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Senators Request Comments on Clean Energy Standard

Jay Ryan, Doug Smith
March 22, 2011

In his State of the Union address, President Obama proposed a Clean Energy Standard (CES) to require that 80 percent of the nation’s electricity come from clean energy technologies by 2035 (see VNF Alert dated January 31, 2011).

On March 21, 2011, Senators Jeff Bingaman (D-NM), Chair of the Senate Energy and Natural Resources (ENR) Committee, and Lisa Murkowski (R-AK), the Ranking Member on the Committee, released a white paper soliciting comments on the development of a Federal CES.  The white paper invites input on a broad range of potential CES design elements.

The enactment of a CES would significantly affect, among other things, utility planning and investment, future costs and revenues, fuel management strategies, and the identification of potential acquisition targets.  The white paper provides an opportunity for stakeholders to inform early consideration of a CES by the ENR Committee.

Comments on the CES white paper are due to the ENR Committee by April 11, 2011.

BASIC FRAMEWORK FOR A CES

A national CES would require covered electric utilities to demonstrate that a minimum percentage of their sales are derived from generation using certain eligible clean energy sources.  Achievement of the CES targets would be assured by issuing clean energy credits (CES credits) to eligible clean energy generators; each credit would represent a fixed quantity of clean energy output.  Electric utilities would be required to acquire and surrender these credits in an amount equal to the CES target, most likely on an annual basis.

Thus, electric utilities could comply with a CES by either producing clean energy themselves (directly receiving CES credits for their clean energy output), or by acquiring CES credits from other parties such as independent generators or other utilities.  In addition, the CES proposals that have been introduced to date would allow electric utilities to make an “alternative compliance payment” (ACP) at a fixed rate in lieu of surrendering CES credits.  Because electric utilities could meet their full compliance obligation under the CES by making such a payment, the ACP would effectively place an annual ceiling on the price of credits – and on the extent of clean energy generation resulting from the CES in any particular year.

The CES is intended to be a market-driven policy for changing the composition of the country’s electric generation portfolio, in that the trading of CES credits will generate a price signal that should incentivize the deployment of the most cost-effective forms of eligible clean energy resources.  CES credit prices can be expected to vary in part according to the current and future availability of clean energy resources – providing a stronger incentive for clean energy generation (in the form of higher CES credit prices) when available resources fall short of the CES target, and a lesser incentive (in the form of lower CES credit prices) when clean energy resources are relatively abundant.

QUESTIONS PRESENTED BY THE CES WHITE PAPER

The white paper seeks stakeholder comments on a range of issues, including the following:

Which utilities should be subject to a CES?

  • Should all electric utilities be subject to a CES?
  • Should any states (or portions of states) be specifically excluded from CES requirements?
  • How should a federal mandate interact with existing state renewable portfolio standards?

What resources should qualify as “clean energy”?

  • On what basis (e.g., greenhouse gas emissions, other environmental characteristics) should resources be defined as qualifying “clean energy” resources?
  • Should energy efficiency be credited in a CES?
  • Should retrofits or retirements of traditional fossil-fuel plants be credited in a CES?

How should the crediting system and timetable be designed?

  • Should the CES requirements be specified for 2035, or is another timeframe more appropriate?
  • What interim targets and timetables should be established?
  • Should partial credits be given for certain technologies?

How will a CES affect the deployment of specific technologies?

  • How might a CES alter the current dispatch order of existing generation (such as natural-gas fired plants)?
  • How valuable would clean energy credits have to be in order to facilitate the deployment of individual qualified technologies?

How should Alternative Compliance Payments, regional costs, and consumer protections be addressed?

  • Should cost containment measures and other consumer price protections be included in a CES?
  • What options are available to mitigate regional disparities?
  • How might various price levels for ACPs affect the deployment of clean energy technologies?

How would a CES interact with other policies?

  • To what extent does a CES contribute to U.S. climate change policy, and would a CES warrant changes to other statutes?
  • What are the specific challenges facing individual technologies such as nuclear, natural gas, carbon capture and sequestration, onshore and offshore wind, solar, efficiency, biomass, and others?
  • Should there be an examination of energy facility permitting?
  • Are there supporting policy options that should be considered for coal, nuclear, natural gas, renewable energy, and energy efficiency?

A copy of the white paper, all of its posed questions, and instructions for response submissions, can be found at:  http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.View&IssueItem_ID=7b61e406-3e17-4927-b3f4-d909394d46de

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For additional information regarding the development and implementation of a CES, please contact Jay Ryan, Doug Smith, Lisa Epifani, Janet Anderson, or any other member of Van Ness Feldman at (202) 298-1800 in Washington, D.C., (206) 623-9372 in Seattle, or via email at electric@vnf.com.

Receive VNF alerts and publications:  http://www.vnf.com/news-signup.html

Follow our Electric Practice on Twitter:  http://twitter.com/VNFelectric

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