Wednesday, April 29, 2015

Renewable Power Grids Are Technically Viable and Coming Soon

By Nick Lawton, Staff Attorney

A series of recent reports have demonstrated that several jurisdictions around the world are capable of meeting energy demands with renewable energy. A growing number of jurisdictions are committing to supplying all their power with renewable energy, for both environmental and economic reasons. Renewable-based power grids are coming, and jurisdictions in the United States and around the world should use all available policy tools to ensure that the transition is swift and smooth.

Reports Show Australia and China can Develop Renewable Power Grids

Australia has excellent access to renewable resources, meaning that it could develop a great deal of renewable energy at relatively low cost. The World Wildlife Fund and the Australian National University report that Australia could develop a fully renewable power grid by 2050 at cost comparable to fossil fuel-fired options. To reach this goal, Australia would have to adopt a robust set of long-term policies aiming to promote renewable energy development. However, the current policy environment in Australia is profoundly unfriendly to renewable energy. The Australian government has been dithering over its Renewable Energy Target for more than a year, and in this uncertain political environment, investment in renewable energy in Australia is tanking. The United Nations Environment Programme (UNEP) reports that policy uncertainty caused renewable energy investment in Australia to plunge from $2.1 billion to only $330 million. Australia could reverse this trend and achieve a renewable power grid, but only if it can muster the political will.

China, meanwhile, could generate 85% of its electricity with renewable energy by 2050, according to a report by the China Renewable Energy Centre. According to Wang Zhongying, the Centre’s director, that renewable energy grid would contribute 6.2% of China’s gross domestic product and would provide 12 million jobs, in a net economic benefit for the nation. Arguing that China needs to adopt a “target-oriented approach,” the report notes that prior planning and a strong, committed policy framework will be necessary. And China is off to a good start. UNEP reports that China saw the most renewable energy investment of any single country in 2014, at $83.3 billion. That was a 39% increase from 2013. If China can sustain this level of renewable energy development, it could reach the ambitious goals of an 85% renewable energy grid by 2050.

U.S. States Will Likely Need to Be Leaders

Experts have made similar findings in the United States. The Solutions Project offers routes that U.S. states could take to reach 100% renewable energy grids.  Meanwhile, as California ponders adopting a 50% Renewable Portfolio Standard, Michael Picker, the president of the California Public Utilities Commission has noted that a 100% renewable power grid is possible. Bloomberg Business quotes Mr. Picker as stating “We could get to 100 percent renewables” and as noting that “getting to 50 percent is not really a challenge.” Similarly, in Hawaii, where legislators are considering a 100% Renewable Portfolio Standard, State Senator Mike Gabbard has stated that “100 percent is definitely doable.”

These technical findings are good news, because U.S. states will likely need to be policy leaders in bringing this nation toward a fully renewable future. Although the federal Clean Power Plan is an excellent first step toward reductions in carbon emissions, development of renewable energy is only one of four building blocks in the plan. Moreover, legal challenges run a substantial risk of delaying the plan’s implementation. Thus, state-level energy policy is likely to be critical in the near future.

The best way for U.S. states to take the lead on renewable energy development is by increasing targets in Renewable Portfolio Standards. However, many states are considering proposals to erode or repeal their renewable energy targets. Fortunately, most of those proposals fail, as one recently failed in North Carolina. Renewable Portfolio Standards have promoted economically efficient development of renewable energy. For example, a utility in Virginia has seen such low compliance costs that it is proposing to offer rebates to consumers. And utilities in Nevada have already exceeded the state’s targets. These policies work well and do not raise electricity prices beyond business as usual. U.S. states should embrace and expand Renewable Portfolio Standards.

Thursday, April 23, 2015

The Proposed Ratepayer Protection Act Will Not Actually Protect Ratepayers

By Amelia Schlusser, Staff Attorney

On March 23, 2015, U.S. Representative Ed Whitfield (R-Ky.), Chairman of the House Energy and Power Subcommittee, introduced a discussion draft of a bill titled the “Ratepayer Protection Act of 2015,” which would allow states to “opt out” of complying with the Environmental Protection Agency’s final Clean Power Plan.

The draft bill aims to dramatically weaken state compliance obligations under the Clean Power Plan. First, the bill would extend the rule’s compliance deadlines until final judgments are issued in all legal challenges against EPA’s regulation, which could take years. Second, and more significantly, the bill would exempt a state from adopting a plan to implement the final rule if the governor determines that compliance would “have a significant adverse effect on the State’s residential, commercial, or industrial ratepayers” or “on the reliability of the State’s electricity system.” A state could also refuse to implement a federal plan if these same conditions are met. In determining whether compliance would adversely affect ratepayers, the state must take into account any potential rate increases associated with implementation of the Clean Power Plan or other federal or state environmental regulations. In determining whether compliance would adversely affect reliability, the state must consider the rule’s effects on the state’s electricity generating resources, transmission and distribution infrastructure, and projected electricity demands.

Rep. Whitfield argues that this legislation is necessary to protect coal-dependent states, like Kentucky, from rising electricity rates. According to the House Energy & Commerce Committee website, the bill “seeks to empower states to protect families and businesses from higher electricity rates and other harmful effects of EPA’s pending rule to regulate carbon dioxide emissions from existing power plants.” Whitfield described the Clean Power Plan as an “unprecedented power grab,” and stated that his “commonsense legislation” is necessary to protect states from “EPA’s damaging overreach.” House Energy and Power Committee Chairman Fred Upton (R-MI) also expressed his support for Whitfield’s legislation, stating, “[t]his bill is about protecting families and jobs.”

Supporting Alarmist Claims With Questionable Data

Rep. Whitfield rationalizes his opposition to EPA’s proposed rule by asserting that the Clean Power Plan will unreasonably burden ratepayers. EPA estimated that the rule’s annual compliance costs would range from $5.4 to $7.4 billion in 2020 and range from $7.3 to $8.8 billion in 2030. Proponents of the Ratepayer Protection Act, however, cautioned that the rule’s actual compliance costs may be much higher than EPA projected. An April 10 memo introducing the draft bill argued that according to “other estimates,” the rule’s compliance costs could potentially range from $366 to $479 billion between 2017 and 2031.

The “other estimates” cited by the memo were drawn from a NERA Economic Consulting report prepared for the American Coalition for Clean Coal Electricity, the American Fuel & Petrochemical Manufacturers, and the National Mining Association, among others. While the industry-funded assessment did estimate that compliance costs would be much higher than EPA’s projections, the report’s authors noted that the data they applied in their analysis was not independently verified and may not be accurate or complete. Moreover, the report projected that implementation costs would be highest (i.e. $479 billion) under a scenario in which states refused to use renewable energy, energy efficiency, and new nuclear power to achieve compliance. These high compliance costs would instead be directly attributed to rising natural gas prices.

Lamenting Costs While Ignoring Benefits

The cost projections favored by Rep. Whitfield fail to account for the economic and social benefits that the Clean Power Plan would provide. EPA estimated that the final rule would contribute $55 to $93 billion in climate and health benefits by 2030. The Agency projected that the rule would prevent 2,700 to 6,000 premature deaths resulting from air pollution, and would avoid 140,000 to 150,000 asthma attacks in children. By reducing power-sector CO2 emissions by 30% below 2005 levels, the rule could help to mitigate the impacts from climate change, which cost the U.S. economy more than $100 billion in 2012 alone.

The Clean Power Plan will also contribute to economic growth and create significant new employment opportunities. A new report by Industrial Economics and the Interindustry Economic Research Fund estimated that the final rule would lead to 74,000 new jobs in 2020 and would contribute an additional 196,000 to 273,000 new jobs each year between 2025 and 2040.

In the aggregate, the climate, health, and employment benefits resulting from the final Clean Power Plan will more than offset state compliance costs. Moreover, the draft rule proposed to provide states with significant flexibility in deciding how to implement the rule, which should enable states to develop strategies to reduce power sector emissions at the lowest cost to ratepayers. For example, many states have substantial potential to reduce electricity consumption (and thus emissions) through increased energy efficiency, which is commonly the lowest-cost “source” of power available. In addition, states can also implement the rule through increased deployment of renewable energy resources, which can provide jobs and other economic benefits while offsetting emissions.

A Transparent Attempt to Protect Coal Industry Interests

On Wednesday, April 22, the Energy and Power Subcommittee conducted a markup of the Ratepayer Protection Act, in which the subcommittee approved the proposed bill by a vote of 17 to 12. The vote was entirely along party lines, with 17 Republicans voting in favor and 12 Democrats voting against the proposed legislation.

The subcommittee also voted against a series of proposed amendments to the draft bill. One of these amendments would have allowed states to opt out of compliance only if projected ratepayer cost increases were expected to exceed the costs of responding to climate change. Another amendment would require a state to certify that a decision to opt out would not have a significant adverse effect on public health. The subcommittee also voted against an amendment proposing to add a section declaring that “the Federal Government should promote national security, economic growth, and public health by addressing human-induced climate change through the increased use of clean energy, energy efficiency, and reductions in carbon pollution.”

The subcommittee members’ failure to approve these proposed amendments revealed the true objectives of the so-called “Ratepayer Protection Act,” which have little to nothing to do with protecting ratepayers. Instead, the proposed bill aims to protect the economic interests of the coal industry by enabling states to choose not to comply with federal air quality regulations. This transparent attempt at industry protectionism at the expense of public health and welfare exposes a growing disconnect between conservative lawmakers and the public they ostensibly represent.

If this proposed bill survives the legislative process and actually gets signed into law (which is highly unlikely, but not impossible), it will encourage coal-hungry states to opt out of complying with the Clean Power Plan to the detriment of the electricity system as a whole. The proposed regulation represents an opportunity for states to modernize their electricity sectors and build a more sustainable, resilient energy grid. States that refuse to implement the final rule will fail to invest in new resources and technologies that would provide lasting benefits for power consumers, and instead will continue to rely on outdated technologies and aging infrastructure. The electricity grid is a highly interconnected system, and one state’s refusal to modernize its power sector imposes additional risks on the system as whole. Moreover, a refusal to deploy non-emitting electricity resources will have long-term climate implications for current and future generations. The Clean Power Plan provides an opportunity for states to start transitioning to the electricity system of the future, and the Ratepayer Protection Act represents an attempt to remain stuck in the past.

Tuesday, April 21, 2015

RPS Repeal Efforts Are Deeply Misguided

By Nick Lawton, Staff Attorney

Texas and North Carolina have joined the fray over Renewable Portfolio Standards, the popular and effective state requirements for renewable energy. Bills in both states would rescind local RPS requirements. Although Texas would suffer less from an RPS repeal than North Carolina, enacting either bill would be a costly mistake. This post offers some details on the proposals in these two states and then offers some broader context to explain why RPS repeal efforts are bad public policy.

Is Texas Declaring Victory or Snatching Defeat from its Jaws?

Texas enacted its RPS in 1999 and expanded the policy in 2005. The Texan RPS required the state’s utilities to purchase 5,880 MW of renewable energy by 2015 and set an aspirational goal of 10,000 MW by 2025. Since then, Texas has become the nation’s leader for wind energy development, with more than 14,000 MW already installed (more than twice the amount as in California, the next runner up). Texas also has roughly 330 MW of solar power installed. In short, Texas has wildly exceeded the most ambitious goal in its RPS.

In some sense, the remarkable renewable energy development in Texas lends credibility to the argument from the bill’s sponsor, state Senator Troy Fraser (R-Horseshoe Bay), and other backers that the RPS is no longer necessary. However, the RPS also gave the state’s Public Utility Commission (PUC) greater authority to approve new transmission lines in “Competitive Renewable Energy Zones.” The new transmission lines connect the rich renewable resources in west Texas to the metropolitan energy consumers in the eastern parts of the state, and they have been extremely successful in spurring the state’s wind energy development. If the state rescinds this authority, the PUC will lose the ability to easily approve new transmission lines, thus setting up a new obstacle for further renewable energy development. Similarly, repealing the RPS sends a message to renewable energy developers that the state lacks interest in their business, even at a time when renewable energy is poised to help the state comply with new federal pollution regulations at low cost. In the words of Tom Smith, director of Public Citizen, the legislature "snatched defeat from the jaws of victory." In other words, even though the state has already met the goals of its RPS, the repeal would still stymie renewable energy development.

But more fundamentally, Texas’s situation raises the question of what states should do once they meet, or surpass, their initial renewable energy goals. The Texas Senate seems to think the appropriate solution is to dust off their hands, declare victory, and end support for a successful industry. But a better reaction to achieving one goal is to set another, greater goal. Only by building off prior victories can states continue to make progress. Wind power in Texas has already saved the state more than $950 million annually and created more than 8,000 jobs. The state can realize even greater savings and even greater benefits, but not by retracting successful policies. The Texas House of Representatives should reject this RPS repeal effort and instead launch new renewable energy goals for the state.

North Carolina Proposes Backing Down from a Promising Policy

In contrast to Texas, North Carolina has not attained its RPS targets and thus stands to suffer worse economic impacts from the repeal recently proposed in the state House of Representatives. North Carolina became the first state in the Southeast to enact an RPS in 2007, requiring the state’s utilities to obtain 12.5% of their energy from renewable sources by 2021. But a new bill in the House of Representatives would slash the target in half and end the policy altogether in 2018. In effect, the new bill would end North Carolina’s driving renewable energy policy.

One of the bill’s sponsors, Senator Chris Millis (R-Pender), promotes the bill by arguing that the RPS transfers wealth from ratepayers to the renewable energy industry. However, the RPS has already driven more than $2.6 billion in investment in the state since 2008, and more than three-quarters of that investment has gone to rural counties, which likely have the greatest need for it. 

Repealing North Carolina’s RPS would disrupt existing investment and deter future investment by sending a signal that the state will refuse to support the renewable energy industry. The state is already on track to meet its targets, but slashing those targets would present a significant obstacle to making further progress.

States that Meet RPS Goals Thrive, but States that Abandon RPS Goals Suffer

Texas, North Carolina, and all the other states considering RPS repeals should pay close attention to the demonstrable economic benefits from achieving RPS targets and to the economic damage that repealing RPS targets can wreak. The benefits are clear. California, which has a robust RPS and is strongly considering an expansion, is seeing strong economic returns, including sales of renewable energy to other states worth $4 million just in the first two months of 2015.  Meanwhile, in Virginia, compliance with that state’s RPS has proven cheaper than the state’s utilities expected, leading Appalachian Power to begin the process for offering its customers rebates, which would be worth nearly $1 off each resident’s monthly energy bill, for a total rebate of roughly $8 million.

In contrast, Ohio offers a good example of the economic damage that RPS repeal efforts can wreak. In 2014, Ohio became the first state to freeze its RPS, meaning that utilities no longer needed to invest in renewables in order to comply with the law. Consequently, the value of renewable energy credits, which utilities buy to demonstrate RPS compliance, plummeted. The fallout has been harsh for the solar energy sector in Ohio. According to one developer, Ohio’s solar companies “are either going out of state or going out of business.” Those companies are seeing rapid declines in profits and are shedding jobs. In short, Ohio backed down from its RPS target, and its local businesses suffered.

In 2015, the states will have to be leaders in renewable energy policy. Although Congress has focused heavily on energy and the environment in the first 100 days, it has so far focused on encouraging fossil fuel development and has failed to pass any significant reforms. Meanwhile, the United States Environmental Protection Agency is very likely to issue a final version of the Clean Power Plan this summer. Under that rule, states will take leading roles in figuring out how to slash carbon emissions from the energy sector. The states that have successful RPS programs will have more experience driving renewable energy development and thus will be better prepared to meet federal emissions targets. In contrast, the states that are abandoning successful, efficient RPS policies are likely to have a harder time.

Monday, April 20, 2015

Hawaii’s Utility Reforms Unlikely to Result in Significant Changes

By Nate Larsen, Energy Fellow

In spite of the Hawaii PUC’s aspirational language in the Commission’s Inclinations guidance document, the process by which Hawaii pursued its reforms makes a significant transformation of the electric industry unlikely. The Hawaii PUC’s guidance contained a variety of significant proposals, but the state’s investor-owned utilities, the HECO Companies (HECO), are driving the reform process and have not demonstrated an appetite to adopt the changes recommended by the Hawaii PUC.

The Hawaii PUC issued the Commission’s Inclinations on April 28, 2014, with the purpose of aligning HECO’s business model and infrastructure with the rapidly evolving technical, market and public policy changes in the electric industry. The guidance document recommended a number of reforms—discussed in previous posts—as a means of accomplishing these objectives. While the PUC’s proposed reforms represent a dramatic shift away from current practices, the policies that regulators will ultimately adopt are unlikely to depart dramatically from business-as-usual. This post discusses the relevant background to Hawaii’s utility reform process, and examines how Hawaii’s mechanism for utility reform will ultimately impact the outcome of utility reform in the state.


The Hawaii PUC set the wheels of utility reform in motion through a series of four Orders and Decisions concurrently issued on April 28, 2014. These orders rejected HECO’s integrated resource plans (IRPs) and required the utilities to file plans to comply with the state’s ambitious renewable energy objectives. To guide HECO in drafting these plans, the PUC issued a white paper, entitled Exhibit A: Commission’s Inclinations on the Future of Hawaii’s Electric Utilities, which set forth an array of policy recommendations for HECO to consider. In compliance with the PUC’s orders, HECO filed its Power Supply Improvement Plans and Distributed Generation Interconnection Plan on August 26, 2014. The plans are currently before the PUC for review, and, as of the publishing of this post, the PUC has yet to issue a final decision approving or denying HECO’s proposals.

Hawaii’s Utility Reform Process

            The mechanism established by the PUC for implementing Hawaii’s utility reforms is being driven primarily by HECO’s plan filings.This is problematic, because the investor-owned utilities’ decisions are guided by a responsibility to earn a profit for shareholders. The process relegates the PUC to playing a responsive role, which may limit the Commission’s ability to implement some of the more progressive reforms identified in the Commission’s Inclinations.

The PUC’s Commission’s Inclinations reflect the Commission’s intent to dramatically overhaul the state’s electric utility regulatory regime. The proposed reforms consider requiring utility divestment from generation assets, transitioning the utilities’ role to serve primarily as distribution system managers, and adopting changes to the utility cost-recovery model. HECO’s plans, however, simply cherry-pick the PUC’s recommendations, advancing the measures from which the utilities stand to profit, and ignoring the proposals that have the potential to reduce revenue or create uncertainty.

The PUC should instead be directing the reform process. The utilities’ selective reform proposals are understandable; one of the primary roles of a corporate entity is to create value for shareholders. While the PUC is responsible for ensuring that the utilities have the opportunity to earn a reasonable rate of return, that responsibility is balanced against an array of long-term policy goals that occasionally run counter to the utilities’ interests. These goals include:

·                fostering and encouraging competition or other alternatives where reasonably feasible in an effort to provide consumers with meaningful choices for services at lower rates that are just and reasonable;

·                promoting and encouraging efficient and reliable production and delivery of all utility services, and promoting and encouraging efficient and reliable electricity generation, transmission and distribution; and

·                promoting and encouraging the use of alternative, renewable, and clean energy resources for the production of electricity to increase the efficiency, reliability, and sustainability of electricity generation and supply for consumers.

Aspects of these goals are both directly and indirectly adverse to HECO’s economic interests. Competition and customer choice clearly take revenue away from the incumbent utilities by allowing customers to purchase services from other providers. Additionally, the PUC’s goals seem to encourage the development of distributed generation and renewable energy resources, which represent a departure from the traditional centralized utility model. While they may have an opportunity to develop and operate these alternative resources, utilities are unlikely to embrace the uncertainty associated with adopting a new business model when their existing arrangements generate a predictable rate of return.

The PUC still has an opportunity to determine the ultimate outcome of the utility reform process. The PUC can deny HECO’s plans and subsequently instruct the utilities to comply with policy objectives. The PUC also has the authority to issue a top-down order implementing certain utility reforms. However, the PUC has already taken considerable steps down the current path of reform. If the PUC pursues either of these alternative courses of action, it may face criticism for compelling the utilities to invest resources in the required plans and for limiting stakeholder participation in the reform process.

The PUC’s chosen mechanism to reform Hawaii’s electric industry regulations is inefficient and unlikely to result in a radical departure from business-as-usual. This is because some of the PUC’s objectives are adverse to HECO’s interests, HECO is responsible for preparing the plans, and HECO cannot be expected to act contrary to its economic interests.

States considering comprehensive utility reforms in the future should employ a more regulator-directed process, such as the process used by the New York Public Service Commission. The PSC in New York sought stakeholder input in constructing its reform proposals, including from the utilities, but ultimately the regulators in New York are responsible for issuing the final reforms. A future post will discuss the benefits and disadvantages of the reform process in New York.