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PA Bulletin, Doc. No. 05-676



Implementation of the Alternative Energy Portfolio Standards Act of 2004

[35 Pa.B. 2183]

Public Meeting held
March 23, 2005

Commissioners Present: Wendell F. Holland, Chairperson; Robert K. Bloom, Vice Chairperson; Kim Pizzingrilli

Implementation of the Alternative Energy Portfolio Standards Act of 2004; Doc. No. M-00051865

Implementation Order

By the Commission:

   The Commission has been charged by the Pennsylvania General Assembly (''General Assembly'') with carrying out the provisions of the Alternative Energy Portfolio Standards Act of 2004 (''Act 213'' or the ''Act''). In order to fulfill this obligation, the Commission has commenced a stakeholder process with interested parties to address relevant issues. This Implementation Order will provide guidance on the schedule by which the Commission will meet its obligation to develop the rules and regulations necessary to implement the Act and the schedule for compliance with the Act's mandates for electric distribution companies (''EDCs'') and electric generation suppliers (''EGSs'').

Background and History of this Proceeding

   Governor Edward Rendell signed Act 213 of 2004 into law on November 30, 2004. Act 213, which took effect on February 28, 2005, established an alternative energy portfolio standard for Pennsylvania. Generally, the Act requires that an annually increasing percentage of electricity sold to retail customers in Pennsylvania by EDCs and EGSs be derived from alternative energy resources. The Commission has been charged with using its general powers to carry out, execute and enforce the provisions of the Act. The Pennsylvania Department of Environmental Protection (''DEP'') has been specifically charged with ensuring compliance with all environmental, health and safety laws and standards relevant to the Act's implementation. The Commission and the DEP are to jointly monitor compliance with the Act, the development of the alternative energy market, the costs of alternative energy and to conduct an ongoing alternative energy planning assessment. The Commission and the DEP are to report their findings and any recommendations for changes to the Act to the General Assembly on a regular basis.

   The Commission, in conjunction with the DEP, hosted a technical conference on January 19, 2005 in order to provide a forum to discuss the implementation of the Act. Interested parties were given the opportunity to file comments and reply comments on various aspects of the Act's implementation at this time.

   The Commission then convened the first meeting of the Alternative Energy Portfolio Standards Working Group (''Working Group'') on March 3, 2005. The Working Group has been tasked with helping to develop rules for the participation of demand side management and energy efficiency resources in the alternative energy market. The Working Group will also help develop net metering and interconnection rules so that distributed generation resources can participate in this new market. The Working Group will attempt to develop a consensus and make recommendations to the Commission on the rules and regulations to be adopted.


A. Act 213 and the Public Utility Code

   Act 213 does not represent an amendment or supplement to the Public Utility Code, 66 Pa.C.S §§ 101--3316. However, the Public Utility Code and the Act both involve the regulation of electric distribution companies, electric generation suppliers and the sale of electric energy to retail customers in the Commonwealth of Pennsylvania. The Commission notes that Act 213 makes repeated reference to various portions of the Public Utility Code, including 66 Pa.C.S. §§ 511, 1307, 2807, 2812, and 3315. The Act also makes express use of certain definitions found at 66 Pa.C.S. § 2803. As such, the Act and the Public Utility Code are in pari materia and shall be construed together as one statute. See 1 Pa.C.S. § 1932. Therefore, the provisions of the Public Utility Code and its associated regulations will be applied to the implementation and enforcement of the Act, except where prohibited by the express language of Act 213 or necessary implication thereof. Any new regulations adopted by the Commission as part of the implementation of the Act will be codified at Title 52 (pertaining to Public Utilities) of the Pennsylvania Code.

B. Act 213 Implementation Schedule

   The Act includes a schedule by which the Commission must issue proposed rules and regulations necessary for the Act's implementation. The Act also establishes a timetable by which EDCs and EGSs will comply with its provisions. This section of this Order addresses the compliance schedule for EDCs and EGSs and the schedule for the creation and banking of alternative energy credits during the cost-recovery period.

   1.  Compliance Schedule for Act 213

   The Act establishes a 15 year schedule for complying with its mandates. The percentage of Tier I and Tier II alternative energy resources that must be included in sales to retail customers gradually increases over this period. Compliance is to be monitored for successive twelve month reporting periods that begin on June 1 and conclude on May 31 of the following calendar year. The Act provides for a true-up period, during which EDCs and EGSs may acquire any additional alternative energy credits needed for compliance, at the conclusion of each reporting period. This true-up period runs from the conclusion of each reporting period through September 1 of the same calendar year. After the conclusion of the true-up period, the Commission will verify compliance and impose alternative compliance payments as appropriate after providing notice and opportunities for hearings to affected parties.

   Subsection 3(b)(1) provides that ''Two years after the effective date of this act, at least 1.5% of the electric energy sold by an electric distribution company or electric generation supplier to retail electric customers in this Commonwealth shall be generated from Tier I alternative energy sources.'' Pursuant to Section 7, the Act took effect 90 days after it was signed into law. As the Act was signed into law on November 30, 2004, the effective date is February 28, 2005. EDCs and EGSs, to the extent that compliance is not otherwise exempted, must therefore begin to include alternative energy resources from Tier I in their sales to retail customers no later than February 28, 2007.

   Though compliance is not required until February 28, 2007, the Act expressly provides for a reporting period that runs from June 1 through May 31 of the following year. February 28, 2007 would fall within a June 1, 2006 through May 31, 2007 reporting year. The Commission will give effect both to the language of Subsection 3(b)(1) and the definition for ''reporting period'' found in Section 2. See 1 Pa.C.S. § 1933. Accordingly, the Commission finds that while Year One commences on June 1, 2006, compliance will only be calculated during this period on energy sales to Pennsylvania customers for the period from February 28, 2007 through May 31, 2007.

   This start date will apply to both Tier I and Tier II resources. The Act does not specifically identify a start date for Tier II compliance, and in the absence of express language to the contrary, we conclude that the General Assembly intended Tier I and Tier II resources to have the same compliance schedules. The Act clearly contemplates that rules for net metering and interconnection, standards for the participation of demand side management and energy efficiency resources, and the parameters of an alternative energy credits program will have to be developed for the Act's successful implementation. Finally, the Commission notes that all EDC service territories are currently exempt from compliance through the end of this year. No purpose can be served by commencing the first reporting year for Tier II resources on June 1, 2005. Therefore, the Commission finds that Tier II compliance will also commence on February 28, 2007. This determination results in the following fifteen year compliance schedule for Tier I and Tier II resources, and the solar photovoltaic share of Tier I:

Tier I %
(incl. Solar)
Tier II%Solar
PV %
Year 1: June 1, 2006 through May 31, 2007 1.5% 4.2% .0013%
Year 2: June 1, 2007 through May 31, 2008 1.5% 4.2% .0013%
Year 3: June 1, 2008 through May 31, 20092.0% 4.2% .0013%
Year 4: June 1, 2009 through May 31, 2010 2.5% 4.2% .0013%
Year 5: June 1, 2010 through May 31, 2011 3.0% 6.2% .0203%
Year 6: June 1, 2011 through May 31, 2012 3.5% 6.2% .0203%
Year 7: June 1, 2012 through May 31, 2013 4.0% 6.2% .0203%
Year 8: June 1, 2013 through May 31, 2014 4.5% 6.2% .0203%
Year 9: June 1, 2014 through May 31, 2015 5.0% 6.2% .0203%
Year 10: June 1, 2015 through May 31, 2016 5.5% 8.2% .2500%
Year 11: June 1, 2016 through May 31, 20176.0% 8.2% .2500%
Year 12:June 1, 2017 through May 31, 2018 6.5% 8.2% .2500%
Year 13: June 1, 2018 through May 31, 20197.0% 8.2% .2500%
Year 14: June 1, 2019 through May 31, 20207.5%8.2% .2500%
Year 15: June 1, 2020 through May 31, 2021 8.0% 10.0%   .5000%

Years 16 and thereafter use the Tier I, Tier II and solar photovoltaic compliance thresholds in effect for Year 15 to the extent that these obligations are not later modified by the General Assembly.

   2.  Compliance Exemption Periods

   Act 213 provides that compliance with the schedules for Tier I and Tier II utilization is exempted for the duration of the ''cost recovery period'' in each EDC service territory, as defined in Section 2 of the Act. This is either the period for which competitive or intangible transition charges are being collected within a given territory, or for the duration of a generation rate plan that has been approved by the Commission no later than February 28, 2006, whichever period is longer. The currently approved stranded cost recovery periods and EDC provider of last resort (''POLR'') plans are set to expire at various dates between now and December 31, 2010. The current expiration dates for the cost recovery period in each EDC service territory and their compliance start dates for compliance is as follows:

Exemption expires1
Compliance begins

Pike County Power and Light December 31, 2005 February 28, 2007
Citizens Electric of Lewisburg February 28, 2006 February 28, 2007
Wellsboro Electric Company February 28, 2006 February 28, 2007
UGI Utilities Inc.--Electric Division December 31, 2006 February 28, 2007
Pennsylvania Power Company December 31, 2006 February 28, 2007
Duquesne Light Company December 31, 2007January 1, 2008
West Penn Power Company2
December 31, 2008 January 1, 2009

PPL Electric Utilities, Inc. December 31, 2009 January 1, 2010
Pennsylvania Electric Company December 31, 2010 January 1, 2011
Metropolitan Edison Company December 31, 2010 January 1, 2011
PECO Energy Company December 31, 2010 January 1, 2011

   The expiration of an exemption period during the middle of a reporting period raises a compliance calculation issue. For example, the Commission approved stranded cost recovery period for the PECO Energy Company does not expire until December 31, 2010. That date falls within Year 5 of the compliance schedule, which is June 1, 2010 through May 31, 2011. Under Subsection 3(d) of the Act, PECO would not be obligated to comply with the schedules of Tier I and Tier II until its cost recovery period expires on January 1, 2011. Accordingly, PECO's compliance for Year 5 would only be calculated on sales of electricity to retail customers made from January 1, 2011 through May 31, 2011. EGSs who sold electricity to retail customers within PECO's service territory would only have to meet the compliance obligation for the January 1 through May 31 portion of Year 5 as well.

   Finally, Subsection 3(d) of the Act requires EDCs and EGSs to comply with the Tier I and Tier II thresholds that are in effect at the time that their exemption expires. Using the previous example, at least 9.2% of the energy sold to retail customers by PECO for the period of January 1, 2011, and May 31, 2011 would have to be derived from alternative energy resources (3.0% from Tier I and 6.2% from Tier II).

   3.  Banking of Alternative Energy Credits

   Under the schedule previously identified, EDCs and EGSs will not have to comply with the Tier I and Tier II requirements for several more years. However, these parties may bank alternative energy credits for sales of alternative energy made now for use when their exemption period expires. Parties may also bank credits for activities taken after the conclusion of their exemption period for use in later reporting years. This Order will identify the inception and expiration dates for credits created during the cost-recovery period. The actual qualification process for alternative resources and certification of credits will be addressed separately by the Commission at a later date.

   Subsection 3(d)(7) specifically addresses banking of credits prior to the conclusion of the compliance exemption period. It provides that credits may be accrued for retail sales of Tier I and Tier II resources made ''prior to the end of the cost-recovery period and after the effective date of this act.'' As noted, the effective date of the Act is February 28, 2005. Accordingly, EDCs and EGSs may begin to bank credits for sales of Tier I and Tier II resources made after February 28, 2005.

   There is one exception to this rule. Subsection 3(e)(10) provides that credits related to reductions due to DSM and energy efficiency measures may begin to accrue ''starting with the passage of this act.'' The Act was passed on November 30, 2004. In resolving this seeming conflict, the Commission will apply 1 Pa.C.S. § 1933 to give effect to both provisions. Accordingly, the Commission finds that EDCs and EGSs may bank alternative energy credits for DSM and energy efficiency measures taken on November 30, 2004 and later, but for all other activities credits may only be banked for sales of alternative resources made after February 28, 2005.

   Subsection 3(e)(7) states that credits may only be accrued to the extent that the sales of these Tier I and Tier II resources exceed the volume of sales from those same resources by an EDC or EGS during the twelve month period preceding the effective date of the Act. For example, if 1% of the energy sold by PECO to its retail customers in the period February 28, 2004 through February 28, 2005 was derived from Tier I resources, PECO could only earn and bank credits during the exemption period for those Tier I sales in excess of 1% in the period following the effective date of the Act.

   Subsection 3(e)(7) also identifies the time period that these banked credits retain their value. Specifically, they are available for compliance ''for no more than two reporting years following the conclusion of the cost-recovery period.'' For example, PECO's cost-recovery period expires on December 31, 2010, during Year 5 of the compliance schedule, which runs from June 1, 2010, through May 31, 2011. The Commission finds that Subsection 3(e)(7) would allow PECO to use credits it banked during its exemption period for Year 5 and Year 6. Year 5 would be the first reporting period following the conclusion of its cost-recovery period on December 31, 2010, and Year 6 would be the second reporting period in which banked credits could be used. In this example, banked credits held by PECO beyond the conclusion of Year 6 on May 31, 2012, would be deemed void for compliance purposes.

C. Alternative Energy Portfolio Standards Working Group

   The Act requires the Commission to utilize a stakeholder process to develop rules for net metering and interconnection. Accordingly, the Commission has convened the previously mentioned Working Group in order to comply with this mandate.3 The Commission has also referred the development of DSM and energy efficiency rules to the Working Group for consideration. The Commission charges the Working Group to study these issues, to attempt to develop consensus to the degree possible, and to make a recommendation to the Commission on the nature of the rules to be adopted. The Act establishes a schedule by which the Commission must issue these rules for public comment.

   1.  Interconnection and Net Metering

   Section 5 of the Act requires the Commission to develop interconnection and net metering rules for distributed generation resources within nine months of the effective date of the Act. This requires that the Commission issue rules by November 30, 2005. The Commission will issue these rules for public comment in the form of proposed rulemaking orders. The proposed rulemaking order on interconnection standards will be issued at the rulemaking docket opened last November on this subject. Advance Notice of Proposed Rulemaking Regarding Small Generation Interconnection Standards and Procedures, Docket No. L-00040168 (Order entered November 19, 2004). A new rulemaking docket will be opened at a later date for net metering standards. While net and interconnection will be addressed through separate rulemakings, the Commission acknowledges that these issues are interrelated and will take this into consideration when it issues proposed regulations.

   Act 213 intends for distributed resources to play an important role in the alternative energy market. The Act recognizes that standard rules for the interconnection of these resources and net metering for customer-generators are necessary for this to occur. In order to facilitate the participation of these resources in this market, the Act provides that the Commission will adopt rules that are consistent with those of other states in the region, and in particular those of the PJM Interconnection, LLC (''PJM'') control area.

   The Commission has been closely following the recent adoption of interconnection and net metering rules in New Jersey, which has a renewable portfolio standard. Net Metering and Interconnection Standards for Class I Renewable Energy Systems, N.J.A.C. § 14:4-9. The Commission is also studying the tariff revisions filed by PJM with the Federal Energy Regulatory Commission (''FERC'') on January 18, 2005 that will govern the interconnection of small distributed generation resources with the transmission system in the PJM control area. PJM Interconnection, L.L.C., Docket No. ER05-462-000. Finally, the Commission has been actively participating in the Mid-Atlantic Distributed Resources Initiative, (''MADRI'') a coalition representing regional state utility commissions, FERC, PJM, the U.S. Department of Energy and the United States Environmental Protection Agency that are working to develop uniform rules for demand response and distributed generation. The Commission was a founding member of MADRI and holds a seat on its steering committee. A common touchstone to all of these processes is the Institute of Electrical and Electronics Engineers Standard for Interconnecting Distributed Resources with Electric Power Systems (''IEEE 1547''). IEEE 1547 is a uniform, technical standard for the interconnection of distributed resources that has served as a basis for the rules adopted by New Jersey and other states, and the proposed rules filed by PJM with FERC.4 While it is an evolving standard, the Commission intends to base its rules on IEEE 1547, as it represents the best available technical standard for the interconnection of distributed generation resources.5

   2.  Energy Efficiency, Demand Side Management and Load Management

   Subsection 3(e)(11) of the Act requires the Commission to propose rules within one hundred and twenty days of the Act's effective date that will enable the participation of demand side management (''DSM''), energy efficiency and load management resources in the alternative energy market. Primarily, the Commission must propose standards for verifying and tracking savings that result from these measures. Additionally, the Commission must develop a depreciation schedule for alternative energy credits created as a result of these activities. Subsection 3(e)(10) requires that these rules eventually be issued in the form of proposed regulations. The Act establishes a 60 day public comment period after these rules are first proposed, and the Commission must then issue final standards within 30 days of the comment period's expiration. Given the complexity of this topic, this matter has been referred to the Working Group for further study and a recommendation to the Commission.

   One hundred and twenty days from the Act's effective date is June 28, 2005. Accordingly, the Commission intends to release its initial proposal for these rules on or before June 28, 2005. The Commission will schedule a thirty day comment period that will commence with the publication of this Order. Interested parties will have an additional thirty days to submit reply comments at the conclusion of this period.

   Therefore, the Commission will announce its proposed standards in the following manner. The Commission will issue its initial proposal in the form of a tentative order. After the conclusion of the sixty day comment and reply comment period, a final order will be issued establishing these standards. The Commission intends to closely monitor the effectiveness of these DSM, energy efficiency and load control technology rules for a reasonable trial period. At the conclusion of the period, the Commission will propose regulations governing the verification and tracking of these measures, as required under Subsection 3(e)(10) of the Act.

   As already noted, the primary issue for consideration is the means of verifying and tracking the reductions or shifting of electricity consumption by retail customers due to DSM, energy efficiency and load management measures. This is a challenging assignment, and it is noteworthy that Pennsylvania is the only state within the PJM region to include these resources within its alternative energy standard. The Working Group must consider the scope of the savings to be tracked and the most efficient means of measuring the reduction or shifting of electricity consumption by retail customers.

   A secondary issue is the development of a depreciation schedule for alternative energy credits that are created as a result of using these programs and technologies. The Working Group is to study what was intended by this portion of the Act and the method for implementing this provision without discouraging the development of these resources.

   3.  Other Issues for the Working Group

   The Working Group is intended to serve as a forum for addressing the technical standards, business rules, and regulatory framework necessary for the Act's successful implementation. At this time, the Commission is considering referring the development of the rules for an alternative energy credits trading program to the Working Group. This referral likely will not occur until after the Working Group has submitted its recommendation to the Commission on DSM and energy efficiency standards. Interested parties may suggest additional topics to be considered by the Working Group in the comments filed in response to this Order.

D. Request for Comments

   Act 213 presents a number of legal and policy questions that will require resolution by the Commission. Some of these questions were previously addressed by the stakeholders in the comments and reply comments filed in connection with the January 19, 2005 technical conference. The Commission recognizes that, given the relatively short notice afforded in advance of the technical conference, all interested parties may not have had the chance to respond or sufficient time to fully address various questions. The Commission has also identified some additional issues that are in need of resolution since the conclusion of the previous comment period. The Commission will solicit input from interested stakeholders as we continue to implement the Act. Parties may offer comments on the topics addressed in this Order consistent with the instructions in ordering paragraph one.

E. The Pennsylvania Sustainable Energy Board

   Four regional sustainable energy funds were established as a result of Commission approved electric restructuring settlements. The Commission later established the Pennsylvania Sustainable Energy Board (''PASEB'') to provide guidance and oversight to these regional funds. Electric Distribution Companies' Sustainable Energy Funds, Docket Nos. R-00973953, R-00973954, R-00973981, R-00974008, R-00974009 (Order entered July 1, 1999). The role of the PASEB was more fully defined by the Commission in 2003. Statewide Sustainable Energy Board, Docket No. M-00031715 (Order entered August 12, 2003). The PASEB worked throughout 2004 to develop proposed drafts of its own governing bylaws and best practices for the regional sustainable energy funds. These drafts were to be eventually submitted to the Commission for its review and approval.

   The passage of Act 213 on November 30, 2004 resulted in the PASEB being assigned additional responsibilities. Specifically, the PASEB has been designated the recipient of all alternative compliance payments made pursuant to Subsection 3(g) of the Act. The PASEB is to make these monies available to the four regional funds only for projects that ''will increase the amount of electric energy generated from alternative energy resources.''

   This delegation of responsibility presents a number of questions. This includes the manner of the receipt and custody of alternative compliance payments and the process by which they are disbursed to the regional funds. The Commission directs the PASEB to meet as appropriate and address these issues. The PASEB should consider needed changes to its draft bylaws and best practices for the regional funds. The PASEB should submit revised drafts of its bylaws and best practices, and any other recommendations, to the Commission for approval no later than April 1, 2006.

F. Conclusion

   The Commission is committed to ensuring the successful implementation of Act 213 and looks forward to working with the DEP and all interested parties in achieving this objective. The Commission encourages all stakeholders in this process to participate in the activities of the Alternative Energy Portfolio Standards Working Group as may be appropriate; Therefore,

It Is Ordered That:

   1.  An original and 15 copies of any written comments on the issues identified herein be submitted within 60 days of the entry date of this order to the Pennsylvania Public Utility Commission, Attn.: Secretary James J. McNulty, P. O. Box 3265, Harrisburg, PA 17105-3265. Reply comments will be due 30 days from the last date of the comment period. All comments will be posted on the Commission's public internet domain, and accordingly service on other parties is not required. To facilitate posting, all filed comments and reply comments should be forwarded by means of electronic mail to Shane Rooney and Carrie Beale at and cbeale@ Courtesy copies should be forward to Britte Earp of the DEP at

   2.  Electric distribution companies and electric generation suppliers will adhere to the schedule for compliance with Act 213 identified in this order, to the extent that their obligations are not otherwise modified by the Commission or the Pennsylvania General Assembly.

   3.  The Pennsylvania Sustainable Energy Board shall meet and examine how Act 213 should be implemented regarding the receipt of alternative compliance payments and their disbursement to the regional sustainable energy funds. Previous deadlines for the submission to the Commission of bylaws for the Pennsylvania Sustainable Energy Board and best practices for the regional energy funds are waived in light of the impact of Act 213 on the Pennsylvania Sustainable Energy Board's duties and obligations. Bylaws and best practices shall be filed with the Commission for approval by April 1, 2006.

   4.  This order be published in the Pennsylvania Bulletin and a copy of this order served on all jurisdictional electric distribution companies, all licensed electric generation suppliers, the Office of Consumer Advocate, the Office of Small Business Advocate, the Office of Trial Staff and the DEP.


[Pa.B. Doc. No. 05-676. Filed for public inspection April 8, 2005, 9:00 a.m.]


1  The Commission has approved interim POLR plans for a number of EDCs (Pike, Citizens, Wellsboro and UGI) where the currently approved rates expire prior to February 28, 2007. The Commission has also approved POLR rates in the Duquesne territory through December 31, 2007. The Commission will continue to approve interim POLR plans for these companies until final POLR regulations become effective. The Commission's Notice of Proposed Rulemaking for POLR regulations was published in the Pennsylvania Bulletin on February 26, 2005. Rulemaking Re Electric Distribution Companies' Obligation to Serve Retail Customers at the Conclusion of the Transition Period Pursuant to 66 Pa.C.S. § 2807(e)(2), Docket No. L-00041069 (Order entered December 16, 2004). Initial public comments are due on April 27, 2005, and comments from the Independent Regulatory Review Commission (''IRRC'') will be received in late June. After completing its review of the comments, the Commission will issue a final proposed rulemaking order, which must be approved by IRRC and the Pennsylvania Office of the Attorney General. Accordingly, the effective date of POLR regulations cannot be known with any certainty at this time. The exemption period for some EDC service territories may therefore be extended beyond the dates identified in this Order as a result of approving additional, interim POLR plans.

2  On September 7, 2004, the Commission was asked to approve a settlement agreement that would extend West Penn Power's stranded cost recovery period through December 31, 2010. Petition of West Penn Power Company for Issuance of Further Supplement to its Previous Qualified Rate Orders Under Sections 2802 and 2812 of the Public Utility Code, Docket No. R-00039022; Joint Petition of the West Penn Power Company's Restructuring Plan and Related Proceeding; Docket No. R-00973891. The proposed settlement is pending before the Office of Administrative Law Judge for a Recommended Decision on its merits.

3  The Commission has established an electronic distribution list to manage future communications between Commission staff and participants in the Working Group. Interested parties who intend to participate in the Working Group, and who have not already asked to be included in the list, should forward their contact information to Carrie Beale at

4  These standards may be viewed at the IEEE's public internet domain at

5  Act 213, in the definition of ''customer-generator'' references interconnection rules promulgated by the IEEE.

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