By Dustin Till, Marten Law
California and Congress seem to be headed in opposite directions on climate policy this year. California has expanded its renewable portfolio standard (RPS), meaning public and private utilities must now acquire up to a third of their energy from renewable energy sources. Congress, meanwhile, has been backing away from climate change regulation, including a federal clean energy standard (CES) that, until recently, was considered relatively non-controversial.

I. Background on CES

Alternative energy standards -- variously called CESs and RPSs -- are requirements that utilities acquire a certain percentage of the electricity from renewable resources. These type of regulations define the types of power generation that qualify as 'renewable' or 'clean,' and generally allow regulated utilities to purchase electricity from any qualifying renewable resource based on the characteristics the utility values most (e.g. price, quantity, duration, intermittency, reliability, etc.).[1] Many jurisdictions also allow regulated utilities to trade renewable energy certificates (RECs) (i.e. a credit issued for each megawatt [MW] of renewable energy generated) to further increase compliance flexibility. Some jurisdictions such as California allow compliance for a portion of the RPS requirements through the use of tradable RECs (TRECs), which are RECS that can be traded separate and apart from the energy associated with their creation. TRECs allow utilities in one state to take credit for renewable energy developed in another state without having to take delivery of the physical power.

At least thirty states have adopted mandatory RPSs, and another seven states have adopted non-mandatory RPS goals.[2] The types of generating technologies that qualify as 'renewable' vary from jurisdiction to jurisdiction. For example, most states classify wind, solar, landfill gas, biofuels and biomass as 'renewable' sources, while other states have broader standards that classify advanced nuclear and carbon capture and sequestration (CCS) as 'clean.'[3] While most RPSs are neutral as to which qualifying resource is used for compliance, some states have enacted 'carve outs' that require that a certain percentage of the RPS is met via specific technologies, or 'multipliers' that incentivize particular technologies by awarding more than one REC per MW purchased.

II. The California RPS

The Scoping Plan for implementing the greenhouse gas emission reductions called for in California's greenhouse gas legislation (Assembly Bill 32) calls for a 33% mix of renewable resources.[4] Given the size of California's energy market, the structure of its RPS program has consequences for participants in renewable energy markets throughout the western U.S.

California has two RPS standards -- one legislative and one regulatory. In 2002, California passed Senate Bill 1078, which established a 20% by 2017 RPS for the state's investor-owned utilities (IOUs). In 2005, Senate Bill 107 accelerated the RPS to 20% by 2010. According to the California Public Utilities Commission, California's three largest IOUs[5] collectively served 18 percent of their 2010 retail electricity sales with renewable resources.

In 2009, the California legislature passed two bills (Senate Bill 14 and Assembly Bill 64) that would have increased the state's RPS to 33 percent. Governor Schwarzenegger, however, announced he would veto the bills over concerns about restricting the eligibility of out-of-state renewable energy resources through TRECs. Governor Schwarzenegger subsequently issued Executive Order No. S-21-09 which increased the RPS to 33 percent by 2020. The executive order also expanded the scope of the RPS to include customer-owned utilities (COUs) and cooperatives (in addition to IOUs). In September 2010, the California Air Resources Board (CARB) issued new regulations to implement the 33% by 2020 RPS.

Earlier this year, the California Public Utilities Commission (CPUC) lifted its moratorium on the use of TRECs by IOUs to satisfy requirements pursuant to the legislative 20 percent RPS.[6] In March 2010, CPUC authorized the use of TRECs for compliance with the RPS. That decision allowed utilities to obtain TRECs from out-of-state generators in order to satisfy a portion of their compliance obligations. CPUC subsequently placed a moratorium on the use of TRECs. In CPUC's final ruling, utilities can obtain TRECs to satisfy up to 25 percent of their RPS compliance obligations, subject to a $50/REC price cap. The provisions will expire at the end of 2013, when the CPUC 'will consider modifying or removing those limitations all together.'

There is talk that the 25 percent limit on out-of-state TRECs could stifle renewable energy development in Oregon and Washington. Some experts have observed that the 25 percent limit on out-of-state TRECs is already fully subscribed, meaning that there is no additional market for RECs generated outside of California.[7]

There is, however, proposed legislation in California that would expand the market for out-of-state TRECs. On February 25, 2011, the California Senate passed legislation paralleling (and expressly superseding) CARB's RPS rules. Senate Bill 2X would increase the statutory RPS to 33 percent and would expand the program to include COUs. The bill would also set a 25 percent limit on the use of out-of-state TRECs. By increasing the statutory RPS, and expanding it to include California's many large COUs, the proposed legislation would have the effect of significantly increasing demand for out-of-state TRECs.

III. The Federal RPS Debate

Over the past decade, over twenty-five proposals for a federal RPS have been introduced in Congress, but none have passed both chambers.[8] Most recently, federal RPS provisions have been included in greenhouse gas cap-and-trade legislation, and efforts were made to include a federal RPS in legislation addressing the Deepwater Horizon oil spill. President Obama proposed a broad CES in his 2011 State of the Union address. However, it seems unlikely there will be sufficient bipartisan support for CES in Congress. Indeed, the House has been voting to rollback EPA's greenhouse gas regulations and to defund clean energy development programs. Moreover, the recent nuclear power plant trouble in Japan has cast significant doubt on the future of any energy standard that includes nuclear generation.

 A. Renewable and Clean Energy Proposals in the 111th Congress

The 111th Congress saw numerous bills with RPS or similar provisions. On June 26, 2009, the House narrowly passed HR 2454, the American Clean Energy and Security Act (ACES). ACES would have established an economy-wide cap-and-trade program intended to reduce greenhouse gas emissions 17 percent by 2020 and 83 percent by 2050, as compared to 2005 levels.[9] ACES would also have established a federal RPS, requiring that six percent of electric power come from renewable resources by 2012, and twenty percent by 2020. Eligible renewable resources included in the ACES standard were solar, wind, geothermal, qualified hydropower, marine and hydrokinetic, biomass, and landfill gas. A portion of each utility's compliance obligation could have been met with qualifying energy efficiency measures.

ACES would not have preempted state-level RPS requirements; instead, regulated utilities would have received federal credits in an amount equal to the state credits they were already earning. While ACES was never introduced in the Senate, Senators Kerry (D-Mass.), Lindsay Graham (R-S.C.), and Joseph Lieberman (I-Conn.) were slated to propose cap-and-trade legislation with RPS provisions similar to ACES. That legislation, however, was never formally introduced. A subsequent cap-and-trade proposal introduced by Senators Kerry and Lieberman did not include an RPS standard.[10]

Other legislation considered in the Senate included S. 1462 -- the American Clean Energy Leadership Act (ACELA) -- which was passed out of the Senate Energy and Natural Resources Committee on June 17, 2009. The RPS provisions in ACELA were similar (yet less stringent) than ACES, requiring regulated utilities to obtain 12 percent of their electricity from renewable resources by 2020. Introduced by Senator Lugar (R-In.), the Practical Energy and Climate Plan Act (PECPA) (S. 3464) would have established a diversified energy standard (DES) that included traditional renewable resources such as wind, incremental hydroelectric, and solar, while also including clean coal technology (i.e. coal combustion coupled with CCS technology) and new nuclear facilities.

Renewable energy advocates saw the legislative response to the April 20, 2010, Deepwater Horizon oil spill as a vehicle for establishing a federal RPS.[11] On July 30, 2010, the House of Representatives passed the Consolidated Land, Energy and Aquatic Resources (CLEAR) Act (H.R. 3534), that would add restrictions on offshore oil drilling and beef up response, safety and liability provisions in current law. A companion bill, the Clean Energy Jobs and Oil Company Accountability Act of 2010 (S. 3663), was introduced in the Senate. Neither bill, however, included a renewable energy standard.

B. President Obama's Proposed CES and Proposals in the 112th Congress

During his January 25, 2011, State of the Union address, President Obama proposed a goal of generating 80 percent of the nation's electricity from clean sources by 2035.[12] President Obama's proposed CES would include a broad range of sources, including nuclear power, coal-fired generation with CCS, and high-efficiency natural gas. President Obama has also proposed that any CES should include consumer price protections, as well as measures to ensure fairness for regions with limited (or late deployed) renewable resources. The President also proposed creating incentives for new clean energy technologies such as CCS.

CES legislation has not been introduced this year, although it has been reported that Senator Lugar is preparing comprehensive energy legislation that will include a CES similar to the one advanced by President Obama.[13] Senate Majority Leader Reid (D-Nv.) has indicated that two members of the Senate Energy and Natural Resources Committee, Senators Murkowski (R-Ak.) and Bingaman (D-N.M.), are drafting energy legislation that would include a CES standard.[14]

For more information on RPS standards and climate change generally, please contact Dustin Till or any member of Marten Law's Climate Change or Energy practice groups.

[1] Lincoln L. Davis, Power Forward: The Argument for a National RPS, 42 Conn. L. Rev. 1339, 1357 (2010).

[2] Database of State Incentives for Renewable Energy (DSIRE) -- RPS Data Spreadsheet (Jan. 2011). A number of municipalities have adopted RPSs. For example, in 2004, the city of Columbia, Missouri adopted a RPS requiring the city's primary utility to acquire 15% of its electricity from renewable resources by 2022. See DSIRE, Columbia -- Renewable Portfolio Standard. Austin, Texas, has adopted a 30% (835 MW) by 2020 RPS. DSIRE, Austin -- Renewable Portfolio Standard. At least two utilities have voluntarily adopted RPS goals: the Long Island Power Authority (New York, NY) -- 30% by 2015, and the CPS Energy (San Antonio, TX) -- 20% by 2020. DSIRE, Long Island Power Authority -- Renewable Electricity Goal and DSIRE, CPS Energy -- Renewable Portfolio Goal.

[3] For a summary of the resources qualifying as 'renewable' under various state RPS, please see PEW Center for Climate Change, Comparison of Qualifying Resources for Individual States' RPS and AEPS.

[4] For more information on AB-32, please see One Step Forward, Two Steps Back: California Moves Toward Finalizing Climate Regulations, While Federal Action Stalls, Marten Law Environmental News (July 9, 2008).

[5] Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric.

[6] CPUC Decision No. 11-01-025 (Jan. 14, 2011).

[7] Lee van der Voo, California Rule May Stunt Oregon Clean Energy Market, Sustainable Business Oregon (Jan. 20, 2011).

[8] Davies, Power Forward: the Argument for a National RPS, 42 Conn. L. Rev. at 1341.

[9] For a detailed summary of ACES, please see 111th Congress, Day 171: Following Heavy Presidential Lobbying, House Passes Energy and Climate Change Bill; All Eyes Now on the Senate, Marten Law Environmental News (June 29, 2009).

[10] See Senate Climate Bill Introduced Amid Considerable Fanfare, and an Uncertain Future, Marten Law Environmental News (May 14, 2010).

[11] Katie Howell and Robin Bravender, House, Senate Democrats Race to Complete Oil Spill and Energy Packages Before Recess, Greenwire/New York Times (July 28, 2010).

[12] White House, President Obama's Plan to Win the Future by Producing More Electricity Through Clean Energy.

[13] Katie Howell and Jean Chemnick, Sen. Lugar Prepping Bill That Could Include 'Clean Energy' Standard, Greenwire/New York Times (Feb. 11, 2011).

[14] Katie Howell, Reid Confident Bingaman, Murkowski Can Draft CES, E&E News PM (Feb. 16, 2011) (subscription required).

From: http://www.martenlaw.com/newsletter/20110317-calif-renewable-energy-standards