Thursday, February 5, 2015

Coal to Clean Power: The Oregon Legislature Considers a Bill to Replace Coal-fired Electricity Generation With Clean Energy

By Amelia Schlusser, Staff Attorney

The Oregon legislature is currently considering a bill that aims to reduce the generation and
PGE and PacifiCorp own shares in the Colstrip
Generating Station, a coal-fired power plant in Montana  
use of coal-fired electricity in the state and replace coal with clean energy by 2025. The bill’s sponsors, Senator Chris Edwards and Representative Tobias Read, introduced the proposed legislation as S.B. 477 in the Oregon Senate and H.B. 2729 in the Oregon House of Representatives. The introduced bill requires an “electric company” to “(a) Reduce the allocation of electricity from coal-derived generating resources to zero on or before January 1, 2025; and (b) Replace those coal-derived generating resources with clean energy.” This post discusses the bill’s applicability and specific requirements.

The Bill’s Applicability and Primary Mandate

The bill applies to electric companies that sell power to Oregon consumers. However, many electricity providers in Oregon don’t qualify as “electric companies” under Oregon law. The introduced bill uses the existing definition of the term found in ORS 757.600, which defines “electric company” as “an entity engaged in the business of distributing electricity to retail electricity consumers in this state, but does not include a consumer-owned utility.” In other words, the bill only applies to Oregon’s investor-owned utilities (IOUs), including PGE, Pacific Power, and Idaho Power. It does not apply to consumer-owned utilities, including municipal electric utilities, public utility districts, or rural electric cooperatives.

So under the introduced bill, Oregon’s three investor-owned utilities (IOUs) must “[r]educe the allocation of electricity from coal-derived generating resources to zero on or before January 1, 2025.” But what does this mean? Each of the IOUs operating in Oregon (PGE, Pacific Power, and Idaho Power) own or partially own coal-fired generating resources. Presumably a portion of the power from these plants is “allocated” to the utilities’ customers in Oregon. The bill requires these utilities to “reallocate” their coal-fired power to their customers outside of Oregon. In other words, the bill prohibits the IOUs from selling the coal-fired power they generate to Oregon consumers after January 1, 2025.

However, the bill “[d]oes not apply to market purchases of unspecified power.” This presumably means that the bill’s requirements don’t apply to wholesale sales of coal-fired power from third party generators to IOUs selling power in Oregon’s retail market. In other words, Oregon’s IOUs could still purchase coal-fired power on the wholesale market and sell that power to Oregon consumers. This distinction has legal significance, because the Federal Energy Regulatory Commission (FERC) has exclusive jurisdiction over wholesale electricity markets and the Commerce Clause of the U.S. Constitution restricts states’ from regulating commercial activity outside of their borders. I will explore this issue further in a later post. For now, I think it’s important to note that the bill would not create a total barrier to coal-fired power consumption in Oregon.

The Bill’s Secondary Mandate: Replace Coal-fired Power With Clean Energy

The bill ultimately requires Oregon’s investor-owned utilities (IOUs) to stop allocating (i.e. selling) electricity they generate from coal to Oregon consumers by 2025. In the meantime, the bill requires the Oregon Public Utility Commission (PUC) to direct the IOUs to “develop a least-cost plan” to reduce their allocations of coal-fired power. These plans must include “a comprehensive accounting” of the utilities’ coal-fired generating resources. Plans must also include an analysis of the costs each coal-fired power plant will incur over the remainder of the plant’s useful life and an analysis of whether a coal-fired power plant will become “uneconomical before the end of the plant’s useful life.” In addition, utility plans must include a “least-cost, least-risk analysis of the order in which the electric company will reallocate electricity generated by [coal-fired power] plants.” This presumably means that each IOU must evaluate different options for reducing sales of coal-fired power in Oregon and replacing that lost generation with power from other, “cleaner” resources, while minimizing costs and risks to ratepayers.

In addition to producing a “least-cost plan” to reallocate their coal-fired power, the bill directs each IOU to “identify the quantity and type of supply-side and demand-side resources that will replace the coal-derived generating resources.” The utility then must “identify the least-cost method of achieving a mix of energy resources that is at least 90 percent cleaner than the coal-derived generating resources being replaced.” So each IOU must determine which resources are available to replace their coal-fired generation, and identify the combination of resources capable of replacing coal power at the lowest cost to consumers. These replacement resources must be “at least 90 percent cleaner” than the coal-fired resources they replace. In addition, utilities must “give preference to resources that allow electricity to be transmitted to this state on a real-time basis without shaping, storage or integration services,” so long as the resource is not more expensive or less reliable than alternative resources. This means that utilities may only replace their coal-fired generation with variable renewable resources, such as wind and solar power, if these variable resource options are less costly than other options and do not compromise the reliability of the grid.

Unanswered Questions

The bill, as introduced, aims to achieve an important and admirable objective. Coal-fired power pollutes our air and water, emits more carbon dioxide than any other source in the U.S., and destroys our national landscape. Oregon’s proposed legislation strives to protect our air, land, water, and climate by eliminating this resource from the state’s energy supply. While this is a commendable goal, the proposed bill creates some significant questions. First, it does not define “90 percent cleaner,” and this ambiguity could leave the bill vulnerable to legal challenge if it becomes law. Second, the bill explicitly disfavors replacing coal-fired power with a combination of wind or solar power and energy storage. Given the bill’s least-cost resource mandate, this preference for non-variable resources is a little befuddling. And finally, the bill would repeal Oregon’s existing greenhouse gas emission standards for investor-owned utilities, which limit carbon dioxide emissions from all generating resources, including natural gas plants.

In addition to these textual ambiguities, the bill raises some interesting legal questions regarding state energy regulation. I’ll explore these issues in greater detail in next week’s post.

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