Clean Transportation in PA: Big Questions for 2022 (Part 2)
Will the Public Utility Commission take on EV rate design and utility support for electrification?
This blog was co-authored with Will Bernstein, Climate Advisor to the City of Pittsburgh
This is the second part of a three-part blog. This part discusses a petition concerning EV rate design filed at the Pennsylvania Public Utility Commission and transportation legislation in the General Assembly. Part 1 focuses on the Federal Infrastructure Investment and Jobs Act and the funding that may be coming into Pennsylvania as well as opportunities for the Commonwealth to adopt regulations to help increase the number of electric vehicles (EVs) available to customers. Part 3 focuses on the importance of sustainable transit funding and other tools for reducing vehicle miles travelled.
Question 3: Will the Public Utility Commission take on EV rate design and utility support for electrification?
On February 4, 2022, a coalition of EV advocates, EV companies, and environmental organizations (including NRDC) through the ChargEVC-PA Coalition, petitioned the Pennsylvania Public Utility Commission (PUC) to “initiate a proceeding that will result in the issuance of a Policy statement on electric utility rate design for [EV] charging in Pennsylvania.”
If you’re not deep in the weeds on EVs and electric utility regulation, this request may strike you as obscure. But the way electricity rates are designed for EV charging has enormous implications for the charging costs, as well as for household electricity bills.
“Rate design” and the related term “ratemaking” refer to the process by which the PUC decides how utilities recover costs from customers. When you pay your electric bill, you pay a commodity cost for the electricity itself—but you also pay rates and charges that recover the capital cost of the utility’s distribution system, operational costs like storm response, etc., and that provide the utility with a regulated rate of return on its investments.
“Rate design is more of an art than a science,” the PUC has written, “and considerable judgment is involved.” Where EV charging is concerned, that judgment must be exercised to manage the increased demand for electricity, or “load growth,” that EVs will entail. As the ChargeEVC petition explains:
The growth of EVs potentially presents the most significant load-growth challenge for electric utilities in decades. If managed properly, though, through appropriate rate design, this growth could potentially lower rates for all customers. However, if customers do not receive price signals through rates or other encouragement to charge during off peak periods, this growth could drive significant increases to system investments, and thus rates for all customers.
One rate design methodology the petition proposes for discussion is “time-varying” or “time of use” rates for EVs. Such rates can “provide a clear price signal to customers to avoid charging during peak times, when system costs and demand are high,” and “encourage customers to shift charging from high system utilization and cost times to lower cost times of day.” And real world data has shown that EVs, when optimally using the electric grid, can lower rates for all utility customers.
In 2018, NRDC initiated a discussion of these issues at the PUC with a report from Synapse Energy Economics titled Driving Transportation Electrification Forward in Pennsylvania: Considerations for Effective Transportation Electrification Ratemaking. That report received little attention (perhaps understandably, since we submitted it on the PUC’s alternative ratemaking docket). And unfortunately, the PUC’s willingness to take up the ChargeEVC petition appears highly uncertain, now. On February 25, rather than accepting the petition, the PUC issued a Secretarial Letter requesting comments on “whether to initiate such a proceeding and the parameters of the proceeding, if opened.”
This is not a good sign. On the other hand, given the direction of automakers and the EV charging infrastructure investments being made under the IIJA, it is difficult to see how the PUC can ignore these critical issues, given its mandate to ensure “just and reasonable” electricity rates. Comments in response to the Secretarial Letter are due on April 11 and the PUC is also accepting reply comments, due on May 11.
Beyond rate design, the Commonwealth’s utilities also need the ability to propose and implement additional programs to support the build out of electric vehicle charging infrastructure—including through supporting “make-ready” infrastructure (illustrated below) and providing important education and outreach to customers. The legislature can support this buildout through legislation that we’ll discuss in Question 4. These types of policies and programs will help further bolster the state’s competitiveness with the IIJA grant funding as well.
Question 4: What will the Pennsylvania General Assembly do?
Since Act 89 of 2013, which overhauled the way transportation infrastructure and mass transit are funded in Pennsylvania, the General Assembly has passed few major transportation bills and no bills to support transportation electrification. Instead:
- In each of the last three legislative sessions, bills have been introduced to expand utility support for EV charging infrastructure. (See this NRDC blog on the 2019-20 version of the legislation). This session there are two bills that would support the expansion of EV infrastructure in the state: SB 435, which would help clarify the roles of electric utilities in the build-out of EV charging and support the make-ready infrastructure described above; and HB 1285, which would also support EV infrastructure, but unfortunately also includes provisions that would expand gas infrastructure—something we don’t want to see.
- In the 2019-20 session, legislation was introduced to expand the ability of EV manufacturers and distributors to open dealerships in Pennsylvania. It never got a vote in committee and was not reintroduced this session.
- In February 2021, the House unanimously passed HB 140, a bill to improve the safety of bike lanes in Pennsylvania. It has languished in the Senate Transportation Committee ever since.
Given the other developments discussed in this blog—PennDOT’s IIJA investments in EV infrastructure, the DEP’s work on ZEV policies, and the EV rate design petition at the PUC—it’s reasonable to ask how much inaction at the General Assembly matters. What should the legislature do?
To some extent, the answer depends on exactly what the state agencies do with their projects. For example, PennDOT IIJA EV infrastructure plan will bring in lots of federal funding to support EV charging infrastructure. However, we know that the amount of money coming into Pennsylvania is not nearly enough to fully support the EV infrastructure needs for the state.
On the other hand, legislative action is necessary if Pennsylvania is to sustainably fund transportation infrastructure (i.e., roads and bridges), mass transit, and bicycle and pedestrian infrastructure more broadly. This means replacing Act 89.
Everyone in Harrisburg agrees that Act 89 isn’t raising enough revenue for roads and bridges, mainly because it makes that funding heavily dependent on the gas tax, and revenues from that tax are declining as cars and trucks become more fuel-efficient. EVs, while a miniscule driver of lower gas taxes at present, will exacerbate the revenue problem as their adoption grows. Meanwhile, Act 89 also provides too little funding to support the Commonwealth’s public transit agencies, from SEPTA in southeastern Pennsylvania and the Port Authority of Allegheny County to small systems like the River Valley Transit Authority in Williamsport.
In light of these issues, in 2021 Governor Wolf directed PennDOT to develop a “comprehensive, strategic proposal for addressing the multimodal transportation funding needs of Pennsylvania.” PennDOT in turn convened a Transportation Revenue Options Commission (TROC) consisting of various public and private sector stakeholders, and last summer the TROC released a report, along with a related Planning and Environmental Linkages Study. The centerpiece of the report is a proposal to phase out the state gas tax over time with a Miles Based User Fee (MBUF), first for EVs and ultimately for all vehicles.
In a world transitioning to electrified transportation, replacing the gas tax is essential and some kind of MBUF is almost certainly part of the solution. But how the MBUF is designed and how it’s phased in are difficult and complicated questions. No one expects the General Assembly to take up the issue in 2022, but in the 2023-24 session, the legislature should make the replacement of Act 89 its top transportation priority, and conduct an inclusive, transparent, and equitable policymaking process to do so.