|CHAPTER SIX: CHANGES AND IMPACTS ON THE ENVIRONMENT,
ENERGY EFFICENCY, AND RENEWABLE ENERGY
This chapter provides context for the consideration of issues related to the environment, energy efficiency and renewable energy. Specifically, it discusses: the key environmental issues resulting from electric utility operations; the likely impact of electric utility restructuring on the economics that drive utility generating plant decisions; and mechanisms considered in other states to maintain and advance environmental protection, energy efficiency and renewable energy development.
6.1.1 Key Pollutants and Current Regulation
Current environmental regulations are designed to protect public health, including the health of sensitive populations such as asthmatics, children, and the elderly, and to protect the public welfare, including protection against decreased visibility, damage to animals, crops, vegetation, and buildings. Environmental regulations also serve to reduce economic damage to buildings and resources. The National Ambient Air Quality Standards (NAAQS), reviewed every five years by scientists, directly cover carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide and indirectly volatile organic compounds. Other regulations cover mercury and heavy metals. All major Nebraska power plants meet current Clean Air Act standards. All Nebraska counties are in compliance with current NAAQS standards. If the concentration of pollutants set by the NAAQS are exceeded in a county, then a plan is put in place to restore compliance. As such, the regulations form a continuing umbrella of protection. Only if current environmental standards were considered inadequate would there be reason to review the national standards.
Carbon dioxide emissions are not currently regulated. There is an on-going debate concerning whether and to what extent man is influencing climate through carbon-based fuels. The United Nations Intergovernmental Panel on Climate Change (IPCC) recognized this debate: "Finally we come to the difficult question of when detection and attribution of human-induced climate change is likely to occur. The answer to this question must be subjective, particularly in the light of the large signal and noise uncertainties discussed in this chapter. Some scientists claim that these uncertainties currently preclude any answer to the question posed above. Other scientists would and have claimed, on the basis of statistical results that confident attribution of a significant anthropogenic climate change has already occurred."
The IPCC report concluded: "Our ability to quantify the human influence on global climate is currently limited because the expected signal is still emerging from the noise of natural variability, and because there are uncertainties in key factors. These include the magnitude and patterns of long term natural variability and the time-evolving pattern of forcing by, and response to, changes in greenhouse gases and aerosols, and land surface changes. Nevertheless, the balance of evidence suggests a discernible human influence on the global climate." The scientific literature is replete with credible scholarly reports which reach conclusions at odds with the IPCC report cited above. Regulators should follow scientific progress in the tracking and prediction of climate change and the attribution of the causes of climate change. In addition, there are a potential range of impacts on air, water, land use, and other concerns that regulators will need to address when considering alterations in the industry from expansion of wholesale markets and establishment of retail competition.
22.214.171.124 Air Emissions
Air emissions from power plant generation carry the largest environmental impact of the electric industry. Burning fossil fuels (coal, gas, oil) to extract the heat energy from the carbon also releases other materials into the air. Those pollutants include nitrogen oxides, sulfur dioxide, mercury, traces of heavy metals, volatile organic compounds, lead, and particulate matter. Carbon dioxide and other "greenhouse gases" (methane and CFCs) are also produced, and many scientists believe these gases are contributing to global climate change.
Other parts of the generation process also contribute to air emissions, most of which are regulated by the Clean Air Act. The vast majority of coal burned in Nebraska comes from Wyoming, especially the Powder River Basin in eastern Wyoming, which produces low sulfur coal. Coal mines produce coal dust, and the equipment used to mine the coal and the railroads that haul the coal to the power plant also produce air pollutants. Coal-cleaning and processing can result in the release of carbon monoxide, sulfur compounds, and organic material into the air.
126.96.36.199 Water Quality
Water quality can be impaired and aquatic habitats substantially changed by electric power generation. In addition to the deposition of air pollutants in water (e.g. acid rain, mostly a concern in the eastern US, and mercury, a concern throughout the US), nuclear power plants and fossil fueled power plants circulate substantial amounts of cooling water, typically from nearby rivers, in their operations. The operations can kill fish at the water intake, and the heated water returned to the river can change the habitat present. Hydroelectric dams provide power with far fewer air emissions than fossil-fueled generation, but bring their own set of problems and benefits for aquatic and bird habitat. Power plant use of water and protection of water quality are covered by federal laws.
188.8.131.52 Other Concerns
Other concerns related to electric utility generation and transmission that could be impacted by deregulation include the habitat destruction and disturbance by mining operations and power plant siting, disposal of waste from nuclear and fossil-fuel power plants, land-use disturbances in transmission and distribution.
6.1.2 Implications of Retail Competition
Environmental implications of expanded wholesale markets and retail competition are largely driven by the economics of generation (including conservation and demand-side management). Retail competition could reshape the traditional economics of the utility industry and affect the environment. Some key areas of concern that might affect the environment include possible changes in: cost of generation, size and flexibility of units, capital costs, financing costs, and federal hydro power.
184.108.40.206 Cost of Generation
Historically, electric utilities passed on the cost of generation directly to their customers. Some customers could switch to other energy sources (especially long-term), but most could not switch to another electricity supplier. With wholesale and retail competition, the cost of generation will be even more critical, and high-cost generators risk losing customers to lower-cost generators. Imposing environmental costs on Nebraska utilities which are not similarly imposed on competing utilities could put Nebraska utilities at a competitive disadvantage. In a competitive market, utilities that select a less-polluting, but more expensive, generation source could risk losing business to a utility utilizing a more-polluting, but less expensive, generation source. However, there does appear to be a market for renewable generation where certain customers are willing to pay a higher price.
220.127.116.11 Size and Flexibility of Units
Historically, utilities could plan on a certain load base, augmented by growth due to population and new facilities. With retail competition comes the risk that a utility could lose a large customer (or substantial number of customers), and thus be left with excess generation. This uncertainty will make it much harder for utilities to plan, and more difficult to make decisions on (and find financing for) long-term generation sources since a power plant's useful life may be 30 years or more. Load uncertainty should put a higher value on generation that can be added (or subtracted) in smaller units with a shorter lead time, such as natural gas, fuel cells or wind energy.
18.104.22.168 Capital Costs
The uncertainty about future loads will likely change the relative cost calculations of capital versus operating costs, because utilities and independent power producers may be more willing to pay higher fuel and operating costs for generation in return for a reduction in the amount of capital at-risk should the owner of the generation lose customers. That could favor natural gas (which has higher fuel/operating costs relative to capital costs) to coal or nuclear (which have lower fuel/operating costs relative to capital costs) or conservation and renewable energy like wind, solar, or hydro (which have no fuel costs but relatively high capital costs).
22.214.171.124 Financing Costs
Historically, public power has enjoyed low financing costs. This has been due to loan guarantees (e.g., federal REA loans), an ability to issue tax-exempt bonds, and their reliance on debt financing and carryover funds instead of equity financing. The reason public power has received tax-exempt financing is because they are not-for-profit utilities. Investor-owned utilities, which would have to compete with public power utilities under a retail competition scheme, continue to press for reduction or elimination of those federal loan programs and the tax exemption for utility-related bond financing. The public power industry continues to process for recognition that investor-owned utilities costs are also lowered by accelerated depreciation, investment tax credits, and tax exempt financing that are equal to or more advantageous than the public power programs. The impact on the environment comes in the trade-offs noted above between capital and fuel/operating costs, since any increase in financing costs will make the relatively high capital costs of renewable energy and conservation less attractive than other kinds of generation.
126.96.36.199 Federal Hydro Power
In the 1950's the federal government's power marketing agencies offered to publicly-owned utilities an allocation of power generated by federal hydroelectric facilities, like the dams on the Upper Missouri. As a result, these hydroelectric dams supply a significant amount of energy to Nebraskans at low rates. If this federal power is reallocated, Nebraskans could end up paying for replacement generation that is both higher cost and more polluting (in terms of air emissions).
6.1.3 Mechanisms for Environmental Protection
Current regulations are designed to protect the public health and the public welfare. They include provisions to restore compliance if current standards should be exceeded, and they are reviewed by scientists every five years. If, however, the public did not consider current standards to offer adequate protection, or if additional protection was desired for Nebraska, the following five strategies could be considered for use: environmental externalities, portfolio standards, clean and green energy pricing, surcharges and access fees, and emissions or fuel taxes. Each of these is discussed below.
188.8.131.52 Environmental Externalities
Most environmental regulations reduce, but do not eliminate, pollution. "Environmental externalities" refers to the cost that society may incur from air pollution and other environmental impacts not eliminated by the regulations in place, which are designed to protect the public health and welfare. Such costs are commonly not reflected in the producer's charge for the product. The basic concept of an Environmental Externalities Assessment is to attempt to quantify the "value" of a pollutant, and then require that utilities making decisions on generation sources factor in those additional "costs" of pollution that society will bear for each generating source. There are several ways to calculate externality values, including an estimate of the cost of eliminating the pollutant from the process (e.g., using scrubbers), or an estimate of the damage done by the pollutant (e.g., health costs of air pollution, degradation of buildings by acid rain, etc.).
184.108.40.206 Portfolio Standards
To reduce or eliminate the potential for a shift away from cleaner energy sources, or to actively encourage a shift to cleaner energy, some states are using portfolio standards. These require that a utility have and use, in its portfolio of generating sources, a certain percentage of renewable energy, energy conservation, demand-side management, or some other resource-conserving (or low-polluting) energy source. Typically, those standards increase over time the percentage of clean energy sources required.
220.127.116.11 Choice for Clean Energy and Green Pricing
Some utilities in the U.S. have experimented by giving customers a choice in the way electricity is generated, allowing them to sign up for power generated by different companies (including one or more using renewable energy), or different generating sources within the company. LES recently offered customers a chance to sign up for wind power, by an additional premium on their monthly bill, and LES committed to installing wind generation that would meet the needs of those customers. One advantage is that customers who are willing and able to pay for renewable energy have the opportunity to do so. One disadvantage is that the benefits of clean energy (e.g., improved air quality) accrue to all of us, but only some customers will be paying for it. In such programs, it is vitally important to make sure that those customers choosing to use renewable energy sources aren. t paying more than their fair share of generating costs. It is important to note that green power programs are being offered by competitive suppliers in markets such as California and Pennsylvania.
18.104.22.168 Surcharges or Access Charges
Access charges could be employed on all generation to provide funds for socially beneficial activities, like energy audits or renewable energy. Special surcharges could be levied on the most polluting generation, non-renewable generation, or on some other basis, to generate funds that would pay for investments in cleaner energy technologies, conservation programs, or other social benefits.
22.214.171.124 Emissions or Fuel Taxes
Another form of externality that could be used is an emissions tax by which the estimated costs of remaining pollutants to society is collected from rate-payers as a tax on emissions, thus internalizing an external cost. A fuel tax could serve as a simplified emissions tax. While simpler to calculate, a fuel tax doesn. t differentiate between power plants that might be emitting very different levels of pollutants, while utilizing the same amount of fuel.
126.96.36.199 Interstate Competition
In employing any of the above (or other) strategies, Nebraska will have to consider (and find ways to address) competitive issues with utilities in surrounding states. If Nebraska employs more stringent environmental regulations than a neighboring state, or requires the consideration of externalities not considered in an adjoining state, then Nebraska electric rates might be increased, driving retail customers with choice to other, more polluting utilities from other states, thus penalizing the cleaner Nebraska generation. Pricing structures could be put in place to require that out-of-state utilities meet the same standards as Nebraska utilities before being permitted to sell electricity within Nebraska.
If a decision is made to phase-in retail competition in Nebraska rather than to open up to full competition all at once, the priority for the first step could be to open retail competition to renewable energy providers. This approach would serve both to test restructuring on a limited basis and to facilitate in the development of renewable-energy in the state. Such a test could be set for a given number of years after which a decision could be made to end the program, keep it as is, or open the door for expanded competition across the board. Renewable energy offers could also be structured to assure non-discrimination. with all classes of customers being presented with this initial choice.
6.1.4 Platte River Issues
The Federal Energy Regulatory Commission (FERC) recently issued new forty-year licenses for the Platte River hydroelectric projects operated by the Central Nebraska Public Power and Irrigation District Central and the Nebraska Public Power District (NPPD). These projects consist of five hydroelectric plants and related structures and reservoirs, including Lake McConaughy, Lake Maloney and Johnson Lake.
Relicensing is closely tied to the Cooperative Agreement signed last year by the Governors of Nebraska, Wyoming and Colorado, and the Secretary of the Interior to address endangered species issues in the Central Platte River. Central and NPPD received their new licenses because they agreed to effectively provide most of Nebraska's contribution to the Cooperative Agreement for the first 13 to 16 years. The Cooperative Agreement provides $75 million in environmental benefits in the Central Platte River region with the federal share equal to $37.5 million. The State of Nebraska's share is $15 million with Central and NPPD providing the majority through water and land contributions. The water contribution, held in Lake McConaughy, could significantly reduce revenues from power generation. These impacts are not included in the cost estimates. These Platte River projects also continue to provide additional public benefits: recreation, flood control, groundwater recharge, power plant cooling, power generation and irrigation service. License conditions require that they also make new contributions toward wildlife habitat, improving recreational facilities and preserving cultural resources.
Collectively the environmental and other public benefits required under the new licenses increase the costs of these projects substantially, and reduce the value of the energy and capacity benefits of operating the project. FERC estimated net increases in cost at $309,000 annually for NPPD and $1,049,000 annually for Central. These additional costs make these hydroelectric projects at best marginally competitive today.
Over time in a deregulated marketplace, the value of the power generated may no longer be sufficient to cover the total costs of providing environmental and other benefits to the public. One solution would be to increase revenues derived from other public benefit services by increasing existing fees or establishing new fees. Central and NPPD could not continue to operate uneconomically indefinitely, putting the enormous public benefits they provide at risk.
6.2.1 Conservation and Demand-Side Management
Some Nebraska utilities have instituted selected Demand Side Management (DSM) programs that provide savings to participating customers and reduce the overall power costs for the utility by optimizing facilities. Examples of active DSM include irrigation, air conditioning and water heater load control. Passive programs include energy audits, lighting conversion programs, and off-peak load building programs like heat pump incentive payments. In a highly competitive retail electric market, some of these programs may decline due to their cost, while others could be expanded as part of energy marketing strategies, depending on customer preference and marketing.
6.2.2 The Importance of Energy Efficiency and Demand Side-Management
in Electric Industry Restructuring
Nebraska, unlike other states, has pursued energy efficiency and Demand Side Management practices and efforts without state-level mandates from a public service commission.
In a restructured environment, these efforts should continue. Examples of some of the efforts undertaken in Nebraska include:
The Nebraska Energy Office has invested more than $21 million to finance nearly $100 million in energy improvements in the homes and businesses of almost 15,000 Nebraskans. These improvements have resulted in more than $17 million from reduced energy use and more than $16 in reduced financing costs. Each year, about 1,700 projects totaling almost $11 million are financed.
Since 1979, more than 48,300 homes of needy Nebraskans have been weatherized. A 1996 evaluation found that after these improvements were made, energy use was reduced an average of 18.7 percent and resulted in a reduction of $126 annually in energy bills.
Public power districts, cooperatives, and municipalities have initiated many different types of energy efficiency measure both at the customer level and at the utility level. Some examples of customer level measures include: residential and commercial customer energy audits, customer education programs, appliance and lighting efficiency rebates and other incentives, tree planting programs, infrared camera scans, and weatherization programs. Examples of utility level programs include: voltage conversions streetlight efficiency improvement projects, power factor improvement, infrared camera scans, purchase of low loss equipment, and many more.
Nebraska utilities Demand Side Management activities have been estimated to have resulted in approximately 326 MW of peak load reduction (end use customer level). By type of load shaping category, the greatest majority is load shifting by direct control of irrigation wells (66 percent) and time-of-use irrigation rates (1 percent).
Peak clipping programs include interruptible customers (12 percent), air conditioner load control (7 percent), water heater controls (4 percent), and other methods (6 percent), such as duel fuel, municipal water pumping, automated energy management, and curtailable loads. Strategic conservation via high efficiency air conditioners and heat pumps (4 percent) are also estimated. Due to electrical losses in lines and transformers which are the greatest at peak load conditions, the true impact at the generator bus bar is greater.
Energy efficiency and demand side management provide an important public benefit for Nebraskans. Savings of 10 to 25 percent for energy efficiency in all sectors of the economy are achievable and would translate into economic savings of more than $800 million annually.
6.3.1 Potential Shifts to Low-Cost, High Pollution Generators
Nationally, there is the potential that a competitive retail market would result in the shift of generation from cleaner, higher-cost power plants to dirtier, lower-cost power plants, in part because some power plants were . grandfathered. under prior Clean Air Act amendments and do not need to meet the higher standards imposed on new power plants. However, in the states surrounding Nebraska, which would be the most competitive due to transmission costs, most coal-fired power plants burn low-sulfur, western coal. One exception is in Missouri, where a few power plants still burn higher-sulfur (dirtier) coal from local supplies. Although it would take a plant-by-plant review to determine the relative costs and pollution per kWh in Nebraska and in surrounding states to get a true picture of the potential for shifts in load between generation facilities and the resulting changes (if any) in air pollution, it appears there is little potential for a substantial impact because power plants in the region burn largely the same coal in similar power plants and comply with the same regulations.
When evaluating the potential environmental benefits associated with the construction of renewable resource generators funded through volunteer programs or public benefits assessments, a thorough evaluation should be made to determine if any actual benefits will accrue to the residents of Nebraska. In particular, consideration must be given to whether a net reduction in local power requirements will result in reduced production from coal-fired plants given the off-system excess capacity sales opportunities for the owners of those plants. Current experience is that expansion of the wholesale market has resulted in some plants being operated more extensively.
6.3.2 Mechanisms for Renewable Energy
There are a range of policy and operations practices that might be utilized to advance renewable energy development and enhance environmental protection. Some of these include concepts introduced earlier: renewable portfolio standards, clean and green energy pricing, a public benefits fund, consumer disclosure labeling, and net-billing. It is important to note, as outlined in Table 6-1, that a number of states have adopted policies to support development of renewable energy. Some of these states have enacted such policies prior to passage of legislation for retail competition.
188.8.131.52 Portfolio Standard
Since most energy from renewable sources still is not priced competitively with fossil-fueled technologies, many restructuring proposals at the state and federal levels include various support mechanisms intended to promote renewable generation installations. The hope is that with such expanded use, economies-of-scale might help to lower production costs.
One idea that has gained much support is the "Renewable Portfolio Standard" (RPS). The RPS would establish an across-the-board minimum of electricity that must be generated from renewables. Depending on how it is set up, the RPS would require either electricity generating companies or retailers to prove they have supported a level of renewable energy generation equal to a set percentage of annual kilowatt-hour sales. This target level of renewables would be phased in, then phased out after a reasonable period of time when renewables are expected to become price-competitive.
What makes a mandatory RPS acceptable to many states and utility officials is its market-based approach. Modeled after the federal sulfur-dioxide allowance trading program, the RPS would allow energy companies to buy and sell renewable energy credits (RECs) to meet the standard in the most cost-effective way. One credit would be issued for every kilowatt-hour of electricity generated by a renewable operation. An energy generator could choose to meet the RPS by investing in a renewable operation and producing its own RECs, buying power from an outside renewable source, or simply purchasing RECs.
Table 6-1 STATE POLICIES FOR DEVELOPMENT OF RENEWABLE ENERGY
Opinions vary as to what level of renewable energy is attainable, how long it will take to reach that level, and at what point the cost outweighs the benefits.
As of October 1999, seven states had adopted the RPS as part of their restructuring plans: Maine, Nevada, Massachusetts, Connecticut, New Jersey, Pennsylvania, and Texas. By regulatory order nine states approved a system benefit charge for renewable energy: California, Connecticut, Illinois, Massachusetts, Montana, New Mexico, New Jersey, Pennsylania, and Rhode Island. This charge would directly fund the development and promotion of renewable energy projects. Some states have been slower to embrace the concept, although it remains under consideration. Other states, such as Minnesota and Wisconsin, have adopted renewable energy requirements and funding prior to enactment of legislation on retail competition.
A substantial portion of the public supports renewable energy. The National Renewable Energy Laboratory concluded in a review of two decades of opinion polling that 56 percent to 80 percent of U.S. consumers are willing to pay more for renewable energy. And a recent study by the Edison Electric Institute concluded that 60 percent of households are willing to pay $6 or more per month for green power. About 40 percent of households would pay more than $11. This may indicate support for pubic policy for minimal charges to support development of renewable energy. However, to date, actual volunteer programs that offer green power options, including Lincoln Electric System's (LES) wind energy program, have received commitments from only 1 percent to 2 percent of customers. Similarly, NPPD is developing a "Prairie Power" wind program.
But the Energy Information Administration (EIA) doesn't foresee widespread renewable energy development without additional incentive programs like an RPS and "green pricing." While "green pricing" can help to introduce technologies and educate consumers, RPS is needed to promote the use necessary for economies-of-scale to reduce production costs. According to EIA's 1998 Annual Energy Outlook, under current conditions, the renewable share of U.S. generation, excluding hydro power, will likely grow from 1.4 percent in 1996 to 1.7 percent in 2020.
Retail competition has the potential to increase renewable energy's share of the electricity market. Nevertheless, the inherent uncertainty of the transition to competition, the recognition of important environmental and energy diversification benefits from renewable energy, and the fact the existing PURPA requirements and state initiatives to promote renewable energy are both incompatible with competition and ineffective under present market conditions, This strongly suggests that whether the Clinton Administration's proposal, or another proposal gains support, policy towards renewable electricity will be part of federal electric industry restructuring legislation.
Under the Clinton Administration's proposal a minimum level of additional renewable generation would be guaranteed. The RPS would require electricity sellers to cover a percentage of their electricity sales with generation from non-hydroelectric renewable technologies such as wind, solar, biomass or geothermal generation. The RPS requirement would be initially set close to the ratio of RPS-eligible generation to retail electricity sales projected under baseline conditions. There would be an intermediate increase in RPS requirement in 2006, followed by an increase to 5.5 percent in 2010. The RPS should be subject to a cost cap, and Congress would repeal prospectively the "must buy" provision of Section 210 of the Public Utility Regulatory Policies Act (PURPA), but preserve existing contracts and exemptions.
Retail sellers could meet the proposed RPS requirement by generating sufficient renewable electricity to meet the coverage ratio, by purchasing tradable renewable electricity credits (RECs) that would be created and tracked for each unit of RPS-eligible renewable electricity produced, or by some combination of these strategies. The Administration's proposed definition of eligible renewable generation focuses directly on the use of renewable fuels or sources. All generation using RPS-eligible renewable fuels or sources could receive RECs, regardless of whether the fuels are used in new or existing facilities or whether the electricity generated from eligible renewable sources is sold on the grid. Where RPS-eligible and non-RPS eligible fuels are used in the same facility, RECs would be awarded based on the proportion of RPS-eligible renewable fuel multiplied by total generation.
The Clinton Administration proposes that the RPS requirement be initially set close to the ratio of RPS eligible generation to retail electricity sales projected under baseline conditions. There would be an intermediate increase in the RPS requirement in 2005, followed by an increase to 5.5 percent in 2010. The RPS would expire in 2015, when the economics and benefits of renewable technologies are expected to be firmly established. The RPS would include a provision for banking of RECs, to encourage a smooth and continuous ramp-up of renewable electricity production during the interval between RPS adjustment points. In addition, the Administration's proposal provides for a backup cost cap to hold program costs below a pre-specified ceiling.
Under the Administration's proposal, the market-based approach of the RPS mechanisms and the costs cap may assure that a reasonable balance is maintained between the costs of the RPS program and its environmental and energy independence benefits, and will strongly encourage efforts to reduce the costs of renewable electricity generation technologies.
Recommendation: Minimum renewable portfolio standards may be included in federal utility restructuring legislation. If no such standards are required, a renewable portfolio standard should be considered under any Nebraska restructuring plan provided that the plan would not put Nebraska customers at a competitive disadvantage. If restructuring is to be phased-in, a renewable portfolio standard might be considered for limited customer classes. (See section 184.108.40.206 on Interstate Competition).
220.127.116.11 Choice for Clean Energy and Green Pricing
A second mechanism to support renewable energy development is the use of "clean and green" energy pricing. In recent years, numerous surveys of electricity consumer preferences have indicated an interest on the part of some consumers to purchase power generated from renewable energy sources such as solar, wind, biomass, and hydro even if such power is sold above prevailing market or rate-regulated prices. In response to these indications of consumer interest, dozens of electric utility companies, including numerous publicly-owned utilities, have implemented programs that enable consumers to voluntarily pay a premium for renewable electricity. There is an understanding that such a premium is used to at least partially cover the incremental costs associated with the production of electricity from renewable resources. Many utilities consider green pricing as a mechanism to build customer loyalty, deploy renewable technologies, expand business lines and expertise, and improve understanding of consumer response to unbundling pricing and services.
Green pricing programs are attractive to many utilities because they are fully compatible with both traditional models of economic regulation and with emerging retail competition regimes. To date, most green pricing programs have resulted in consumer participation rates in the range of 1 percent to 2 percent of residential customers with little or no participation from the commercial and industrial sectors. This indicates the limited potential of this model to education and basic marketing development,
The National Renewable Energy Laboratory (NREL) lists three types of green pricing programs:
1) Contribution programs: Consumers contribute to a utility-managed fund for renewable energy project development that is unrelated to their electricity consumption. The funds are used to implement renewable energy projects (e.g. construction of a wind turbine or installation of solar hardware).
2) Capacity-based programs: Consumers purchase a fixed block of their electricity requirements from installed renewable resources.
3) Energy-based programs: Consumers purchase a portion or all of their electricity requirements from installed renewable resources with the total monthly premium based on the quantity supplied.
Recommendation: Standards are needed to define green power and guide consumers regarding generation offered as energy sources in green power programs. Such standards should not be set at levels that would place the Nebraska systems at a competitive disadvantage within the region. Hydro-electric power may be included in such a definition if it has a low environmental impact. A suggested definition for renewable energy is "resources that constantly renew or are regarded as practically inexhaustible." These include solar, wind, geothermal, biomass and low impact hydro.
18.104.22.168 Public Benefits Fund
A third mechanism for promoting development of renewable energy is through support from a public benefits fund for grants to demonstration and other projects.
If properly structured, the introduction of competition could provide important public benefits, as sellers will have a strong incentive to add value to and differentiate their products in ways that would provide such benefits. If not properly implemented, however, retail competition could lead to reduced support for electricity-related programs that provide important public benefits.
Under traditional regulation, programs supporting and promoting renewable generation, energy efficiency and low income assistance were supported in part through utility rate structures, and utilities recovered the costs of approved programs within their monopoly service area as a part of the overall cost-of-service. As utilities prepare for competition, there may be a reluctance to include in rates the cost of programs not included in the rates of competitors. Moreover, although transmission and distribution would remain regulated, public benefits programs would suffer if states do not continue to require funding for these programs.
The Clinton Administration's proposal supports the creation of a $3 billion per year Public Benefit Fund (PBF) to provide matching funds to states for low-income assistance, energy efficiency programs, consumer education, and the development and demonstration of emerging technologies, particularly renewables. The PBF would be funded through a generation or transmission interconnection fee on all electricity, capped at 1/10th of one cent (1 mill) per kilowatt-hour. It would be overseen by a Joint Board composed of federal and state officials who would set standards for fund eligibility. States would have the flexibility to decide whether to seek funds and how to allocate funds among public purposes. Within each state, programs such as renewable development and energy efficiency would compete for funds on the basis of cost-effectiveness. The PBF would sunset after 15 years of operation.
A number of states that plan to open their electricity markets to retail competition are already planning to recover the costs of certain public benefit programs through a non-bypassable distribution charge on all electricity customers. A federal PBF will both encourage and support the creation of these programs at the state level, and can be structured to give states the flexibility to allocate public benefit funding in a manner that addresses unique state or local needs. A federal PBF could be justified by the fact that many of the activities in question provide public benefits that transcend state boundaries. Finally, the proposed matching fund amount of $3 billion would encourage states, at a minimum, to preserve the current level of support states provide for public purpose programs, estimated at about $6 billion in 1996.
Lower-cost renewable technologies such as wind, geothermal and biomass, which receive considerable support through current utility rates, would be supported primarily through the Renewable Portfolio Standard. Under the Administration's proposal, no "double dipping" would be permitted for renewable projects. Such projects could only receive support from either the RPS or the PBF, but in no instance could receive support from both mechanisms.
Recommendation: A charge to cover public benefits, such as programs to develop renewable energy, increase energy efficiency or support low income assistance, will likely be required by federal utility restructuring legislation. If federal legislation does not require such a charge, and Nebraska proceeds to implement retail competition, some form of a benefits charge should be considered to help cover the cost of renewable energy development, energy efficiency (and low income assistance). This charge would be levied on all suppliers to Nebraska consumers.
22.214.171.124 Consumer Disclosure
A fourth mechanism to support renewable energy development is through the use of a consumer "label" on energy supply bills.
Under a retail monopoly structure, electricity consumers have no ability to choose suppliers, so there is generally no need for information comparing the price and environmental qualities of different electricity suppliers. In competitive markets, many different suppliers would offer a diverse menu of energy products and services with different pricing and billing options. Consequently, consumers would need reliable information so they can compare the products and prices offered by suppliers and make informed choices. All electricity suppliers would be required to disclose in a uniform, easy to read label, basic information on the price, terms and conditions of service sufficient to enable consumers to make comparisons among various offers.
Research performed by the National Council on Competition and the Electric Industry has indicated that almost 60 percent of consumers believe they had enough information to make an informed choice when electricity products were uniformly labeled. Only 21 percent believed they had enough information without such a label. Both consumer and environmental groups have advocated an approach that would be modeled after the "nutrition facts" now on food.
In addition, customers may wish to make their choice of supplier based on a consideration of environmental factors affected by their suppliers' generation mix. Customers interested in purchasing electricity produced using renewable resources, natural gas or other power sources will need assurances that representations as to general source and environmental characteristics are true. Participants in state pilot programs have frequently tried to differentiate their products by advertising them as "green". Some of their claims have been misleading, if not fraudulent. For example, in a New Hampshire pilot program, one supplier offered electricity which it claimed was generated by hydroelectric facilities. However, such power was, in fact, generated by pumped storage facilities. Another supplier claimed that the power it was selling was not generated by either nuclear or coal facilities. However, it was later learned that the power the supplier was selling as "green" power was in fact power generated, in part, from nuclear and coal facilities.
In addition to protecting consumers, disclosure will also protect marketers that are selling truly "green" power, thereby encouraging greater participation by marketers in the "green" power market. For example, in California, six power marketers agreed to participate in the "Green-E" logo program, which requires each participant to market products that are based on at least 50 percent renewable-energy supply. Because use of the "Green-E" logo is limited only to participants in the program, such participants are given assurances that their fellow marketers of "green" power are satisfying the same minimum standards for "green" power sales.
As of October 1999, 20 states had adopted legislation or rules requiring disclosure of specific information. In fact, the National Association of Regulatory Utility Commissioners passed a resolution in November, 1996, supporting initiatives to require consumer disclosure. Given the current movement toward regional markets, disclosure labels within and between regions must be uniform. Absent uniform disclosure labels, consumers may be unable to effectively compare products offered by many suppliers from many different parts of the country. Moreover, uniformity in disclosure requirements would better enable the relevant governmental agencies to verify the claims made by suppliers.
Under the Clinton Administration's proposal, the Secretary of Energy would be authorized to conduct a rulemaking to require all suppliers of electricity to disclose information on price, terms, and conditions of their offerings; the type of generation source; and generation emissions characteristics. (See sample label: Chart 6-1.)
Recommendation: Descriptions of power generation sources and their impacts for all power supplied in the state would be useful to consumers for a comparison in a competitive market. It must be decided who will set the guidelines for such disclosure, as well as defining and enforcing green power requirements. This is one critical area in which Congress should consider uniform national standards. Should Congress not address this issue in a timely manner, other possible entities who could be given this task include the Power Review Board, the Public Service Commission, the Energy Office, or the Legislature itself.
A fifth mechanism to support development of renewable energy is "net-billing" or "net-metering."
Net-billing or net-metering is a process of integrating a private individual's renewable energy generator onto a utility's grid. In net-billing customers are credited for energy they generate from a renewable energy source. It is used to encourage customer investment in self-generation systems that are sized to meet the customer's load, but may produce surplus power at times and literally make the meter spin backward. This is clearly one of the most common renewable energy policies among states that have enacted legislation for retail competition, as well as a number of states yet to enact such legislation.
Through a provision in PURPA, utilities are required to buy back the excess generation from a renewable energy system. This federal law requires that utilities pay a renewable generator at least the avoided cost. Since avoided cost differs from utility to utility and from one region to another, the specific avoided cost amount is to be set at the state level. Because Nebraska has only locally controlled consumer-owned systems, it is unique that a state regulatory entity does not set statewide rates. Each local governing body sets the avoided cost amount for its own system.
Recently FERC issued a ruling which modified the buyback required by PURPA stating that no utility could be required by a state to pay more than their avoided cost. This required some states, most notably Iowa, to change their policy on net-billing.
As of October 1999, 29 states have chosen some form of net-billing as a means of encouraging renewable resources on their systems. Pricing levels among the states that have net billing policies include: Arizona (6.93 1997 average retail cents/kWh), California (9.56), Connecticut (10.52), Idaho (3.86), Indiana (5.23), Iowa (5.97), Maine (9.51), Maryland (7.0), Minnesota (5.58), Nevada (5.78), New Hampshire (11.65), New Mexico (7.02), New York (11.15), North Dakota (5.66), Oklahoma (5.41), Pennsylvania (8.0), Rhode Island (10.7), Texas (6.17), Washington (4.04), Wisconsin (7.05). More than half of these states have electric rates as noted in parentheses substantially above the national average of 6.85 cents/kWh which provides a larger economic incentive for customers in those states to invest in renewable energy as a method to reduce their electric bills.
The net billing provisions varying from state to state in how the excess energy from the renewable generator is accounted and compensated for. Most states, including Nebraska, have the utility purchase the excess renewable energy from the customer through a second meter. The price of the purchase is at the utility's avoided costs as defined by FERC. Four states provide that excess energy to be ceded back to the utility with no payment, however it does offset the cost of backup power service that is provided by the utility's generation and delivery system to the renewable generator but not billed. Some states allow for the waiver of extra metering and billing fees.
Another provision in net billing legislation is the maximum size of generators allowed . The PURPA stipulates that each utility file an avoided cost tariff for application to 100 kilowatt- and-lower sized generators. There are a number of renewable energy generators specifically in wind and photovoltaic that manufacture that are small scale, however many of these generators are rated at 10 kilowatts and less. There are a few wind generation machines offered in the mid level of the 10 to 100 kilowatt size. Most photovoltaic systems sold to residential and small commercial customers are configured in sizes of less than 10 kilowatts. Since most wind turbines and other renewable generation sized over 100 kilowatts are considered utility-scaled machines that require large equipment and special expertise to operate and maintain, it makes sense to set the limit to 100 kilowatts.
A limit at 100 kilowatts allows most residential and small commercial electric customers to install generation at sizes less than their total electric kilowatt needs. Thus, they can reduce the generation portion of their electric bill. Net billing should not allow the renewable generation customer to avoid paying reasonable fees for costs that are not avoided through the receipt of kilowatt hours from the renewable generator.
Recommendation: Net billing should be allowed for small renewable generators including new small hydro facilities within certain limits. The limitations are (1) a generator size that is optimized to match the customer's annual kWh usage and (2) 100 kilowatts or less. A statewide cap should be set on the total amount of generation that would be eligible under net billing legislation. The cap would be set to allow encouragement of renewable generation to continue until renewable energy sources reach a competitive cost. Net billing would be applied only to utilities production and/or generation charges, and the customer would continue to pay for distribution and transmission charges, delivery cost, facility charges, and billing and metering charges. Individual utilities within the state should have the discretion to waive back-up service, distribution delivery, billing and metering charges as each of their governing boards deems appropriate.
There was extensive discussion and disagreement between the Advisory Group and the Environmental Protection and Renewable Energy Subcommittee over initial recommendations. The primary concern is that there be an approach to energy efficiency, renewable energy and environmental protection that is consistent with the standards of other states, and not more stringent requirements that would place Nebraska systems at a competitive disadvantage. The recommendations included in this chapter reflect consideration of that concern.
It is generally believed that without additional mechanisms to maintain or advance these approaches that there would be fewer opportunities for the development of energy efficiency and renewable energy under retail competition than under the current system. However, under restructuring that includes mechanisms such as a renewable portfolio standard, a systems benefits charge, green pricing and disclosure, and net-billing, new opportunities could be created for efficiency, renewable energy and environmental protection. New opportunities might also be created under modification of the current structure, as demonstrated by the LES and NPPD programs for wind technology development.
As discussed in chapters 3 and 5, a statewide agency would need to be authorized to develop necessary definitions, rules, and mechanisms.
As noted in Chapter 6: