Delaware: REPSA cost cap
04/10/17 Filed in: Energy
Reader feedback at end.
This week we will take a break from national issues and report on an effort by interested parties to get state regulators to enforce a statutory cost cap on renewable energy programs. The cap was presumably intended to avoid unreasonably driving up electric power costs for Delaware consumers; it should be calculated and applied accordingly.
We’ll begin by reprising some background information, and then cover recent developments and the path forward.
A. Background - Delaware deregulated electric power production in the 1990s but retained regulatory control of electric power distribution in the state. Transportation and service rates of distributors are subject to approval by the Public Service Commission (PSC).
In late 2005, several Northeastern states (currently DE, MD, NY and the New England states) launched an interstate compact called the Regional Greenhouse Gas Initiative (RGGI). This is a regional cap and trade plan, which was intended to stabilize and then gradually reduce the level of emissions from burning fossil fuels for the generation of electric power.
Delaware enacted the Renewable Energy Portfolio Standards Act (REPSA) to meet its RGGI commitment. This legislation requires electric power distributors to either (a) obtain a growing portion of the electric power they distribute in the state from renewable energy sources (as defined in the legislation), to be evidenced by purchasing and turning in renewable energy credits purchased in a regional cap and trade market, or (b) cover the shortfall by making “alternative compliance payments” as specified in the statute. REPSA, Section 358.
In 2010, the legislature accelerated and extended the Renewable Portfolio Standard (RPS) goals. The current phase-in schedule is 13% in 2015, 14.5% in 2016, 16% in 2017 . . . 25% in 2025. To assuage concerns that these goals might be overly burdensome for consumers, a 3% cost cap was established for renewable energy charges in electric power bills. If the cost cap was exceeded, phase-in of the Renewable Portfolio Standard (RPS) could be paused until the situation was corrected. http://bit.ly/2nr0gN6 (search for 3%)
The State Energy Coordinator [an official within DNREC; the position has now been replaced by a staff group] in consultation with the [Public Service] Commission, may freeze the minimum cumulative eligible energy resources requirement for regulated utilities if the Delaware Energy Office [a group within DNREC] determines that the total cost of complying with this requirement during a compliance year exceeds 3% of the total retail cost of electricity for retail electricity suppliers during the same compliance year. In the event of a freeze, the minimum cumulative percentage from eligible energy resources shall remain at the percentage for the year in which the freeze is instituted. The freeze shall be lifted upon a finding by the Coordinator, in consultation with the Commission, that the total cost of compliance can reasonably be expected to be under the 3% threshold. The total cost of compliance shall include the costs associated with any ratepayer funded state renewable energy rebate program, REC purchases, and alternative compliance payments.
Two subsequent developments ensured that – barring a resort to dodgy accounting - the cost cap requirement would be handily exceeded.
First, the legislature created a new and very expensive class of “renewable energy,” namely electric power produced from “qualified fuel cell provider” (QFCP) projects. (This amendment to REPSA was an integral part of a plan to induce Bloom Energy to build a fuel cell production facility in Delaware.)
Second, RGGI emission caps were slashed (e.g., by 45% in a single year) for the express purpose of boosting the cost of renewable energy credits. The overall RGGI adjustment was extended to Delaware’s quota by a Department of Natural Resources and Environmental Control (DNREC) regulation. Legislative approval was not sought.
Under REPSA, it appeared to be the PSC’s responsibility to issue regulations concerning enforcement of the 3% cost cap and other matters. With the acquiescence of the PSC, however, the regulations were proposed by DNREC and issued in purportedly final form at the start of 2016.
At that point, the DPA filed suit to block the DNREC regulations on several grounds. State regulations can cause problems too, part C, 6/27/16.
The PA’s complaint offered four reasons for issuing a declaratory judgment that the DNREC regulations were unlawful: (a) DNREC (as opposed to the PSC) had no authority to issue the regulations; (b) fuel cell charges should have been included in REPSA compliance costs: (c) retail cost of electricity should have been limited to supply charges rather than including transmission and distribution costs; and (d) purported benefits from REPSA should not have been included as an offset to compliance costs.
B. Recent developments – The lawsuit was settled on the basis that DNREC would withdraw its regulations and the PSC would issue its own version, seemingly a victory for the DPA. And when the PSC-proposed regulations were published, an adjustment for purported benefits from REPSA had been eliminated from the cost cap calculation. Many other objections to the DNREC regulations carried over to the PSC version, however, including points (b) and (c) from the DPA’s complaint.
The DPA responded by filing extensive (35 pages, over 10,000 words) comments on the PSC regulations including a point-by-point critique of purportedly defective provisions and proposed fixes that would necessitate a complete rewrite. This analysis was prepared for the DPA by Regina Iorii, a Deputy Attorney General with Delaware’s Department of Justice who also represented the DPA in its earlier challenge to the DNREC regulations.
On April 6, there was an opportunity for interested persons to express their comments on the proposed regulations before the Public Service Commission – typically subject to a 3- to-5 minutes time limit. Several attendees at the meeting asked to speak, including civic activist (and SAFE member) John Nichols.
Nichols had reviewed the DPA’s analysis in preparation for the meeting, and he was in full agreement therewith. This provided an opportunity to short-circuit the technical aspects of the matter and focus on the corrective action that should be taken. In this vein, Nichols read the following statement:
PSC Regulation Docket No. 56 - Comments of the undersigned on proposed regulations re implementation of the Renewable Energy Portfolio Standards Act as applied to retail electricity suppliers:
FIRST, I have reviewed and wholeheartedly endorse the comments submitted by the Division of the Public Advocate (prepared by Regina A. Iorri, Deputy Attorney General). The deficiencies noted in the regulations are unacceptable, in my opinion, and the changes that are proposed should be made. However, additional action may be called for under the circumstances.
SECOND, the Delaware legislature placed a 3% cost cap on renewable energy charges, which based on any reasonable reading of the statute has been handily exceeded. In my opinion (which is supported by the DPA comments), (A) the cost cap should apply to the supply charge on electric bills (not the total amount billed), and (B) qualified fuel cell provider charges should be included in renewable energy charges. On this basis, the renewable energy percentage is currently running about 15% – five times the statutory cost cap.
THIRD, the indicated remedy under the statute is to pause the phase-in of renewable energy requirements in order to prevent the 3% cost cap from being exceeded. And while the statute says this “may” be done rather than it “shall” be done, which was possibly intended to provide flexibility in the case of a marginal or temporary overrun, it’s hard to see how this wording could be stretched to excuse the large overruns that have developed without effectively treating the statutory cost cap as window dressing.
FOURTH, it is suggested that the Commission should declare a pause in the phase-in of renewable energy requirements, as required by the statute, pending a complete review of this situation and the issuance of final regulations.
None of the commissioners appeared to be shocked by the call for an immediate pause, and Nichols continued with some extemporaneous points about the high cost and manifest deficiencies of the Bloom Energy fuel cell venture. He concluded by predicting that Bloom would fail “in the fullness of time.”
One of the commissioners asked Nichols what “a complete review of the situation” might entail if the RPS phase-in was paused, and the latter cited a recent Delaware court decision holding that challenges to QFCP charges fall within the original jurisdiction of the PSC rather than the courts. In other words, a real rethinking of how REPSA is being applied would be expected and not simply some sort of perfunctory step.
Too bad that no media representatives were present, although several had been alerted that the hearing was going to take place. They could have picked up some juicy information about how regulators have seemingly been trying to rationalize the inconvenient REPSA cost cap instead of seeking to enforce it.
We don’t recall any media coverage of the DPA’s lawsuit against DNREC either, although an Internet search for David L. Bonar [predecessor of the current PA, Drew Slater] v. DNREC does lead to other reports including SAFE’s 6/27/16 blog entry. Perhaps challenges to state regulators by a fellow state official are not deemed to be newsworthy, although such challenges have not been common in Delaware.
C. Path forward – Written comments on the proposed PSC regulations can be submitted until April 24. Here are applicable instructions from the PSC.
Written comments can be filed electronically in DelaFile at http://delafile.delaware.gov/ by filling out the Public Comment Form located under Public Links. Written comments can also be mailed to Joseph DeLosa, Public Service Commission, Cannon Building, 861 Silver Lake Blvd., Suite 100, Dover, DE 19904 or via email to email@example.com, with the subject line “Regulation Docket No. 56.”
John Nichols would like to have a seat at the table on this issue. Efforts are underway to establish that his request for intervenor status should be granted on grounds that his participation would enjoy public support rather than merely representing an individual effort. If so disposed, readers might consider endorsing his participation in further discussions of this matter.
#Electric power suppliers may either provide evidence of RPS compliance by turning in renewable energy credits purchased in the auction market, which is the standard procedure, or make “alternative compliance payments.” - John Nichols [Text has been corrected, thanks.]
#Your faithful scribe submitted the following comments to the PSC on their proposed REPSA regulations:
1. Calculation of the 3% cost cap should be adjusted to include Qualified Fuel Cell Provider charges in the numerator and use supply charges (rather than supply charges + electric delivery charges) as the denominator. For other necessary corrections, see the extensive comments of the Division of Public Advocate.
2. In addition to belatedly issuing these regulations, Delaware regulators should order a pause in the phase-in of the Renewal Portfolio Standards until such time as it appears that the statutory cost cap will not be exceeded on a going forward basis. This action should have been taken already, and any further delay would be unconscionable.
3. I would urge approval of the request by John A. Nichols for intervenor status. Mr. Nichols’ zealous and well-informed advocacy of rational energy policies in Delaware has been much appreciated by members of Secure America’s Future Economy (see our website for details) and I believe many other Delawareans as well.
#Thanks for all you & John are doing about this outrageous situation! I sent the following comment to the PSC - Clint Laird
I write to encourage you to grant John Nichols intervenor status in the above matter.
I endorse Mr. Nichols' formal testimony.
# There is NOTHING in the global warming movement except Public Choice Economics. Its perpetrators are simply following their own self-interests by getting grants for themselves. The chief one--the ludicrous Al Gore, is an absolute non-scientist, but he has made at least $100,000,000 from his spiel. Stay with the denial; this nonsense can't last much longer. – SAFE member (GA)