On April 3, 2018, pursuant to the Future Energy Jobs Act (“FEJA”), the Illinois Commerce Commission (“ICC”) issued an Order adopting and modifying the draft Long-Term Renewable Resources Procurement Plan (“LTRRP”) submitted to it by the Illinois Power Agency (“IPA”). The ICC’s Order, still subject to petitions for rehearing that may be filed by May 3, 2018, notably rejects the IPA’s proposed reliance on spot renewable energy credit (“REC”) purchases to satisfy FEJA provisions. Instead, the ICC Order envisions procurement of RECs from more new utility-scale projects than contemplated by the IPA’s draft plan submitted to the ICC in December 2017. In addition to the one million RECs from such projects, already being obtained through the IPA’s Initial Forward Procurement under FEJA, the ICC Order (at p. 43) directs the IPA to procure “at least” two million more RECs from new utility-scale solar projects “as soon as possible” instead of the one million RECs the IPA proposed to obtain from such projects in a Spring 2019 procurement. The IPA will conduct this accelerated procurement of at least two million more RECs from utility scale solar projects in 2018 in accordance with a schedule to be announced later this spring. Rules and procedures for utility-scale project REC procurements are now well established through the IPA’s Initial Forward Procurement being completed this month. For more information on the Initial Forward Procurement, please also see our alerts on March 22, 2018 and Oct. 25, 2017. By contrast, initial smaller solar distributed generation (“DG”) projects (2 MW (AC) or less) authorized by the LTRRP, subject to the Adjustable Block Program for REC procurement, still must await further decisions from the IPA, including final prices to be paid for RECs from such projects, which may not be published until June 4, 2018. The ICC Order, however, resolves some DG issues, several of which are discussed below.

Adjustable Block Program for RECs from DG Capacity

While utility-scale projects win the right to obtain a REC sales contract by submitting the lowest bid for a REC price, the Adjustable Block Program offers a published price per REC to qualifying DG projects proposed by “Approved Vendors” properly registered with the IPA in accordance with rules that will not be effective until the IPA appoints a Program Administrator. Under the LTTRP, the “types” of projects are determined by energy capacity. Three types of DG projects can qualify for the Adjustable Block Program REC prices: Type 1 – small DG located at customer’s site, up to 10 kW; Type 2 – large DG located at customer’s site, over 10 kW up to 2 MW; Type 3 – community solar DG, up to 2 MW (up to 4 MW of separate projects no greater that 2 MW in capacity may be proposed by the same Approved Vendor and co-located on the same parcel or contiguous parcels of land, but no one entity can consume more than 40% of a community solar system’s output). Subject to certain limitations, Types 1 and 2 DG projects may also qualify for full net metering benefits, while community solar (Type 3) systems may qualify for energy-only net metering benefits. Smart inverter tariff rebates ($250/kW) may be available to certain Type 2 and community solar projects. Each of Type 1, 2 and 3 DG is divided into two geographic area groups: DG projects located within the MISO footprint in Illinois, and DG projects located within the PJM footprint in Illinois, mainly the greater Chicago area. Each of the three DG project Types in those geographic areas is allocated a certain amount of DG capacity which proposed DG projects may apply to serve, as explained further below. Under the LTTRP approved by the April 3 Order, the IPA is directed to obtain one million solar RECs through the Adjustable Block Program by the end of the 2020-21 delivery year. All DG projects that ultimately are chosen to provide capacity under Adjustable Block Program rates are eligible for 15 year term contracts to sell RECs to Illinois investor-owned electric utilities at REC prices determined and published by the IPA. The contracts are expected to obligate the chosen Approved Vendors to deliver RECs each year of the contract term and to deliver a total amount RECs specified in the contract, although the IPA has yet to publish actual contract forms that Approved Vendors will be expected to sign. The ICC has ruled that final REC contracts will be subject to ICC approval.

Adjustable Block DG Capacity Allocations

The ICC Order affirms that DG projects may be located in the service territories of municipal utilities and rural co-operatives, as well as in the service territories of the two major Illinois investor-owned utilities, and still be eligible for REC sales prices determined under the Adjustable Block Program. Total DG capacity eligible for Adjustable Block REC prices is allocated between the service territories of the two major Illinois investor-owned electric utilities, plus the service territories of nearby municipal utilities and rural co-operatives, although only the investor-owned utilities are required to purchase RECs from qualifying DG projects under FEJA. Thus, DG capacity located in the service territories of municipal utilities and rural cooperatives within the MISO Illinois service territory of one of the major investor-owned utilities would be eligible to apply for the allocation of DG capacity whose RECs would be purchased by that utility, and DG capacity located in the service territories of such entities within the PJM Illinois service territory of the other major investor owned utility would be eligible to apply for the allocation of DG capacity whose RECs would be purchased by that utility. Total capacity allocated to each of the MISO and PJM Illinois geographic service territories is sub-divided among solar DG project Types 1, 2 and 3 and into three separate blocks of capacity, Blocks 1, 2 and 3, to be made individually available for DG project application. Blocks 1 and 2 are assigned the same amount of capacity for each DG project Type, although the amount of total and block DG capacity differs between the MISO and PJM service territories, with the latter receiving a larger allocation than the former due to load differences between the service territories. Block 3 capacity is equal to approximately 20% of Block 2 capacity for each of DG solar project Types 1, 2 and 3. The ICC Order directs the IPA to hold about 25% of all available capacity for DG in reserve as discretionary capacity. How such capacity will be assigned in the future remains to be determined. Once the IPA sets final prices for RECs to be sold from each block of capacity and establishes all other Adjustable Block Program rules, solar DG project Approved Vendors may apply for the capacity for which their projects are eligible and the associated prices to be paid by investor-owned utilities for the RECs produced by such projects.

Lottery for Adjustable Block DG Capacity Overbooking

The “adjustable” block concept of the program comprehends the possibility that applications for an allocation of capacity from, for example, Block 1 will exceed the amount of capacity assigned to that block. In such a case, Block 1 would, in effect, expand to include a larger capacity allocation up to a certain limit. Once the limit is reached, however, the ICC Order confirms that a lottery will be used to determine the winning applicants. The current limit is 200% of Block 1 capacity. So if there are qualified applications for more than 200% of the Block 1 capacity allocated for a particular project type, i.e., Type 1, 2 or 3 DG project, a lottery would be employed to determine the winning applicants. Note that 200% of Block 1 capacity available for any given DG project Type would subsume all of Block 2 capacity for that DG project Type as Block 1 and Block 2 allocated capacity quantities are the same. In the event of oversubscription for Type 3 (community solar) projects, preference will be given to the projects that would serve a customer base consisting of at least 50% small subscribers. In an initial lottery, 50% of available funding would be awarded to such projects. Any remaining such community solar projects, and those community solar projects without at least 50% small subscribers, would be eligible to be awarded the remaining 50% of funding through a second lottery. The ICC Order does not address how qualified solar DG projects not selected by any necessary lottery for Block 1 capacity should be treated by the IPA relative to subsequent capacity blocks in the Adjustable Block Program, including blocks of capacity that may be formed from the 25% discretionary capacity set aside. The IPA (or the ICC on rehearing) may need to address this issue before the IPA commences the program.

Adjustable Block REC Prices for DG Projects

As updated on February 27, 2018, the IPA proposed a set of six different REC prices for different levels of DG and Community Solar capacity. These REC prices also vary between the two major investor-owned electric utilities in Illinois that will purchase RECs from solar DG projects. The capacity levels to which different REC prices are assigned are: a) less than or equal to 10 kW; b) greater than 10 kW, up to 25 kW; c) more than 25 kW, up to 100 kW; d) greater than 100 kW, up to 200 kW; e) greater than 200 kW, up to 0.5 MW; f) greater than 0.5 MW up to 2 MW. Note that the first REC price category applies only to Type 1 projects, whereas the remaining five REC price categories apply to Type 2 and 3 projects relative to their total capacity. In addition, the IPA proposed “adders” for community solar (Type 3) projects according to four different levels of small subscriber participation that also vary between the two major investor-owned electric utilities in Illinois that will purchase RECs from such projects. The small subscriber participation levels are: a) less than 25%; b) equal to or more than 25%, up to 50%; c) equal to or more than 50%, up to 75%; d) equal to or more than 75%. The ICC Order approves this basic structure for Adjustable Block Program REC pricing; but the REC prices published by the IPA on February 27 are not final. The ICC Order directs the IPA to publish final REC prices within sixty days of the date of the April 3, 2018 ICC Order.

Other Adjustable Block Program Issues

Numerous other issues remain to be resolved before the IPA can commence its Adjustable Block Program. These include REC contract terms, REC marketing regulations, Approved Vendor requirements, the filing and approval of investor owned utility smart inverter tariffs, net metering cap and transition issues, as well as interconnection procedures. Moreover, the IPA cannot accept registrations of Approved Vendors until it appoints a Program Administrator. Currently, the IPA does not expect to commence registration of Approved Vendors for the Adjustable Block Program until autumn of this year.