The renewable-fuel mandate in the Clinton administration’sretail electricity restructuring legislation that was unveiled lastweek may be seen by the natural gas industry as its worst nightmarecome true, but it does have a little bit of a silver lining.Although it sets aside 7.5% of gross annual generation output forrenewable fuel sources, which is at least triple the current level,the full effect of the mandate won’t be felt until the end of thenext 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,which could cushion the blow for gas. The current baselinepercentage 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 2005through 2009, DOE proposes to raise the level to “greater than thebaseline percentage but less than 7.5%.” The percentage then wouldsettle at 7.5% between 2010-2015.

If the DOE’s current baseline percentage estimate of 2.5%-3% isused, the Clinton bill would triple renewable fuels’ share of theannual electricity market over the next decade. But other sources,such as Senate Energy Committee Frank Murkowski, calculate that thecurrent baseline percentage is far lower (below one percent), whichwould mean the increase being proposed by the administration ismuch greater.

The bill would require electricity sellers to obtain renewablecredits equal to the minimum annual percentage level in effect forrenewable fuels at the time. If the level were 7.5%, a companywould need enough credits to match 7.5% of its annual electricitysales. Companies would be required to submit the credits to DOEbefore April 1 of each year or face possible civil penalties.Sellers could acquire 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. One credit would be awarded for eachkilowatt-hour of power generated by renewable fuels, and twocredits if the electricity is generated on Indian lands. Thecredits would be subject to a cost cap of 1.5 cents per kilowatthour, adjusted for inflation.

The natural gas industry is stridently opposed to any form ofmandate because it contends it would give renewables an edge in theprized power generation market over gas and other competitors thatare seeking to boost their shares. Certain segments of the electricindustry – while not opposed to a mandate per se – indicated theydisapprove of the 7.5% level proposed in the Clinton bill, sayingthey 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. Theproducer group noted that DOE estimated that a lower 5% renewablemandate would cost ratepayers between $1.4 billion and $3.7 billiona year between 2005 and 2010.

Murkowski, an avowed foe of a significant hike in the renewablelevel, wasted little time in criticizing the Clinton bill lastweek. “If a 5.5% renewable mandate was impossible the last timearound, the new 7.5% renewable mandate is absurd.” He estimatedrenewable fuels presently account for two-tenths of one percent ofthe 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, whichsome in the gas industry are against. However, it would allowstates and/or non-regulated utilities to opt out of the legislationin the event they find they would be better served by a currentmonopoly system or an alternative retail competition plan. It alsowould maintain states and non-regulated utilities’ sole authorityover the recovery of stranded retail costs.

Additionally, the Clinton bill gives competitive states andnon-regulated utilities the right to keep out-of-state utilitiesthat aren’t participants in retail competition from making sales intheir 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.

Susan Parker

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