Comparison of Pennsylvania Renewable Portfolio Standard (RPS) Legislation -- Mechanisms

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	RPS Provisions	SB 962	HB 2250	SB 1030	Rendell / McGinty Draft	Goal
	RPS Target	9% in 10 yrs	10% in 10 yrs	10% in 15 yrs	10% in 10 yrs	Depends on which technologies are included and whether existing renewables qualify.
	Long-term Increase in RPS Percentage Requirements	Y	N	N	N	Long-term increase is best, but at a minimum, the percentages must stay at the goal long-term.
	Promotes Dirtier Technologies Through a Second Tier	N	N	Y	Y	The bill should only be 2-tier if it's politically impossible to have a clean RPS. If there's a dirty tier (tier 2), the top tier must be truly clean and the dirty tier must not promote new facilities or create incentives for existing ones to stay open.
	Primarily Promotes Development of NEW Renewables	Y	N	N	N	The use of existing renewables must be capped at no more than 2-3%.
	Penalty Fees used for only Clean Energy Development	Y	N	N	N	No smokestack technologies should be allowed. Emissions-free (clean) renewables only. Ideally, penalty fees should go only to solar photovoltaic, which is the technology in most need of support.
	Penalty Fees used for only Public Projects	Y	N	N	N	Y
	Solar Share	N	N	N	N	Y
	Provisions for Net Metering	Y	N	N	N	Y
	Credit Multipliers for Solar Power and Fuel Cells	Y	N	N	N	Y
	Caps on cheap/dirty technologies which might overwhelm the RPS	Y	N	N	N	Y
	Protects Against Double-Counting with state or federal RPS requirements	Y	N	N	N	Y
	Protects Green Pricing Programs from Double-Counting	Y	N	N	N	Y
	Prevents Double-Counting energy paid by ratepayers in other states	Y	N	N	N	Y
	Prevents Double-Counting with carbon markets	N	N	N	N	Y
	Prevents Double-Counting of credits from facilities built through compliance fee grants	N	N	N	N	Y
	Closes Loophole for Large Industrial Customers	Y	N	N	N	Y
	Ensures Credit Trading System is managed by a public entity	Y	N	N	N	Y
	Cost-recovery mechanism addressed	Y	N	N	N	Y

RPS Target

The percentage target depends entirely on which technologies are included and the extent to which existing generating capacity can be used to meet the RPS. If existing resources are allowed to qualify and if many technologies are included, a higher percentage target would make sense.

Recommendations: Limit the amount of existing capacity and narrow the definition of eligible technologies to include only those which involve no combustion and thus have no emissions. If this focus on new, clean renewables is acheived, a smaller target, like 5% in 10 to 15 years, would be appropriate.

Long-term Increase in RPS Percentage Requirements

The Massachusetts RPS (see section 11F under Section 50) requires that the RPS goal continue to increase by 1% annually once the target is reached, until a time when the state chooses to suspend the annual increase. This ensures that the RPS doesn't "dead-end" at a set percentage if it turns out to be successful. SB 962 incorporates this long-term increase, giving the state Department of Environmental Protection the power to suspend the annual increase.

Recommendations: Include a long-term increase modeled on the concept found in the Massachusetts RPS or SB 962. At a minimum, retain the "and each year thereafter" language in HB 2250, SB 1030 and the Rendell / McGinty Draft. If this language is not retained, the percentage after the goal is reached is presumed to drop back down to zero, like the national RPS proposed in 2002 would have done. The Department of Energy, in analyzing that sort of RPS, stated that "as the December 31, 2020, end of the program approaches, electricity suppliers are projected to pay the penalty rather than invest in additional renewables that would only receive the credit for a few years."

Promotes Dirtier Technologies Through a Second Tier

Polluting technologies (any technology that would require an air pollution permit from DEP) have no place in an RPS. However, if they are included, these smokestack technologies (particularly any technology that involves burning solid fuels) should be placed in a second tier that is limited to no more than 30% of the RPS. SB 1030 and the Rendell / McGinty Draft both use a 2nd tier which permits these dirtier technologies to meet up to 30% of the RPS requirements.

Additional restrictions (such as air emissions limits) ought to be placed on any technologies that involve burning waste products or fossil fuels.

Recommendations: Minimize the role that polluting generation would play in the RPS, so that the RPS doesn't end up promoting new air pollution sources in communities throughout the state. No new air polluting facilities should be permitted to qualify and the incentives to keep existing polluting facilities operating should be removed. This can be accomplished through a win-win "compromise" that allows a certain amount of existing generation to qualify, but (like the Texas RPS; see "REC Offset") disallow the trading of credits from such generation. Instead, energy suppliers would have their RPS obligation offset by the amount of existing generation they have in place when the RPS starts. For clean technologies, this existing generation would be measured annually and offset from their annual obligation. For existing generation from polluting technologies, the generation would be measured only at the beginning of the RPS schedule and the offset would be granted to the energy supplier for the life of the RPS (or perhaps could be phased out), without requiring that that generation be kept online by measuring it annually.

Primarily Promotes Development of NEW Renewables

The prime objective of an affective RPS is to promote the development of new renewable resources, not simply benefit existing generation.

Only SB 962 focuses on new renewables, with the single exception that landfill gas burning projects that start to filter and isolate the toxins from their gas can qualify, even if they were placed in service before 2003. It also allows for expanded generating capacity at the site of an existing facility to qualify as new.

Without these protections, there is a large amount of existing generating capacity that can meet the eligibility requirements of the other legislation. If HB 2250 or SB 1030 were passed as currently worded, it’s theoretically possible that the bill’s requirements could be met without a single new wind or solar facility being built. See the page on existing vs. new resources for details.

Recommendations: Minimize the role that existing generation would play in the RPS. The Texas RPS, signed into law by then-governor George W. Bush, allows the energy suppliers that have existing renewables in their portfolio to use them to "offset" their RPS obligation, but doesn't allow these credits to be traded. The proposed RPS in Delaware is another good model; it would cap existing renewables at half of one percent, ensuring that the remainder is from new renewables.

The relevant provisions from Delaware's proposed RPS (which was approved by their state senate on June 22, 2004) are:

§ 352.(13) “New Renewable Generation” means Eligible Energy Resources first going into commercial operation after December 31, 1997.

§ 354. (f) For each Retail Electricity Supplier, no more than 0.5% of each year's total retail sales may be met from Eligible Energy Resources that are not New Renewable Generation resources.

Given Pennsylvania’s existing renewable resources, an appropriate cap in this state would be around 2-3%.

To ensure that the RPS doesn't help encourage polluting generation to stay open, we recommend a Texas-style "offset" concept, but with a distinction made between polluting and non-polluting generation. Any technologies that would require an air pollution permit from DEP should have their generation measured only once, at the beginning of the RPS schedule. This generation would be granted to the energy supplier for the life of the RPS (or perhaps could be phased out), without requiring that that generation be kept online by measuring it annually. Existing clean generation (not requiring air emissions permits) would be measured annually.

Penalty Fees used for only Clean Energy Development

The strategic application of compliance fees can also help ensure fuel-mix diversity. Compliance fees are fees paid for non-compliance with the RPS. These fees are used to create a Clean Energy Fund that gives grants out for renewable technology development. Rather than allow these funds to be used for any technology, it’s wise to limit the use of the grants to the technologies needing the most support. The Rendell administration’s draft as well as the new Maryland RPS limit the use of fees to benefit only Tier 1 renewables, in an attempt to ensure that the funds promote the cleaner range of energy technologies. SB 962 goes further and limits it to only solar power, since that is the technology in most need of support.

Recommendations: Limit the use of compliance fees to the technologies that need the most support. Solar photovoltaic meets this description more than any other renewable technology. It's also inherently small-scale and would be wise politically, as it would spread the impact of the compliance fee grants to many communities around the Commonwealth.

Penalty Fees used for only Public Projects

In SB 962, grants made from the Clean Energy Fund are allocated to local governments and school districts, for the implementation of on-site solar power. This not only promotes the technology most in need of support, but it distributes it around the state in small projects that will help offset the electric costs of our struggling school districts and local governments. A grant program structured this way would gain far more political support than the other proposals that would allow grants to go to private industry for polluting technologies like waste coal or landfill gas burners.

Recommendations: Limit the grants to municipal and county governments and school districts and perhaps state institutions like the universities in the State System of Higher Education.

Solar Share

A solar share -- also known as a solar "carve-out" -- is a guarantee that solar will play a role in the RPS. Without a solar share, solar is unlikely to be used to meet RPS requirements at all.

Solar power is currently quite costly, but the historical trend is that costs are coming down steadily as the solar market grows. An important goal of an RPS should be to create the market for solar that will attract solar production industries to the state and lower the cost of production through economies of scale. Some states have inplemented a solar share, requiring a minimum percentage of the RPS be filled using solar. Arizona, Nevada and New Jersey have a solar share. The Arizona and Nevada models are designed to promote central station solar developments, which makes more sense for those states, geographically.

Solar power is best applied through many small-scale projects. This is known as distributed generation. Many solar industry and policy experts feel that distributed generation is how the technology is best deployed, since it provides system-wide benefits such as deferred investment in transmission and distribution upgrades, decreased line loss, and increased reliability, performance, and security of the grid.

Fully implementing a solar share of 0.25% in 10 years would could cost the average residential ratepayer as little as 10 cents/year – less than a penny a month. The worst case scenario for a solar share is that it could cost up to $2 per year, still a great bargain. Given the experience in New Jersey, the average is likely to be under $1 per year for the average residential ratepayer.

Recommendations: New Jersey law is the best model for Pennsylvania, since it favors small-scale, distributed generation, offering increased reliability and security for the grid. Solar power advocates are recommending a solar share of a quarter of one percent of our energy coming from solar by the end of a 10-year time frame. To be effective, it's necessary to have a separate compliance fee for the solar share. In New Jersey, they set the normal compliance fee at $50/MWh (5¢/kwh) and their solar complaince fee at $300/MWh (30¢/kwh)

See New Jersey's Solar Renewable Energy Certificate website for more information:

• Minimum RPS Requirements
• Alternative Compliance Fee

Provisions for Net Metering

Net metering allows electric customers who generate their own power (through solar photovoltaic arrays or other means) to sell that power back into the grid. This is an important factor in allowing homeowners, farmers, and others to contribute by developing their own on-site solar or wind facilities. SB 962 contains limited net metering language, but a full-blown net metering provision would be more effective and promoting distributed generation.

Recommendations: At least some minimal net metering provisions should be included so that small-scale, customer-based solar and other renewable generation can be economically viable options for energy suppliers.

Credit Multipliers for Solar Power and Fuel Cells

Nevada’s program has a multiplier (extra credit) for distributed generation of solar. New Mexico has a triple credit for solar. Maryland’s new RPS law has a double credit for solar. SB 962 contains triple credits for solar photovoltaics and clean fuel cells. Extra credits can also be appropriate for wind. Maryland’s new RPS has small credit multipliers (110-120%, depending on when the wind generation is built).

The credit multipliers aren't sufficient to ensure that solar can compete within an RPS in the short term, but with the help of a solar share, the extra credits make it more likely that solar will be more competitive in the long-term, since solar will be able to compete when the premium associated with solar generation is within 2-3 times the cost of other renewables used to meet the RPS. Since the multipliers apply only to the premium (not the full cost of the electricity), triple credits for expensive technologies like solar and fuel cells are not as meaningful as they might seem. They'll only possibly help level the economic playing field in the late years of the RPS, when the cost of these technologies comes close to being competitive with other renewables.

Recommendations: A triple credit multiplier should be applied to solar technologies and perhaps to clean fuel cells. Smaller credit multiplers for wind (similar to those adopted by Maryland) would also be wise.

Caps on cheap/dirty technologies which might overwhelm the RPS

Typical RPS policies try to put various "renewable" energy sources on a level playing field. This ensures that only the cheapest source that qualifies as "renewable" will be utilized. In Texas, the RPS bill approved by then-Governor George W. Bush, led to Texas becoming the second-largest state in wind-production. Thanks to the fact that western Texas has large wind potential, wind was cheap and was used almost exclusively to meet the RPS requirements. Unfortunately, Pennsylvania is not Texas. Landfill gas and other dirty "renewables" are cheaper than wind. This is why marketers like Green Mountain charge so much for a product that is mostly landfill gas, with a small amount of wind.

Tiers, solar shares, credit multipliers and dedicated compliance fees all help ensure that a diverse range of technologies will be used to meet the RPS. Outright caps on certain technologies also help ensure that the cheap, but less desireable technologies don't take over the RPS. SB 962, which is designed without tiers, places a limit of 25% on the use of landfill gas (which must be filtered to qualify). It also places a 10% cap on the use of energy efficiency measures (which the bill limits to renewable-based "generation offset technologies" like geothermal heat pumps and solar hot water heaters).

Recommendations: There are four technologies that are likely to "take over" the RPS due to their cheaper costs. They are hydroelectric, waste coal, landfill gas, and energy efficiency. The first two are prone to take over simply because there is a large amount of capacity that is already in place. If there is no limit on the amount of existing generation used in the RPS, these technologies will need to be limited somehow. Keeping waste coal confined to a 2nd tier is a start. Defining "low-impact" hydroelectric will also help. Landfill gas is also prone to taking over, as there is a significant amount of existing capacity and a much larger amount of potential capacity that could easily be brought online. If energy efficiency is included in the legislation, it must either be limited to a 2nd tier or have a cap on its use, so that the legislation doesn't turn into an energy efficiency bill without any renewable energy technologies being able to compete. If the concept of "carbon offsets" is included, it also needs to be confined to a 2nd tier, since it's vague and undefined and could easily end up undercutting other technologies.

Protects Against Double-Counting with state or federal RPS requirements

SB 962 protects against fraud by preventing the double-counting of an energy credit by using it to serve RPS requirements in more than one state or by allowing it to meet any federal RPS requirement that may be enacted in the future.

New Jersey's RPS also prevents double-counting of energy used to meet other state RPS requirements. The following is language from their Interim RPS standards:

To prevent double-counting the electric power supplier or basic generation service provider shall not satisfy New Jersey's renewable energy portfolio requirements using renewable energy used to satisfy another state's renewable energy portfolio requirements.

PJM (the operators of our multi-state electric grid) is working to develop a Generator Attribute Tracking System (GATS) that will help in preventing double-counting. However, it doesn't have the force of statutory law and would only prevent some types of double-counting.

Recommendations: Specific language should be included in the legislation preventing double-counting with any state or potential federal RPS requirements. Simple language on this and two other types of double-counting can be found on page 7 of SB 962.

Protects Green Pricing Programs from Double-Counting

SB 962 protects the green energy marketplace by preventing the double-counting of energy credits which were already paid for voluntarily by well-meaning consumers paying a premium to green energy marketers. This is critically important to legitimate clean energy marketers like Community Energy. By preventing double-counting with green pricing programs, no universities or other large customers would have to think twice about continuing to pay for something that the marketers would be required by law to provide. This ensures that voluntary purchases of green energy go above and beyond the RPS requirements.

Recommendations: Specific language should be included in the legislation preventing double-counting with green pricing programs, to prevent the possibility that an unscrupulous energy marketer would double-sell credits in this way. Simple language on this and two other types of double-counting can be found on page 7 of SB 962.

Prevents Double-Counting energy paid by ratepayers in other states

Only 18 states have "deregulated" electric industries. Some states, like Vermont, still regulate their utilities and have renewable energy projects that are being paid off by captive utility ratepayers (like the Searsburg, VT wind farm - from which Green Mountain Energy has sold energy to Pennsylvania customers). It's abusive to consumers to charge electric customers a premium for energy that out-of-state ratepayers are already paying for. In our ever-expanding PJM grid, now serves all or part of the still-regulated states of West Virginia, Indiana, North Carolina, Tennessee and Kentucky. Regulated power generation in these states -- if the full costs of the generation are being recovered from their rate base -- should not be allowed to "double-dip" by selling the already-paid-for attributes of the power into Pennsylvania's RPS.

Recommendations: Specific language should be included in the legislation preventing double-counting of energy attributes being recovered through the rate-base in a regulated state. Simple language on this and two other types of double-counting can be found on page 7 of SB 962.

Prevents Double-Counting with carbon markets

Another type of consumer fraud possible with renewable energy credit trading is the double-selling of the environmental attributes of power by selling into carbon markets. There is a growing market for carbon credits and as this develops, there is concern that selling environmental attributes into carbon markets as well as into green pricing or RPS programs constitutes consumer fraud. This is analyzed well by the organization that sponsors the nation's leading green energy certification body, Green-e. They have chosen not to allow the sales of tradable renewable certificates (like the Pennsylvania wind energy credits being purchased by the Commonwealth and many Pennsylvania universities) in their program if any of the environmental attributes have been separated and sold into other programs like carbon markets. Read the report here: Tradable Renewable Certificates and Emissions Values: The CRS Perspective on Best Practices in Marketing (March 2004)

Recommendations: Specific language should be included in the legislation preventing double-counting of energy attributes with carbon markets. The Center for Resource Solutions can be consulted for specific language.

Prevents Double-Counting of credits from facilities built through compliance fee grants

One final form of double-counting which has yet to be explored is the matter of marketing credits from renewable energy facilities built with compliance fee grants. These facilities exist because an energy supplier opted to pay a compliance fee in lieu of meeting their RPS obligation with the appropriate amount of credits. By allowing these facilities to generate credits that can be used to meet the RPS, it's a form of having one's cake and eating it too.

Recommendations: This form of double-counting can be addressed in two ways. One approach is to require that facilities built with compliance fee grants should not be allowed to generate renewable energy credits for RPS compliance or for other purposes. Those credits should be deemed automatically "retired" under any trading systems, including the proposed Generator Attribute Tracking System (GATS). The other approach could be to limit the amount of credits generated by having credits from such facilities worth some fraction (half?) of the capacity they'd normally represent.

Closes Loophole for Large Industrial Customers

One loophole common to RPS policies is that large industrial customers can avoid supporting a mix that includes renewables by installing their own power generation (which usually isn't renewable). SB 962 closes this loophole by requiring that industrial energy consumers which install large on-site generation (over 1 megawatt) to be classified as energy suppliers under the bill, meaning that they'll have to purchase clean energy credits if they're using only non-renewable sources.

Recommendations: Closing this loophole would be ideal, but doing so could make the bill difficult to pass, due to political pressure that large industrial customers could wield.

Ensures Credit Trading System is managed by a public entity

The management of the credit trading system should be kept in the public sector. Maryland’s new RPS law ensures that the state Public Service Commission runs the credit trading system with an open, transparent process that is subject to the state Open Records laws.

SB 962 requires the Public Utility Commission (PUC) to administer the clean energy credit trading system, keeping the information in the domain of a public agency subject to Pennsylvania's Open Records law. The other RPS proposals in Pennsylvania require that the administration of the program be done by a private entity, which would take the operations of the credit trading out of the public domain, reducing public accountability.

Recommendations: SB 962 is modeled on an earlier version of the Maryland RPS and has language on page 9 relating to the management of the credit trading program. The following is the relevant language from Maryland’s new RPS law, as passed (emphasis added):

(A)

(1) THE COMMISSION SHALL ESTABLISH AND MAINTAIN A MARKET-BASED RENEWABLE ELECTRICITY TRADING SYSTEM TO FACILITATE THE CREATION AND TRANSFER OF RENEWABLE ENERGY CREDITS.

(2) TO THE EXTENT PRACTICABLE, THE TRADING SYSTEM SHALL BE CONSISTENT WITH AND OPERATE IN CONJUNCTION WITH THE TRADING SYSTEM DEVELOPED BY PJM INTERCONNECTION, INC., IF AVAILABLE.

(3) THE COMMISSION MAY CONTRACT WITH A FOR-PROFIT OR A NONPROFIT ENTITY TO ASSIST IN THE ADMINISTRATION OF THE ELECTRICITY TRADING SYSTEM REQUIRED UNDER PARAGRAPH (1) OF THIS SUBSECTION.

* * *

(2)

(I) THE REGISTRY SHALL PROVIDE CURRENT INFORMATION TO ELECTRICITY SUPPLIERS AND THE PUBLIC ON THE STATUS OF RENEWABLE ENERGY CREDITS CREATED, SOLD, OR TRANSFERRED IN THE STATE.

(II) REGISTRY INFORMATION SHALL BE AVAILABLE BY COMPUTER NETWORK ACCESS THROUGH THE INTERNET.

Cost-recovery mechanism addressed

SB 962 specifies the conditions upon which energy suppliers can recover any additional costs associated with the RPS. It requires the PUC to monitor the costs of peak power production, since RPS policies are projected to cut the cost of peak power production by reducing the need to use expensive oil and gas-fired power plants at peak demand times. SB 962 allows energy suppliers to recover only their additional costs from the rate base (if there are costs above and beyond savings from lower peak power prices) and only if the PUC deems them just and reasonable. The bill does not allow penalty fees to be recovered. The other RPS bills fail to address cost recovery issues, which is a major concern to energy suppliers.

Recommendations: The language in SB 962 can serve as a starting point. Issues around the removal of rate caps must be investigated to see what sort of public control over cost recovery is still possible, if any, once rate caps are removed.