United States: PaPUC Establishes A New Policy That Permits Customer-Generators To Net Meter When The Alternative Energy System Is Owned And Operated By A Third-Party

The Pennsylvania Public Utility Commission ("PaPUC") issued a final order on March 29, 2012 ("Final Order") that sets forth a new policy under which the definition of "customer-generator" for purposes of net metering includes those customer-generators that contract with third-parties to perform the operational functions of the alternative energy system. Under this new policy, the system is only eligible for net metering if it is designed to generate no more than 110% of the customer-generator's historic annual electric consumption. The Final Order adopts the policy, with some modifications, that it originally set forth in a tentative order issued on July 28, 2011.

The Alternative Energy Portfolio Standards Act of 2004 ("AEPS Act")¹ and PaPUC regulations² limit net metering to a "customer-generator," which is, in part, defined as "a nonutility owner or operator of a net metered distributed generation system..." (emphasis added). The PaPUC recognizes that the definition of customer-generator may be interpreted as prohibiting net metering when the alternative energy system is owned and operated by a third-party developer. Because alternative energy systems may require significant initial capital outlay and technical expertise, some consumers contract with third-parties to build and operate the system while selling the electricity generated through a power purchase agreement. Before this Final Order, consumers were required to own the system or else maintain some level of operational control of the system to satisfy the definition of customer-generator and be deemed eligible for net metering. Now, customer-generators can rely on a third-party developer to own and operate the system.

110% Consumption Limitation

The PaPUC has implemented a size limitation that requires alternative energy systems owned and operated by third-parties to be designed to generate no more than 110% of the customer-generator's historic annual electric consumption. This consumption is the customer-generator's total electric usage in the twelve full months immediately preceding the customer-generator's submission of the interconnection application. This size limitation is intended to limit the potential for merchant generators to use net metering as a way to circumvent the wholesale electric market and gain excessive retail rate subsidies at the expense of retail customers. A system that is owned and operated by a customer-generator itself, and not a third-party, is not subject to the 110% consumption limit.

The PaPUC categorized the limit as a "design parameter" that must be complied with during the design phase. The PaPUC determined that this design phase limitation is sufficient and declined to place a 110% cap on the kWh output eligible for net metering, as requested by certain commenters.

The PaPUC also clarifies that, with respect to virtual meter aggregation, the 110% consumption limitation applies to the cumulative consumption of all meters that qualify for virtual meter aggregation under the AEPS Act and PaPUC regulations. Furthermore, the PaPUC required that when a customer-generator and developer seek to develop an alternative energy system in connection with a new building, the customer-generator and/or developer must provide an estimate of annual electric consumption for the new building and demonstrate that the system design does not exceed 110% of the annual estimated consumption. The customer-generator and/or developer must provide adequate support for the estimated consumption with the interconnection application, which may include one or more years of historical usage or estimates based on similarly equipped and utilized buildings. Lastly, the PaPUC noted that the 110% consumption limitation also applies to interconnection applications seeking to expand an existing alternative energy system.

Implications

The Final Order has important implications for consumers that do not have the financial and/or technical resources to design, build and operate an alternative energy system because they can now fully contract those tasks to a third-party and still engage in net metering. Pursuant to the PaPUC's new policy, consumers will no longer be required to own, or maintain some level of operational control over, the system to qualify as a customer-generator, thereby eliminating the uncertainty as to how much operational control a customer-generator is required to maintain. Furthermore, the Final Order will reduce contractual risk for customer-generators associated with maintaining operational control (i.e., system interruptions due to negligent operation). Customer-generators who negotiated arrangements with third-parties under which they assumed some level of operational control to qualify for net-metering may seek to use this new policy as a lever to negotiate a modification to those arrangements that shifts all operational control to a third-party.

The PaPUC's new "customer-generator" policy became effective on March 29, 2012, the date the Final Order was entered. Implementation may require that electric distribution companies modify their tariffs to incorporate this new policy, including the 110% consumption limitation.

Footnotes

1. 3 P.S. §§ 1648.1-1648.8.

2. 66 Pa.C.S. § 2814.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.