The Clinton administration’s retail electricity restructuringbill that was unveiled yesterday had some bad and not-so-bad newsfor natural gas. The bad news was that it requires a maximum 7.5%of annual electricity output to be generated by renewable fuelsources, but on the brighter side the full effect won’t be feltuntil the end of the next decade at the earliest.

The legislation, entitled “The Comprehensive ElectricityCompetition Act,” proposes to phase in increases in the annuallevel of renewable-generated power over a ten- to 15-year period.It would maintain the current baseline percentage for renewablefuels, which the Department of Energy estimates is 2.5%-3% of grossannual electricity output, through the end of 2004. But starting in2005 through 2009, the DOE proposes to raise the level to “greaterthan the baseline percentage but less than 7.5%.” The percentagethen would settle at 7.5% between 2010-2015.

The bill would require electricity sellers to obtain renewablecredits equal to the minimum annual percentage level in effect atthe time. Companies would be required to submit the credits to DOEbefore April 1 of each year, or face possible civil penalties.Sellers could get credits by either generating power usingnon-hydroelectric renewables, such as wind, solar, biomass orgeothermal sources; purchasing credits from renewable generators;or a combination of these. Electricity suppliers would receive onecredit for each kilowatt-hour of power generated by renewable fuel,and two credits if the electricity is generated on Indian lands.The credits would be subject to a cost cap of 1.5 cents perkilowatt hour, adjusted for inflation.

The natural gas industry is stridently opposed to any kind ofmandate because it contends it would give renewables a guaranteedpercentage of the prized power generation market, and lessen gas’chances to boost its share. Certain segments of the electricindustry disapprove of the 7.5% level set by the Clinton bill,saying they think it’s far too high.

“The Clinton plan will discourage electric companies from usingnatural gas, forcing them to use other-more expensive-renewablefuels,” said Richard Sharples, president of Anadarko EnergyServices and chairman of the Natural Gas Supply Association. Thegroup noted that DOE estimated that a lower 5% renewable mandatewould cost ratepayers between $1.4 billion and $3.7 billion a yearbetween 2005 and 2010.

Senate Energy Committee Chairman Frank Murkowski also took aimat the renewable provision in the bill. “If a 5.5% renewablemandate was impossible the last time around, the new 7.5% renewablemandate is absurd. I am not against renewable energy, but I amagainst putting such a mandate in an electricity deregulation billthat ostensibly [is to save] money for the consumer. Setting up amandate to take this nation from its current [minuscule level for]renewable sources to 7.5% is a quantum leap that will be veryexpensive to consumers.”

The administration’s legislation also sets a date-certain-Jan.1, 2003 – for states to implement retail electricity choice, whichsome in the gas industry are against. However, it would allowstates and/or non-regulated utilities to opt out of thelegislation in the event they find they would be better served by acurrent monopoly system or an alternative retail competition plan.It also would maintain states and non-regulated utilities’ soleauthority over the recovery of stranded retail costs.

Additionally, the Clinton bill gives states and non-regulatedutilities, which have filed notices to implement retailcompetition, the right to prohibit out-of-state utilities thataren’t participants in retail competition from “directly orindirectly selling electricity to the consumers” in theirrespective states or territories.

Moreover, it seeks to prospectively repeal the “must buy”provision of section 210 of the Public Utility Regulatory PoliciesAct of 1978, which requires utilities to purchase power fromqualifying facilities often at above-market prices. Existing PURPAcontracts would be preserved under the bill, however. It also callsfor repeal of the Public Utility Holding Company Act of 1935, suchthat FERC and state regulators would be given greater access to thebooks and records of holding companies and affiliates.

Significantly, the Clinton bill proposes to expand FERC’sauthority in a number areas-in mergers, establishing independentsystem operators (ISOs), overseeing the reliability of the powergrid, and over the transmission services of the Bonneville PowerAdministration and the Tennessee Valley Authority (TVA).

Specifically, it would amend the Federal Power Act (FPA) to givethe Commission authority to approve and oversee an electricreliability organization to prescribe and enforce mandatoryreliability standards. All users of the bulk-power system would beeligible for membership in the organization, which could delegateauthority to one or more affiliated regional reliability groups,according to the bill.

The bill would subject Bonneville’s transmission system to”relevant provisions” of the FPA, but would require any Commissionruling on rates and charges to be subject to a list of conditionsto ensure recovery of “existing and future” federal investment inthe transmission system. With respect to the TVA, FERC would becharged will resolving disputed issues associated with TVA’srenegotiation of long-term power contracts and access to itstransmission system in the event TVA and parties aren’t able to doso within one year.

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