Administration Bill Would Triple Use of Renewables
The renewable-fuel mandate in the Clinton administration's
retail electricity restructuring legislation that was unveiled last
week may be seen by the natural gas industry as its worst nightmare
come true, but it does have a little bit of a silver lining.
Although it sets aside 7.5% of gross annual generation output for
renewable fuel sources, which is at least triple the current level,
the full effect of the mandate won't be felt until the end of the
next decade at the earliest.
The legislation, entitled "The Comprehensive Electricity
Competition Act," proposes to phase in increases in the annual
level of renewable-generated power over a ten- to 15-year period,
which could cushion the blow for gas. The current baseline
percentage for renewable fuels, which the Department of Energy
(DOE) estimates is 2.5%-3% of gross annual electricity output,
would be maintained through the end of 2004. But starting in 2005
through 2009, DOE proposes to raise the level to "greater than the
baseline percentage but less than 7.5%." The percentage then would
settle at 7.5% between 2010-2015.
If the DOE's current baseline percentage estimate of 2.5%-3% is
used, the Clinton bill would triple renewable fuels' share of the
annual electricity market over the next decade. But other sources,
such as Senate Energy Committee Frank Murkowski, calculate that the
current baseline percentage is far lower (below one percent), which
would mean the increase being proposed by the administration is
The bill would require electricity sellers to obtain renewable
credits equal to the minimum annual percentage level in effect for
renewable fuels at the time. If the level were 7.5%, a company
would need enough credits to match 7.5% of its annual electricity
sales. Companies would be required to submit the credits to DOE
before April 1 of each year or face possible civil penalties.
Sellers could acquire credits by either generating power using
non-hydroelectric renewables, such as wind, solar, biomass or
geothermal sources; purchasing credits from renewable generators;
or a combination of these. One credit would be awarded for each
kilowatt-hour of power generated by renewable fuels, and two
credits if the electricity is generated on Indian lands. The
credits would be subject to a cost cap of 1.5 cents per kilowatt
hour, adjusted for inflation.
The natural gas industry is stridently opposed to any form of
mandate because it contends it would give renewables an edge in the
prized power generation market over gas and other competitors that
are seeking to boost their shares. Certain segments of the electric
industry - while not opposed to a mandate per se - indicated they
disapprove of the 7.5% level proposed in the Clinton bill, saying
they think it's far too high.
"The Clinton plan will discourage electric companies from using
natural gas, forcing them to use other - more expensive - renewable
fuels," said Richard Sharples, president of Anadarko Energy
Services and chairman of the Natural Gas Supply Association. The
producer group noted that DOE estimated that a lower 5% renewable
mandate would cost ratepayers between $1.4 billion and $3.7 billion
a year between 2005 and 2010.
Murkowski, an avowed foe of a significant hike in the renewable
level, wasted little time in criticizing the Clinton bill last
week. "If a 5.5% renewable mandate was impossible the last time
around, the new 7.5% renewable mandate is absurd." He estimated
renewable fuels presently account for two-tenths of one percent of
the annual electricity output, which is far below the 2.5%-3%
calculated by DOE.
The administration's legislation also sets a date-certain - Jan.
1, 2003 - for states to implement retail electricity choice, which
some in the gas industry are against. However, it would allow
states and/or non-regulated utilities to opt out of the legislation
in the event they find they would be better served by a current
monopoly system or an alternative retail competition plan. It also
would maintain states and non-regulated utilities' sole authority
over the recovery of stranded retail costs.
Additionally, the Clinton bill gives competitive states and
non-regulated utilities the right to keep out-of-state utilities
that aren't participants in retail competition from making sales in
Moreover, it seeks to prospectively repeal the "must buy"
provision of section 210 of the Public Utility Regulatory Policies
Act of 1978, which requires utilities to purchase power from
qualifying facilities often at above-market prices. Existing PURPA
contracts would be preserved under the bill, however. It also calls
for repeal of the Public Utility Holding Company Act of 1935, such
that FERC and state regulators would be given greater access to the
books and records of holding companies and affiliates.
Significantly, the Clinton bill proposes to expand FERC's
authority in a number areas - in mergers, establishing independent
system operators (ISOs), overseeing the reliability of the power
grid, and over the transmission services of the Bonneville Power
Administration and the Tennessee Valley Authority (TVA).
Specifically, it would amend the Federal Power Act (FPA) to give
the Commission authority to approve and oversee an electric
reliability organization to prescribe and enforce mandatory
reliability standards. All users of the bulk-power system would be
eligible for membership in the organization, which could delegate
authority to one or more affiliated regional reliability groups,
according to the bill.