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AMERICAN PUBLIC POWER ASSOCIATION 2004 Legal Seminar

AMERICAN PUBLIC POWER ASSOCIATION 2004 Legal Seminar. Green Energy – Legal Considerations and New Developments Presenter: Arlen Orchard General Counsel Sacramento Municipal Utility District. Drivers Behind Public, Legislative and Regulatory Interest in Green Energy.

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AMERICAN PUBLIC POWER ASSOCIATION 2004 Legal Seminar

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  1. AMERICAN PUBLIC POWER ASSOCIATION2004 Legal Seminar Green Energy – Legal Considerations and New Developments Presenter: Arlen Orchard General Counsel Sacramento Municipal Utility District

  2. Drivers Behind Public, Legislative and Regulatory Interest in Green Energy. 1. Environmental Concerns a. Greenhouse gases and climate change (i) August 2004 Report to Congress Emissions of carbon dioxide and other heat trapping gases are the only likely explanation for global warming (ii) The United States accounts for 25% of global greenhouse gas emissions—emission increased 11.9% between 1990 and 2001i (iii) In California electricity generation is the second largest source greenhouse gases behind transportation sector. ii (iv) Extensive media coverage. Iii b. California Energy Commission 2003 Report on Climate Change and California

  3. 2. Fuel Source Diversity a. Reduce dependence on fossil fuels. b. In California sense that fuel diversity will promote stable electricity prices while improving environmental quality.iv c. Rising natural gas costs may make green energy more competitive.

  4. Can’t Talk Green Energy Without Talking Renewable Portfolio Standard 1. RPS Theory a. Market-based policy to encourage the development and incorporation of cost-competitive renewable energy into the mainstream energy markets.v b. Obligates retail electricity sellers to include a determined percentage of renewable energy in their resource portfolios.vi c. RPS can be satisfied through facility ownership, purchase power contracts or tradable renewable energy credits. vii

  5. 2. Federal RPS a. Senate Version of the Energy Bill (i) 10% of retail electricity sellers portfolio required to be green by 2010 (ii) Public Power exempted. (iii) Renewable energy defined to include biomass, solar, wind, ocean, geothermal, landfill gas, incremental hydro. (iv) Civil penalties for non-compliance. b. Disagreement with the House of Representatives (i) Federal RPS stalled.

  6. 3. California RPSviii a. Anticipated 1% increase per year – 20% by 2017 b. Investor-owned utilities pay no more than market cost for renewables. (i) Above market-costs to be funded Public Goods Charge funds administered by the California Energy Commission. (ii) Appropriate benchmark for “market-cost” is a matter of dispute ranging from forward energy price curves to actual costs of new power generation.ix c. Contempt penalty for non-compliance.

  7. d. Public Power exempt. (i) Governor’s vetoed Senate Bill 1478 because the bill omitted Public Power from the RPS requirements. x (ii) New legislation to apply RPS to Public Power expected in 2005 e. Many California Public Power entities have adopted a local RPS. (i) SMUD – 10% by 2006 and 20% by 2011. (ii) LADWP – 20% by 2017. (iii) Small public power entities face hurdles in adopting an RPS, including budget and resource constraints.

  8. 4. Other States a. 17 States have some form of RPS. b. Requirements vary from State to State. (i) Table C-1. State Minimum Renewable Electricity Requirements. c. Enforcement of RPS vary from State to State. (i) California: flexible rules for compliance—on an annual basis limited to availability of funds.xi (ii) Texas: Failure to comply with RPS target—financial penalty of $50/MWh. (iii) Nevada: PUC may impose financial penalties for non-compliance. (iv) Wisconsin: Fines up to $500,000 for non-compliance

  9. d. 15 States have some level of public benefit funding for renewable energy (10 States have both RPS and public benefit funding). (i) Table D-1. State Public Benefits Funding for Energy Efficiency, Renewables, and R&D. e. Active debate in several States regarding adoption of an RPS.

  10. ME: 30% by 2000 MA: 4% by 2009 RI: 16% by 2019 CT: 10% by 2010 NY: 24% by 2013 NJ: 6.5% by 2008 PA: varies by utility MD: 7.5% by 2019 Union of Concerned Scientists Renewable Electricity Standards MN: 19% by 2015* WI: 2.2% by 2011 NV: 15% by 2013, solar 5% of total annually CA: 20% by 2017 IA: 2% by 1999 NM: 10% by 2011 AZ: 1.1% by 2007, 60% solar 17 states – CA, HI, IA, MD, MN, NY, RI, WI outside of restructuring CO, DE, IL, PA up next? TX: 2.7% by 2009 HI: 20% by 2020 * MN has a minimum requirement for one utility, Xcel.

  11. Union of Concerned Scientists Renewable Energy Funds Cumulative 1998-2017 $200 mil $14 mil MA: $494 mil $95 mil. $21 mil $89 mil RI: $30 mil $67 mil. CT: $248 mil $114 mil $25 mil. NJ: $286 mil. DE: $18 mil. $2,048 mil 15 state funds = $4 billion by 2017 10 states with funds & standards $234 mil.

  12. 5. Related Green Energy Issues. a. 17 States require public disclosure of fuel mix. (i) Purpose to build public awareness. b. 38 States have some form of net metering, which promote non-utility renewable ownership. (i) California: Up to 1 MW for solar and/or wind.xii c. Greenergy – Voluntary Retail Program (i) Customers pay a premium for utility to match electricity needs with renewable sources. (ii) SMUD: Third largest in nation—more than 28,000 residential customers (6% of residential customers) and more than 700 commercial customers. (iii) Cannot normally be used to meet RPS.

  13. Union of Concerned Scientists Fuel Mix and Emissions Public Disclosure Fuel Mix Only Both • 23 States + Washington D.C.

  14. Union of Concerned Scientists Net Metering Programs ME: 100 kW NY: 10 kW, 400 kW for biogas 25 kW VT: 15 kW, 150 kW for farm systems 50 kW 100 kW 40 kW 25 kW 20 kW 25 kW NH: 25 kW RI: 25 kW 25 kW MA: 60 kW No limit 50 kW CT: 100 kW 30 kW No limit * 40kW RI: 25 kW 25 kW 10 kW NJ: 100 kW * 15 kW MD: 80 kW 1,000 kW DE: 25 kW * 10 kW 10 kW * DC: 100 kW * State-wide Programs 50 kW * Individual Utilities 10 kW HI: 50 kW * IN: 10 kW and 1,000 kWh/month • 38 states LA: 25 kW (res.); 100 kW (comm. or ag.) OK: 100 kW or 25,000 kWh GA: 10 kW (res.); 100 kW (comm.) VA: 10 kW (res.); 500 kW (comm.) AR: 25 kW (res.); 100 kW (comm.)

  15. Defining Green Energy/Renewable Energy. 1. No industry or common regulatory definition. a. California: biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydro (30 MW or less), digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal.xiii (i) Must be located in the state or near border with the first point of connection to the Western Electricity Coordinating Council (WECC) transmission system located within California.xiv (ii) Additional limits on geothermal and small hydro. xv b. Other States. (i) Table C-1, State Minimum Renewable Electricity Requirements.

  16. c. Green-e Renewable Electricity Certification Program. (i) Green-e program is administered by the non-profit Center for Resource Solutions, which certifies renewable electricity products that meet the environmental and consumer protection standards established by the program. (ii) Retail sellers with qualifying renewable products may seek certification and use the Green-e logo for marketing purposes. (iii) Solar electric, wind, geothermal, and biomass that have come on line since 1997. d. Consumer (Utility) Confusion. (i) Clean energy, renewable energy, alternative energy, green energy, Green-e energy.

  17. e. Need for Standard Definitions. (i) Consumer awareness. (ii) Clarity in contracts. (iii) Development of tradable renewable energy certificates program. • Renewable Energy Certificates 1. Renewable energy creates two distinct commodities: the underlying electricity and the associated “non-energy” or “environmental” attributes a. RECs represent a contractual right to the non-energy attributes associated with a specific amount of generation. b. RECs may be bundled with or unbundled from the underlying electricity.

  18. 2. FERC: “[C]ontracts for the sale of qualifying facility capacity and energy entered into pursuant to PURPA do not convey renewable energy credits or similar tradable certificates (RECs) to the purchasing utility (absent express provisions in a contract to the contrary) . . . a state may decide that a sale of power at wholesale automatically transfers ownership of the state-created RECs, that requirement must find its authority in sate law, not PURPA.”xvi a. Draft power purchase contracts to include RECs and any other environmental attributes. b. California Senate Bill 1478 would have prohibited RECs on power purchase contracts executed before January 1, 2005 (vetoed).

  19. Creation of an REC Trading System. 1. June 2002, the Western States Governors formally expressed support for: (1) “creation of an independent, regional generation tracking system to provide data necessary to substantiate the number of megawatt hours generated from renewable energy sources and support verification, tracking and trading of RECs;” and (2) “establishment of a single institution in the West that will issue, track and oversee REC trading.”xvii 2. Western Renewable Energy Generation Information System (WREGIS).xviii a. Sponsored by the Western Governors’ Association, the California Energy Commission, and the Western Regional Air Partnership. Intended to be policy neutral.

  20. b. Voluntary system designed to track renewable generation energy in the WECC. c. Electronic tracking system is essential to support the trading of RECs and the development of a viable REC market. d. WECC will serve as the institutional home for WREGIS. e. Operation Goal: Online in 2005. 3. Purpose of WREGIS. a. Verify renewable energy generation within the WECC. b. Create RECs with unique green tag numbers. c. Allow generators, utilities and other market participants to establish active REC and retirement accounts. d. Track wholesale renewable energy transactions involving RECs. e. Verify ownership, trading and retirement of RECs. f. Allow regulators to track RECs.

  21. 4. Benefits of WREGIS. a. Expand the marketplace for Western generated renewable energy. b. Increase liquidity and efficiency of a renewable energy market in the West. c. Support RPS in the West. d. Increase consumer awareness and confidence in renewable energy markets. 5. What WREGIS does not accomplish. a. Does not provide a common definition for renewable energy. b. Differing standards among states may make a regional market overly complex and fragmented

  22. ____________________ iRobert Nordhaus & Kyle Danish, Designing a Mandatory Greenhouse Gas Reduction Program for the U.S., Pew Center on Global Climate Change (2003), citing Energy Information Administration, U.S. Department of Energy, Emissions of Greenhouse Gases in the United States, DOE/EIA-0573 ix (Dec. 2002). iiCalifornia Energy Commission, Climate Change and California, 2003 Integrated Energy Policy Report Proceeding, Docket #02-IEP-01 (Nov. 2003). iiiSee Sacramento Bee, Nov. 5, 2004, Administration battles to soften report on curbing Artic warming, describing Bush administrations efforts to influence eight-nation report that Arctic latitudes are “facing historic increases in temperature, glacial melting and weather changes.” ivSee Cal. Pub, Util. Code § 399.11 (2004). vKevin Golden, Comment, Senate Bill 1078: The Renewable Portfolio Standard – California Asserts Its Renewable Energy Leadership, 30 Ecology L.Q. 693, 699 (2003). viId. viiNancy Rader & Scott Hempling, Nat’l Ass’n of Regulatory Util. Comm’rs, The Renewable Portfolio Standard: A Practical Guide 1 (2001). viiiSen. Bill No. 1078, 2001-2002 Reg. Sess. (CA 2001-2002). ixGolden, supra note v, at 708.

  23. ____________________ xSenate Bill 1478 sought to revise the California RPS to shorten the timetable for achieving a 20% RPS to 2010 and increase the ultimate RPS goal to 33% by 2020. SB 1478 also sought to create a renewable credit market that the Governor found to include several onerous restrictions. xiCal. Pub. Util. Code §§ 399.14(a)(2)(C), 399.15(b)(4) (2004). xiiCal. Pub. Util. Code § 2827 (2004). xiiiCal. Pub. Util. Code §§ 383.5, 399.12 (2004). xivCal. Pub. Util. Code § 383.5 (2004). xvSee Cal. Pub. Util. Code § 399.12 (2004). xviAmerican Ref-Fuel Company, et al., 105 FERC P 61,004 (2003). xviiCALIFORNIA ENERGY COMMISSION and WESTERN GOVERNOR’S ASSOCIATION, NEEDS ASSESSMENT FOR A WESTERN RENEWABLE ENERGY SYSTEM FINAL REPORT (Dec. 2003). xviiiSee CALIFORNIA ENERGY COMMISSION, ACCELERATED RENEWABLE ENERGY DEVELOPMENT, 2004 INTEGRATED ENERGY POLICY REPORT UPDATE PROCEEDING, Docket # 03-IEPR-01 (July 2004); available at http://www.energy.ca.gov/2004_policy_update/documents/2004-08-23_workshop/2004-07-03_100-04-003D.PDF.

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