AEPS Tier II Compliance Guide for Pennsylvania Electric Generation Suppliers

Every Electric Generation Supplier (EGS) licensed to sell electricity in Pennsylvania must demonstrate compliance with the state's Alternative Energy Portfolio Standard (AEPS) each year. The Tier II obligation — currently 10% of retail electricity sales from qualifying alternative energy resources — is met primarily through the purchase of Alternative Energy Credits (AECs). Understanding how the obligation is calculated, when procurement needs to happen, and how to manage ACP risk is essential for clean compliance filings and predictable cost structures.

This guide is written for EGS compliance officers, energy traders, and retail energy operations teams managing PA AEPS filings. It covers the Tier II obligation structure, AEC procurement options, the Alternative Compliance Payment (ACP) mechanism, and timing considerations.

How the Tier II obligation is calculated

Under Act 213 (the AEPS Act), licensed EGSs must supply a defined percentage of their retail electricity sales from alternative energy resources each compliance year. The compliance year runs June 1 through May 31. Tier II resources include a broad category of non-solar alternative energy: energy efficiency (demand-side management), combined heat and power, waste coal, distributed generation, and demand response.

An EGS's Tier II obligation is calculated as: (total retail electricity sales in MWh) × (Tier II percentage requirement). Each AEC covers 1 MWh of qualifying output, so the AEC procurement volume must equal the calculated obligation. Compliance is demonstrated by retiring the required number of AECs in PJM-GATS by the annual filing deadline.

Procurement options

EGSs have three primary paths to meeting Tier II obligations:

Option 1 — Direct market purchase: Purchase AECs on the open market from registered generators, CHP operators, and energy efficiency project owners. This can be done through direct bilateral contracts or through aggregators. Market pricing is subject to supply-demand dynamics and is not guaranteed in advance without a contract.

Option 2 — Aggregator contract: Contract with an AEC aggregator like Emergent Energy for forward supply of certified Tier II AECs. Aggregators maintain a pipeline of registered generators and efficiency projects and can provide compliance-year supply certainty with agreed pricing. This eliminates procurement scramble and provides documentation-ready AECs with full GATS provenance.

Option 3 — Alternative Compliance Payment (ACP): Pay the $45.00/AEC penalty in lieu of procuring AECs. While this guarantees compliance, it costs substantially more than market pricing — the 2024–25 weighted average of $26.92/AEC represents a $18.08 discount per AEC vs. ACP. For an EGS with a 50,000 AEC Tier II obligation, ACP exposure would be $2.25M vs. approximately $1.35M at market pricing — a $900,000 difference.

ACP risk and price exposure

The $45.00/AEC ACP functions as the compliance ceiling but creates real financial exposure when EGSs delay procurement. Because Tier II AEC supply is constrained and can tighten in Q1–Q2 of each calendar year (when compliance filing activity peaks), last-minute procurement can push transacted prices above the weighted average.

EGSs that forward-contract AEC supply in Q3–Q4 of the prior calendar year typically secure better pricing and eliminate supply risk. At $26.92 weighted average, there is approximately 67% upside to ACP — pricing that provides real protection for early procurers vs. late-market buyers.

Documentation requirements for AEPS filing

PA AEPS compliance filings require: GATS retirement records showing AEC retirement to the EGS's compliance account for the applicable compliance year; documentation of the AEC source, certification, and vintage; and any ACP payment records for shortfall positions.

Emergent Energy provides a complete compliance documentation package with every AEC transaction — including GATS transfer records, project certification documentation, and chain-of-custody records — formatted for direct use in PUC filing.

Filing timeline

• June 1: Compliance year begins
• May 31: Compliance year ends
• June–August: EGS compiles compliance year load data and calculates Tier II obligation
• Late summer/fall: AEPS annual report due to PA PUC (check current PUC deadlines)
• Year-round: AEC procurement (forward contracting recommended in Q3–Q4 prior year)
• Year-end: Confirm GATS retirement of required AECs in compliance account

Emergent Energy maintains an active Tier II AEC aggregation pipeline in Pennsylvania and works with EGSs of various sizes on supply contracts and compliance documentation. For a supply availability discussion or to request a quote for your 2025–26 compliance year obligation, contact us at sales@emergentenergy.us or request a procurement quote.