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Administration Bill Would Triple Use of Renewables

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 much greater.

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 their 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.

Susan Parker

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