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Clinton Bill Proposes 7.5% Renewable Mandate

Clinton Bill Proposes 7.5% Renewable Mandate

The Clinton administration's retail electricity restructuring bill that was unveiled yesterday had some bad and not-so-bad news for natural gas. The bad news was that it requires a maximum 7.5% of annual electricity output to be generated by renewable fuel sources, but on the brighter side the full effect 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. It would maintain the current baseline percentage for renewable fuels, which the Department of Energy estimates is 2.5%-3% of gross annual electricity output, through the end of 2004. But starting in 2005 through 2009, the 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.

The bill would require electricity sellers to obtain renewable credits equal to the minimum annual percentage level in effect at the time. Companies would be required to submit the credits to DOE before April 1 of each year, or face possible civil penalties. Sellers could get 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. Electricity suppliers would receive one credit 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 per kilowatt hour, adjusted for inflation.

The natural gas industry is stridently opposed to any kind of mandate because it contends it would give renewables a guaranteed percentage of the prized power generation market, and lessen gas' chances to boost its share. Certain segments of the electric industry 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 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 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.

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

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 states and non-regulated utilities, which have filed notices to implement retail competition, the right to prohibit out-of-state utilities that aren't participants in retail competition from "directly or indirectly selling electricity to the consumers" in their respective states or territories.

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.

The bill would subject Bonneville's transmission system to "relevant provisions" of the FPA, but would require any Commission ruling on rates and charges to be subject to a list of conditions to ensure recovery of "existing and future" federal investment in the transmission system. With respect to the TVA, FERC would be charged will resolving disputed issues associated with TVA's renegotiation of long-term power contracts and access to its transmission system in the event TVA and parties aren't able to do so within one year.

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