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                                                      PRINTER'S NO. 1477



No. 1134 Session of 2007

           OCTOBER 19, 2007

           OCTOBER 19, 2007

                                     AN ACT

     1  Amending Title 66 (Public Utilities) of the Pennsylvania
     2     Consolidated Statutes, in restructuring of electric utility
     3     industry, providing for rate change mitigation and for energy
     4     efficiency and demand-response measures; and further
     5     providing for duties of electric distribution companies.

     6     The General Assembly of the Commonwealth of Pennsylvania
     7  hereby enacts as follows:
     8     Section 1.  Title 66 of the Pennsylvania Consolidated
     9  Statutes is amended by adding sections to read:
    10  § 2806.1.  Rate change mitigation.
    11     (a)  Prepayment or deferment.--Following the expiration of a
    12  generation rate cap, if a default service provider's total
    13  retail rate for a customer class rises by more than 12%
    14  following the expiration of a generation rate cap, the following
    15  shall apply:
    16         (1)  The default service provider shall offer all of its
    17     residential and small business customers using 25kW or less
    18     in maximum registered peak load the opportunity to prepay or

     1     defer a portion of the increase by implementing a deferral or
     2     phase-in of the rate increase for up to three years.
     3         (2)  Competitively neutral rate mitigation options shall
     4     be included in the rate deferral or phase-in program of the
     5     default service provider to begin with the expiration of a
     6     generation rate gap approved by the commission.
     7         (3)  Default service providers may fully recover the
     8     reasonable carrying costs associated with a rate increase
     9     deferral program, including associated administrative costs
    10     and pay any reasonable carrying cost on prepayment by
    11     customers.
    12     (b)  Other mitigation strategies.--In addition to the
    13  mitigation strategy under subsection (a), a default service
    14  provider may propose other reasonable rate mitigation strategies
    15  that would reflect the incurrence of reasonable costs.
    16  § 2806.2.  Energy efficiency and demand-response measures.
    17     (a)  Policy.--It is the policy of the Commonwealth that
    18  electric distribution companies are required to use cost-
    19  effective energy efficiency and demand-response measures to
    20  reduce delivery load. Requiring investment in cost-effective
    21  energy efficiency and demand-response measures will reduce
    22  direct and indirect costs to consumers by decreasing
    23  environmental impacts and by avoiding or delaying the need for
    24  new generation, transmission and distribution infrastructure.
    25     (b)  Goals.--Electric distribution companies shall implement
    26  cost-effective energy efficiency and conservation measures to
    27  meet the following energy saving goals:
    28         (1)  By May 31, 2013, each electric distribution company
    29     shall reduce its total annual deliveries to retail customers
    30     by 2%. This load reduction shall be measured against the
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     1     expected load forecasted by the commission for June 1, 2012,
     2     through May 31, 2013. The commission shall determine and make
     3     public the forecasts to be used for each electric
     4     distribution company no later than May 31, 2008.
     5         (2)  By November 30, 2013, the commission shall evaluate
     6     the costs and benefits of these efficiency and conservation
     7     programs. If the benefits have been shown to exceed the
     8     costs, consistent with the total resource cost test, the
     9     commission shall set additional, incremental energy
    10     efficiency and conservation goals for the period ending May
    11     31, 2018.
    12         (3)  After May 31, 2018, the commission shall continue to
    13     evaluate the costs and benefits of efficiency and
    14     conservation measures and may adopt additional incremental
    15     load reduction standards for electric distribution companies.
    16     (c)  Reduction in peak demand.--
    17         (1)  Electric distribution companies shall implement
    18     cost-effective demand response measures to reduce peak demand
    19     by at least 3% in the 100 hours of highest demand. This
    20     reduction will be measured against the electric distribution
    21     company's peak demand in the 100 hours of greatest demand for
    22     June 1, 2007, through May 31, 2008. The reductions shall be
    23     accomplished by May 31, 2012.
    24         (2)  By November 31, 2012, the commission shall compare
    25     the total costs of these demand-response measures to the
    26     total savings in energy and capacity costs to Pennsylvania
    27     retail customers. If the benefits have been shown to exceed
    28     the costs, consistent with the total resource cost test, the
    29     commission shall order electric distribution companies to
    30     seek additional incremental peak demand reductions for the
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     1     100 hours of greatest demand or an alternative measure
     2     adopted by the commission. The reductions shall be measured
     3     from the electric distribution company's peak demand for the
     4     period from June 1, 2011, through May 31, 2012. The mandated
     5     reductions shall be accomplished no later than May 31, 2017.
     6         (3)  After May 31, 2017, the commission shall continue to
     7     evaluate the costs and benefits of demand-response measures
     8     and may adopt additional incremental peak reduction standards
     9     for electric distribution companies.
    10     (d)  Oversight.--Electric distribution companies shall be
    11  responsible for overseeing the design, development and filing of
    12  energy efficiency and demand-response plans with the commission.
    13  Electric distribution companies shall implement 100% of the
    14  demand-response measures in the plans. Electric distribution
    15  companies shall implement 100% of the energy efficiency measures
    16  approved by the commission and may, as part of that
    17  implementation, outsource various aspects of program development
    18  and implementation. A minimum of 10% of the entire portfolio of
    19  cost-effective energy efficiency measures shall be procured from
    20  units of local government, municipal corporations, school
    21  districts and community college districts. The commission shall
    22  coordinate the implementation of these measures. The portfolio
    23  of measures, administered by the utilities, shall be designed to
    24  achieve the annual savings targets described in subsections (b)
    25  and (c). The utility and the commission shall agree upon a
    26  reasonable portfolio of measures and determine the measurable
    27  corresponding percentage of the savings goals associated with
    28  measures implemented by the utility.
    29     (e)  Plan.--No later than November 15, 2008, each electric
    30  distribution company shall file an energy efficiency and demand-
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     1  response plan with the commission to meet the energy efficiency
     2  and demand-response standards. No later than December 1, 2008,
     3  each electric distribution company shall file an energy
     4  efficiency, conservation and demand-response program to meet the
     5  goals identified in subsections (b) and (c). Subsequent plans
     6  shall be filed pursuant to the commission's direction to obtain
     7  the delivered and peak load reduction goals. Every five years
     8  thereafter, each electric distribution company shall file an
     9  energy efficiency and demand-response plan with the commission.
    10  If a distribution company does not file such a plan, it shall
    11  face a penalty of $100,000 per day until the plan is filed. Each
    12  utility's plan shall set forth the utility's proposals to meet
    13  the utility's portion of the energy efficiency standards
    14  identified in subsection (b) and the demand-response standards
    15  identified in subsection (c). The commission shall seek public
    16  comment on the utility's plan and shall issue an order approving
    17  or disapproving each plan at a set date after its submission. If
    18  the commission disapproves a plan, the commission shall describe
    19  in detail the reasons for the disapproval and describe a
    20  procedure by which the utility may file a revised draft of the
    21  plan to satisfactorily address the commission's concerns. If the
    22  utility does not refile with the commission within 60 days, the
    23  utility shall be subject to penalties at a rate of $100,000 per
    24  day until the plan is filed. This process shall continue and
    25  penalties shall accrue until the utility has successfully filed
    26  a portfolio of energy efficiency and demand-response measures.
    27  Penalties shall be deposited into the appropriate sustainable
    28  energy fund. In submitting proposed energy efficiency and
    29  demand-response plans and funding levels to meet the savings
    30  goals adopted by this section, the utility shall:
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     1         (1)  Demonstrate that its proposed energy efficiency and
     2     demand-response measures will achieve the requirements of
     3     this chapter.
     4         (2)  Present specific proposals to implement new building
     5     and appliance standards that have been placed into effect.
     6         (3)  Present estimates of the total amount paid for
     7     electric service expressed on a per kilowatt hour basis
     8     associated with the proposed portfolio of measures designed
     9     to meet the requirements of this chapter.
    10         (4)  Coordinate with the commission to present a
    11     portfolio of energy efficiency measures targeted to
    12     households at or below 150% of the poverty level at a level
    13     proportionate to those households' share of total annual
    14     utility revenues in this Commonwealth.
    15         (5)  Demonstrate that its overall portfolio of energy
    16     efficiency and demand-response measures, not including
    17     programs covered by paragraph (4), are cost effective using
    18     the total resource cost test and represent a diverse cross
    19     section of opportunities for customers of all rate classes to
    20     participate in the programs.
    21         (6)  Include a proposed cost-recovery tariff mechanism to
    22     fund the proposed energy efficiency and demand-response
    23     measures and to ensure the recovery of the prudently and
    24     reasonably incurred costs of commission-approved programs.
    25         (7)  Provide for an annual independent evaluation of the
    26     performance of the cost-effectiveness of the utility's
    27     portfolio of measures, as well as a full review of the five-
    28     year results of the broader net program impacts and, to the
    29     extent practicable, for adjustment of the measures on a
    30     going-forward basis as a result of the evaluations. The
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     1     resources dedicated to evaluation shall not exceed 3% of
     2     portfolio resources in any given year.
     3     (f)  Allocation limit.--No more than 3% of energy efficiency
     4  and demand-response program revenue may be allocated for
     5  demonstration of breakthrough equipment and devices.
     6     (g)  Failure to meet standard.--If an electric distribution
     7  company fails to meet the efficiency standards specified in
     8  subsections (b) and (c), it shall be assessed a civil penalty in
     9  an amount up to $5,000,000 in accordance with this subsection.
    10  In addition, the responsibility for implementing the energy
    11  efficiency measures of the utility making the payment shall be
    12  transferred to the commission if, after five years, or in any
    13  subsequent five-year period, the utility fails to meet the
    14  efficiency standard. The commission shall implement a
    15  competitive procurement program to procure resources necessary
    16  to meet the standards in this chapter.
    17     (h)  Definitions.--As used in this section the following
    18  words and phrases shall have the meanings given to them in this
    19  subsection:
    20     "Amount per kilowatt hour."  The total amount paid for
    21  electric service expressed on a per kilowatt hour basis.
    22     "Cost-effective."  Measures which satisfy the total resource
    23  cost test.
    24     "Total amount paid for electric service."  The term includes,
    25  without limitation, estimated amounts paid for generation,
    26  transmission, distribution, surcharges and add-on taxes.
    27     Section 2.  Section 2807(e) of Title 66, amended July 17,
    28  2007 (P.L.120, No.36), is amended to read:
    29  § 2807.  Duties of electric distribution companies.
    30     * * *
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     1     (e)  Obligation to serve.--[An electric distribution
     2  company's obligation to provide] The obligation of a default
     3  service provider to furnish electric service following
     4  implementation of restructuring and the choice of alternative
     5  generation by a customer is revised as follows:
     6         (1)  While an electric distribution company collects
     7     either a competitive transition charge or an intangible
     8     transition charge or until 100% of its customers have choice,
     9     whichever is longer, the electric distribution company shall
    10     continue to have the full obligation to serve, including the
    11     connection of customers, the delivery of electric energy and
    12     the production or acquisition of electric energy for
    13     customers.
    14         [(2)  At the end of the transition period, the commission
    15     shall promulgate regulations to define the electric
    16     distribution company's obligation to connect and deliver and
    17     acquire electricity under paragraph (3) that will exist at
    18     the end of the phase-in period.
    19         (3)  If a customer contracts for electric energy and it
    20     is not delivered or if a customer does not choose an
    21     alternative electric generation supplier, the electric
    22     distribution company or commission-approved alternative
    23     supplier shall acquire electric energy at prevailing market
    24     prices to serve that customer and shall recover fully all
    25     reasonable costs.]
    26         (3.1)  From and after the expiration of an electric
    27     distribution company's obligation to supply electric energy
    28     and capacity to retail customers at capped rates, if a
    29     customer contracts for electric energy and capacity and the
    30     chosen electric generation supplier does not supply the
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     1     service or if a customer does not choose an alternative
     2     electric generation supplier, the default service provider
     3     shall provide electric generation supply service to that
     4     customer pursuant to a commission-approved competitive
     5     procurement plan. The electric power acquired to provide
     6     electric generation service under this paragraph shall be
     7     procured through competitive procurement processes that may
     8     include one or more of the following:
     9             (i)  Auctions.
    10             (ii)  Requests for proposal.
    11             (iii)  Bilateral contracts negotiated between the
    12         electric distribution company or commission-approved
    13         alternative supplier and a wholesale electric supplier,
    14         except that the bilateral contracts shall be entered into
    15         at the sole discretion of the electric distribution
    16         company or commission-approved alternative supplier and
    17         the commission shall have no authority to require the
    18         contracts and shall be at prices no greater than
    19         reasonable forward market prices.
    20             (iv)  Any other electric energy approved by the
    21         commission through regulation.
    22         (3.2)  The commission shall not modify contracts or
    23     disallow costs associated with contracts entered into
    24     pursuant to an approved competitive procurement process.
    25     Prices obtained through the competitive procurement processes
    26     shall be deemed to be prevailing market prices. The resources
    27     procured pursuant to this paragraph may reflect a mix of
    28     long-term, short-term or spot market purchases. The
    29     commission may disallow cost recovery if there has been
    30     fraud, collusion, market manipulation or similar activities
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     1     with regard to these contracts.
     2         (4)  If a customer that chooses an alternative supplier
     3     and subsequently desires to return to the local distribution
     4     company for generation service, the local distribution
     5     company shall treat that customer exactly as it would any new
     6     applicant for energy service.
     7         (5)  (i)  Notwithstanding paragraph (3), the electric
     8         distribution company or commission-approved alternative
     9         supplier may, in its sole discretion, offer large
    10         customers with a peak demand of 15 megawatts or greater
    11         at one meter at a location in its service territory any
    12         negotiated rate for service at all of the customers'
    13         locations within the service territory for any duration
    14         agreed upon by the electric distribution company or
    15         commission-approved alternative supplier and the large
    16         customer. The commission shall permit, but shall not
    17         require, an electric distribution company or commission-
    18         approved alternative supplier to provide service to large
    19         customers under this paragraph. Contract rates entered
    20         into under this paragraph shall be subject to review by
    21         the commission in order to ensure that all costs related
    22         to the rates are borne by the parties to the contract and
    23         that no costs related to the rates are borne by other
    24         customers or customer classes. If no costs related to the
    25         rates are borne by other customers or customer classes,
    26         the commission shall approve the contract within 90 days
    27         of its filing, or it shall be deemed approved by
    28         operation of law upon expiration of the 90 days.
    29         Information submitted under this paragraph shall be
    30         subject to the commission's procedures for the filing of
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     1         confidential and proprietary information.
     2             (ii)  For purposes of providing service under this
     3         paragraph to customers with a peak demand of 20 megawatts
     4         or greater at one meter at a location within that
     5         distribution company's service territory, an electric
     6         distribution company that has completed its restructuring
     7         transition period as of the effective date of this
     8         paragraph may, in its sole discretion, acquire an
     9         interest in a generation facility or construct a
    10         generation facility specifically to meet the energy
    11         requirements of the customers, including the electric
    12         requirements of the customers' other billing locations
    13         within its service territory. The electric distribution
    14         company must commence construction of the generation
    15         facility or contract to acquire the generation interest
    16         within three years after the effective date of this
    17         paragraph, except that the electric distribution company
    18         may add to the generation facilities it commenced
    19         construction or contracted to acquire after this three-
    20         year period to serve additional load of customers for
    21         whom it commenced construction or contracted to acquire
    22         generation within three years. Nothing in this paragraph
    23         requires or authorizes the commission to require an
    24         electric distribution company to commence construction or
    25         acquire an interest in a generation facility. The
    26         electric distribution company's interest in the
    27         generation facility it built or contracted to acquire
    28         shall be no larger than necessary to meet peak demand of
    29         customers served under this subparagraph. During times
    30         when the customer's demand is less than the electric
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     1         distribution company's generation interest, the electric
     2         distribution company may sell excess power on the
     3         wholesale market. At no time shall the costs associated
     4         with the generating facility interests be included in
     5         rate base or otherwise reflected in rates. The generation
     6         facility interests shall not be commission-regulated
     7         assets.
     8     Section 3.  This act shall take effect in 60 days.

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