test.
Electric distribution companies can also include increased electricity use due to fuel switching efforts (e.g. transitioning from coal, oil, or gas).
SB 600
Senate Bill 600 deals with renewable energy quotas and pricing structures in Pennsylvania through 2030.
The bill mandates that electric distribution companies and generation suppliers must purchase, at a minimum, the amount of Tier 1 alternative energy credits equal to the percentage of Tier 1 energy sold to retail customers for that reporting year.
In other words, these companies must buy enough alternative energy credits to meet the annual (and progressively increasing) minimum amount of alternative energy they have to sell as a percentage of the total energy they provide to customers. As of June 1st, 2021, companies need to ensure that a minimum of 10.44% of the energy they sell is Tier 1 (explained below).
If they cannot provide enough, they must buy credits from other organizations providing an equivalent amount of clean energy (or energy savings) to make up the difference.
Electric distribution companies with more than 1 million MWh per year can access energy credits based on the total electricity sold to all customers in a service area regardless of whether retail sales are supplied by said distribution company or an electric generation supplier.
So what exactly qualifies as a Tier 1 alternative energy source? Tier 1 encompasses a wide range of alternative energy types, including; photovoltaic solar, sun-thermal energy, wind, low-impact hydro, geothermal, biomass, wood pulping, coal mine methane, biologically derived methane, manufacturing by products from energy facilities, and fuel cells.
Electric distribution and generation supply companies must therefore secure some combination of these resources either directly or by proxy via alternative energy credits to meet the aforementioned 10.44% threshold for the June 1st 2021 to May 31st 2022 period. This minimum is to increase by 2.44% each year to 30% of total supplied electricity by 2030.
As of June 1st, 2021, companies need to ensure that a minimum of 10.44% of the energy they sell is Tier 1.
During this time, non-customer generated solar power has to account for 0.94% of the alternative energy minimum threshold in 2021-2022, reaching a minimum of 7.5% by 2030.
Electric distribution and generation supply companies will also need to promote distributed solar (customer generated solar) capacity, with a minimum of 0.65% of total electricity coming from customers in 2021-22, increasing to 2.5% by 2030.
Customers that generate solar are eligible to access alternative energy credits for 15 years from either June 1st, 2021 or from their date of certification.
As of June 2021, SB 600 would see the alternative compliance payment (excluding the share from customer-generators) set at $45 multiplied by the number of additional alternative energy credits needed to comply with each year’s minimum alternative energy threshold.
With regards to customer generators, the alternative compliance payment as of June 1st, 2021 through to May 31st 2026 would be $125 multiplied by the number of alternative energy credits needed to meet the minimum threshold for that year.
From June 1st, 2026 through May 31st, 2030 the compliance payment would be $100 multiplied by the number of required alternative energy credits. After 2030, the compliance payment for customer-generator solar will decrease by $5 per year until it reaches a price of $45.
Under SB 600, these compliance fees will only be used for projects increasing the share of alternative energy in Pennsylvania and for workforce development and training programs to equip workers with the requisite skills for the clean energy economy.
In order for an alternative energy source to qualify for a share of compliance fee revenue, it must have one of the following features;
- directly deliver energy to the retail customers of a electric distribution company or distribution system operated by such a company in Pennsylvania;
- directly connect the system of an electrical cooperative or municipal electric system;
- directly connect to the electrical transmission system at a location within the service area of an electric distribution company.
Both SB 600 and SB 232 are being put in place to continue to force suppliers of electricity to source some of their supply from renewable sources. This push for more diversified supply portfolios is to take place gradually over the next decade in order to give companies time to adapt and eventually reach 30% renewables by 2030.
