Florida Public Service Commission Renewable Portfolio Standards Workshop

1. Florida Public Service CommissionRenewable Portfolio Standards Workshop Remarks On Behalf Of City of TampaSolid Waste Authority of Palm Beach CountyFlorida Industrial Cogeneration Association July 26, 2007 Rich Zambo

2. Current Policies And Rules • Many of the Commission’s current policies and rules affecting renewable energy are largely a product of Federal Law - the Public Utilities Regulatory Policies Act (“PURPA”) - enacted nearly 3 decades ago, in 1978, as part of the National Energy Act. • Those policies and rules reflect certain assumptions regarding risk, reliability, pricing and performance – some of which history has shown need to be revisited. July 26, 2007

3. Public Utilities Regulatory Policies Act (PURPA) • PURPA was enacted in 1978 as part of the National Energy Act • PURPA’s primary objectives were two-fold: • Reduce National dependence on imported fuels • Reduce the need for utility investment in new plant • PURPA accomplished this by creating for the first time a class of non-utility generators called “qualifying facilities” or “QFs” – many of which are also “renewable energy producers” under Florida law July 26, 2007

4. Qualifying Facilities - QFs PURPA created two types of non-utility generators: • Small Power Producers use non-traditional “alternative” energy resources such as biomass, solar, waste heat, geothermal, wind, municipal solid waste, landfill gas, etc. - what we today would call “renewable energy” resources • Cogenerators use traditional fuels but in a very efficient manner by sequentially producing both electricity and useful thermal energy from a single fuel source – what we today might call “combined heat and power” or CHP July 26, 2007

5. PURPA Eliminated Regulatory and Institutional Barriers To QFs • Utilities are required to electrically interconnect with QFs • QFs are exempt from utility regulation • Utilities are required to purchase electricity from QFs at the utility’s avoided cost • Utilities are required to sell electricity to QFs at non-discriminatory prices July 26, 2007

6. Florida’s PURPA Experience . . . • When the Commission implemented PURPA in the early 1980s, Florida had a serious fuel diversity problem – a heavy dependence on oil for electric production. In response, the Commission established rules and policy that based avoided costs for QFs on a statewide avoided coal unit, as that best fit the operating characteristics of the majority of QFs and provided uniformity across Florida. • That policy was very successful during the time it was in effect – from about 1983 through about 1990 – a time period in which the vast majority of the existing QF capacity was developed in Florida July 26, 2007

7. . . . Florida’s PURPA Experience • About 1990, the Commission abandoned the statewide avoided coal plant policy, opting for a “next planned generating unit for each individual utility” approach. • As a result of the change in policy, the capacity payments available to QFs and – correspondingly – the amount of QF capacity developed in Florida since that time has dropped precipitously. • The Commission has recently adopted new rules intended to improve the climate for renewable energy. However, there are important issues still to be addressed July 26, 2007

8. From PURPA to Renewable Energy and Renewable Portfolio Standards The Commission should take note of and apply the experience gained and the lessons learned over the past 25 years in dealing with QF issues. This will expedite the identification and implementation of policies and rules that will realize the benefits associated with the unique attributes of renewable energy facilities and encompass the diverse technologies employed July 26, 2007

9. What is Renewable Energy? • Depends on perspective and objective • Resources can vary significantly by region • Resource can vary significantly by state • Resources can be indigenous to states/regions • Definitions should reflect these variations • Should include only Florida indigenous resources • Should include, but not be limited to those resource identified in Sections 366.91 and 366.92, F.S. July 26, 2007

10. Geography, Geology, Topography • The vast majority of Florida fuel needs are imported from significant distances • Little of Florida electricity needs are imported from bordering states • Florida has unique renewable energy characteristics • Geothermal, hydro and wind resources not significant • Solar, solid waste, landfill gas, waste heat, biomass, agricultural and forest product residues, ocean energy and similar such resources are significant • Other technologies that will develop in a fertile environment July 26, 2007

11. Florida Renewable Energy • Sections 366.91, 366.92, and 377.803, F.S. together define renewable energy to include: • urban wood waste, municipal solid waste, landfill gas, waste heat from sulfuric acid manufacturing operations, hydrogen produced from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean energy, waste heat, hydroelectric power, municipal waste treatment operations, combustible residues or gases from forest products manufacturing, agricultural and orchard crops, waste products from livestock and poultry operations and food processing July 26, 2007

12. Attributes of Renewable Energy Facilities Many renewable energy facilities are typically: • Dissimilar to utility plants in that their design, permitting and construction cycle can be significantly shorter • Dissimilar to utility plants in that the fuel source is not subject to the types of price fluctuations or supply interruptions typically associated with traditional fuels • Dissimilar to utility plants in that they are either carbon neutral or produce no significant greenhouse gas emissions • Similar to utility base load coal plants in that they operate at high capacity factors and can displace natural gas and oil generation thereby reducing average energy costs and reducing emissions July 26, 2007

13. Establishing a Renewable Portfolio Standard . . . • The Commission should not be too concerned at this point with the potential magnitude of renewable energy that may develop. Rather, the Commission should focus on prices and policies that accurately represent the value of renewable energy and then allow the markets to work. July 26, 2007

14. . . . Establishing a Renewable Portfolio Standard • Similarly the Commission should not be too concerned with the risk that prices for renewable energy might exceed avoided cost. The risks are much higher if we fail to encourage renewable energy. • A case in point concerns two recent utility natural gas fueled power plant additions approved by Commission. In less than four years of operation, actual fuel costs have been some $450 million more than the projected fuel costs used to justify the plants. This increase in costs – over 40% more than projected - is passed on to the customers and not absorbed by the utility. July 26, 2007

15. . . . Establishing a Renewable Portfolio Standard • The Commission should establish an appropriate goal, on a percentage basis, for the amount of renewable energy to be included in Florida’s electric generation fuel mix • The Governor has indicated 20% which would be the minimum and would also seem to be a reasonable starting point • RPS should be established as a percentage of the electrical energy sold at retail within Florida and measured in kWh or mWh on a twelve month rolling average basis • RPS should be phased-in requiring for example 10% by 2010, then increasing in 2% increments until 20% of electricity sold at retail in Florida must be produced by renewable energy by 2020 July 26, 2007

16. Renewable Energy From Outsideof Florida – Tradable Credits • Any tradable renewable energy credit system that would allow a utility to meet its RPS should be limited to those renewable energy resources located in Florida, and those out of state resources from which the electricity associated with such credit is actually delivered into Florida • Out of state renewable energy resources should only apply toward an RPS if the electricity from such resources is actually delivered into Florida to offset electrical generation, associated fuel use and environmental emissions within Florida July 26, 2007

17. Avoided Cost Pricing Avoided cost payments for renewable energy facilities should be based on an avoided unit which most closely resembles operational, fuel diversity and price stability characteristics of the types of renewable energy facilities, i.e. • a base load solid fueled plant for larger capital intensive base load renewable facilities • a peaking gas or liquid fuel plant for smaller, non-base load renewable facilities • other depending on technology July 26, 2007

18. Contract Issues Pricing is a very important element in promoting renewable energy and the Commission should assure that full avoided cost payments include all costs that would otherwise be incurred by the utility and/or its customers. But, it is also important that the contract terms and conditions be fair and reasonable and not serve as a disincentive to renewable energy. July 26, 2007

19. Some Issues Still To Be Addressed • Why are “average” energy prices often significantly higher than “avoided” as-available energy prices over the same time period? • Why are “buy- through” prices often significantly higher than “avoided” as-available energy prices over the same time period? • Why are Florida utility non-regulated affiliates making substantial investments in electric generation by renewable energy in other states but not in Florida? • Why is it acceptable for customers to bear all the risk of utility fuel choices but unacceptable to bear any risk from renewable energy facilities? • Why do the terms and conditions of the “standard” offer contracts differ from one utility to another? July 26, 2007