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Increasing Solar Energy Mandates Subject Of House Committee Hearing

The House Consumer Affairs Committee Wednesday held a hearing on House Bill 1580 (Ross-R-Chester) which would increase the mandate for electric utilities to purchase solar-generated power from 2012 to 2015.

            Rep. Chris Ross (R-Chester), prime sponsor of of the bill, updated the Committee on the legislation and indicated that he will be crafting an amendment that will do the following: 
-- Offset all the increases with decreases later; 
-- Further limit the potential impact on ratepayers by establishing a cap on the solar renewable energy credit (SREC) prices through an Alternative Compliance Payment of $325 per SREC in 2013, followed by a subsequent decline of two percent per year; 
-- Allow for solar thermal technology to qualify for SRECs as well as solar photovoltaic systems; and
-- Make it plain that solar technology must merely connect to the distribution grid, reconfirming that homes and businesses that use their own solar power some of the time still qualify for SRECs.
            Colin Murchie, Director of Government Affairs for SolarCity Corporation, gave an overview of the company and explained why the legislation is necessary. “If the AEPS existed in a vacuum, we wouldn’t be here; but there was a significant shock to this market - in 2007, just about $160 million of bond and stimulus money were also directed into the Pennsylvania solar market,” he said. 
            “The design and apace of these programs meant that they resulted in building out more solar more quickly than the AEPS would have. Clearly, the AEPS operates in a competitive supply/demand market. The demand ramps up over time. This additional funding meant there was extra supply. The result has been that REC prices have stopped drifting downwards due to technological progress and competition, and instead been sent to near-zero.” 
            Murchie argued the state should move forward with the AEPS requirements “as a targeted response to today’s oversupply problem, and to use the surging installations and plummeting costs of solar energy in the Commonwealth as a springboard to further success - not as an excuse to take a breather from years of progress.” 
            Keith Masser, Chief Executive Officer for Sterman Masser Inc. and speaking on behalf of the Pennsylvania Farm Bureau, described his experience shifting his business to a solar energy system.             
            “At the time we decided to go through with the project, there was a meaningful opportunity to secure much of the additional financing needed to manage the debt through marketing of  the SREC credit.
            “The price for the SREC credit at that time would allow us to finance this project in seven years - a loan term that would allow us to reasonably manage the costs incurred for such a debt level. My system was commissioned in May of 2011 and has produced 64 percent of the anticipated power generation in the first five months of operation.
            "However, the selling price for SRECs by Pennsylvania generators of electricity has sharply dropped to the point where we are falling $300,000 below the annual revenues we reasonably projected would be returned through SREC credits, breaking bank covenants and placing serious strains on cash flow and profitability of our businesses.” 
            Masser spoke in favor of the legislation and emphasized that it will “help to bring the SREC market in line with surrounding states by requiring solar production to take place in the state to qualify for SRECs” and “provide those who have already committed the significant debt risk for solar electrical generation the necessary revenue to keep the systems already developed in Pennsylvania viable while insuring there will be very minimal costs to consumers.”
            Barry Miller, President and CEO of Meadow Valley Electric Inc., spoke in favor of the bill. “House Bill 1850 requires systems to be installed with the state in order for our state ratepayers to have any obligation to help fund their cost; this only makes sense and in our view fixes a very large oversight in the original bill,” he stated. 
            “The legislation increases the near term amount of Solar PV Kilowatt hours that the owners of the electrical grid will be required to incentivize. This, in our opinion is also necessary, as recently Solar PV installations have been inadequately compensated due to oversupply based on the current requirement. This has led to an unforeseen and unjust financial burden on the owners of Solar PVS systems in the state of Pennsylvania.” 
            Terrance Fitzpatrick, President and CEO of the Energy Association of Pennsylvania (EAP), spoke against the legislation and said the bill would be harmful to consumers. “While the precise amount is not certain, EAP estimates that if House Bill 1580 is passed, the solar mandate could cost Pennsylvania ratepayers between $2.3 and $3.4 billion through 2021, and the increased costs will continue for as long as the mandates remain in place,” he stated. 
            “The amount of increase attributable to House Bill 1580 over the nine-year period is estimated to be between $1.3 and $2.3 billion.” Fitzpatrick argued that the bill “favors the interests of in-state solar developers over the interest of consumers” and said “on its face it appears designed to restrict the flow of interstate commerce, which is regulated by the federal government under the US Constitution.” 
            Romulo Diaz, Vice President of Governmental and External Affairs for PECO Energy Company, explained PECO was the first electric distribution company in Pennsylvania to file a plan with the PUC for a long-term contract to purchase solar alternative energy credits.
            He spoke against the bill and highlighted the following reasons: the bill will significantly increase the cost to consumers to comply with the Solar AEPS mandate without any environmental benefit;  will have a negative net economic impact on the Commonwealth, including the potential loss of jobs; and will revert to a pre-competitive market design where consumers assumed market risk for generation project development. 
            “PECO has serious concerns about the likely impacts of House Bill 1580 on our consumers, the Commonwealth’s economic competitiveness and on Pennsylvania’s competitive market structure, and we cannot support this bill,” Diaz concluded.
            Charles Fullem, Director of Rates and Regulatory Affairs for FirstEnergy, spoke on behalf of Metropolitan Edison Company, Pennsylvania Electric Company, Pennsylvania Power Company and West Penn Power Company in opposition to the legislation. He argued that it would raise costs for ratepayers and place undue burdens on utilities because it “increases the number of SRECs that our four utilities would be required to buy over the next three years by 132 million kilowatt-hours; at a price of $199 per SREC, that provision alone would cost customers about $26.3 million.” 
            Gene Barr, President and CEO of the Pennsylvania Chamber of Business and Industry, argued House Bill 1580 it would negatively impact consumers and energy intensive businesses. “The PA Chamber recognizes that alternative energy sources are an important part of the energy portfolio,” he stated.     
            “However the inclination to again provide cover to an industry that to this point has not been able to offer meaningful return to investors and that consistently requires additional support to maintain is not wise energy policies. The PA Chamber opposes additional mandates on the industry that will prove costly to consumers. We also oppose insulating the solar industry from the market by providing price support to improve the declining energy credit market.” 
            Jake Smeltz, Vice President of Electric Power Generation Association, urged the committee not to pass the legislation and highlighted the following points: 
-- Markets must be left to work out supply and demand Issues; House Bill 1580 is an attempt to directly intervene in the laws of supply and demand in order to increase current value of SRECs. 
-- House Bill 1580 artificially inflates value of SRECs by restricting marketplace to “Pennsylvania only,” resulting in higher costs to consumers; and
-- Jobs argument is overstated because House Bill 1580 fails to account for economic impact of higher electricity prices and displacement of other more cost-effective generation. 
            Bob Barkanic, Senior Director of Energy Policy for PPL EnergyPlus, spoke against the legislation. “House Bill 1580 would eliminate the savings that consumers and businesses are enjoying by increasing the costs of solar renewable energy credits in the Commonwealth,” he stated. “The bill would increase requirements for solar energy generation under AEPS three-fold, from 0.05 percent to 0.15 percent in 2013 and limit eligible sources of solar energy under AEPS to those within Pennsylvania only. 
            For the next three years - the period from June 1, 2012, to May 31, 2015 - the impact on consumers could be in excess of $200 million statewide due to higher SREC prices resulting from the requirements of House Bill 1580.” 
            Barkanic added “we are being naive if we think House Bill 1580 is a one-time fix for declining SREC prices” and concluded the bill “would set the precedent for an expectation of administrative fixes whenever returns are no longer guaranteed or ‘risk free.’”
           Andrew Kleeman, Senior Vice President, Mercury Solar Systems, stated House Bill 1580 is a market-based, inexpensive and highly cost-efficient mechanism to stop the collapse of an important and viable new industry.
            He said Pennsylvania solar jobs number in the thousands and this bill will prevent massive job layoffs. He indicated the actual cost to ratepayers will be approximately $113 million and, while that is a substantial sum, it will be spread over more than four million ratepayers which may be a smaller sum than the alternative cost of not passing House Bill 1580.
            He added state and federal programs have given solar power the chance to be successful and the gross cost of solar power has plummeted as a direct result of short term market access allowed by a myriad of programs. He emphasized “give us a reasonable set of corrected market rules to play by and we will continue to drive down the cost of energy for the Commonwealth.” 
            Dean Musser, President and CEO, Tangent Energy Solutions, Inc., stated the long-term SREC price is highly unstable due to the ongoing oversupply of reduce pressure on the grid and this improves reliability and avoids utility spending on grid upgrades. He added “solar electricity generated at a customer’s site reduces that customer’s energy costs but also benefits other customers.
            He stated Tangent supports a balanced approach and will use natural gas generating equipment where the customer’s needs and the site requirements allow them to do so but for these projects where solar is the right choice there needs to be stable SREC prices. He emphasized this bill provides the necessary adjustments for the SREC market to keep solar as an option in the Commonwealth to ensure customers have maximum flexibility to manage their energy in a way that benefits all Pennsylvanians.
            Josh Goldberg, Vice President, Astrum Solar, stated House Bill 1580 will not increase the overall solar requirement in Pennsylvania, but instead shifts the requirement forward so that the solar energy industry can be sustained and continue to grow. He said this bill will preserve thousands of highly-skilled, high paying jobs and will close Pennsylvania’s borders, just as neighboring states have done, ensuring that solar money and jobs will remain in the state. 
            Rep. Robert Godshall (R-Montgomery) serves as Majority Chair of the Committee and Rep. Joseph Preston (D-Allegheny) serves as Minority Chair.

1/16/2012

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