CHAPTER
SIX: CHANGES AND IMPACTS ON THE ENVIRONMENT, ENERGY EFFICENCY, AND
RENEWABLE ENERGY
6.0
Introduction
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
Potential Changes and Impacts on the Environment
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.
6.1.1.1
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.
6.1.1.2
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.
6.1.1.3
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.
6.1.2.1
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.
6.1.2.2
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.
6.1.2.3
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).
6.1.2.4
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.
6.1.2.5
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.
6.1.3.1
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. 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.).
6.1.3.2
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.
6.1.3.3
Choice for Clean Energy and Green Pricing
Some
utilities in the US 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.
6.1.3.4
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.
6.1.3.5
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.
6.1.3.6
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.
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
Potential Changes and Impacts on Energy Efficiency
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
Potential Changes and Impacts on Renewable Energy
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.
6.3.2.1
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.
Opinions
vary as to what level of renewables is attainable, how long it will
take to reach that level, and at what point the cost outweighs the
benefits.
At
least five states have adopted the RPS as part of their restructuring
plans: Maine, Nevada, Massachusetts, Connecticut and, by regulatory
order, Arizona, Massachusetts and Connecticut also have approved
a systems benefit charge to directly fund the development and promotion
of renewables projects. Some states have been slower to embrace
the concept, although it remains under consideration.
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. 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
renewables 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
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 will likely be included in
any 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 6.1.3.6 on Interstate
Competition).
6.3.2.2
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.
6.3.2.3
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.
6.3.2.4
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.
At
least seven states-California, Connecticut, Illinois, Maine, Massachusetts,
Nevada and Rhode Island-have adopted legislation 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.
6.3.2.5
Net-Billing/Net-Marketing
A
fifth mechanism to support development of renewable energy is "net-billing."
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.
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.
Twenty
states have chosen some form of net-billing as a means of encouraging
renewable resources on their systems. The states that have net billing
policies are: 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.
6.4
Summary of Advisory Group and Topic Subcommittee Positions
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.
6.5
Summary of Key Points and Perspectives or Recommendations
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:
1)
Changes to competitive retail market systems could have impacts
on the environment and energy efficiency and renewable energy
2)
A competitive retail market could also have possible environmental
impacts on air emissions, water quality and management of water
resources.
3)
Environmental impacts driven largely by economics of generation
and could be affected by shift to low-cost generation and full-throttle
operation of plants. Size and flexibility of units, capital costs,
financing costs and federal hydro power policies need to be considered.
4)
Several mechanisms for environmental protection: a) Environmental
externalities must be considered in a shift to competitive market
and could be addressed by emissions and fuel taxes; b) Portfolio
standards; c) Choice for Clean Energy and Green Pricing; d) Surcharges
or Access Charges.
5)
Care needs to be taken in formulation of environmental policies
to address competitive issues with surrounding states: a) possible
adverse impacts of more stringent regulation/standards; b) impacts
on interstate economic competition.
6)
Platte River issues need to be addressed including possibility that
value of power generated may no longer be sufficient to cover total
costs of providing environmental and other public benefits. One
possible solution is an increase in fees or new fees for benefits
and services.
7)
In a highly competitive market some DSM programs may decline due
to cost, however, price volatility may create greater interest in
certain programs. Specific programs could be expanded as part of
marketing strategy
8)
The Task Force recommends that these items be considered: a) minimum
portfolio standards; b) green pricing to support choice of clean
energy and green energy; c) consumer contribution programs for renewable
energy projects; d) standards should be set to define green power
and green pricing; e) a consumer charge to cover public benefits
programs; f) consumer disclosure label; g) net billing.
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