STATUS OF HYDROPOWER IN ELECTRIC UTILITY INDUSTRY’S GREEN PRICING PROGRAMS Jan Konigsberg Hydropower Reform Coalition December 2009 Acronyms APX Automated Power Exchange BPA Bonneville Power Administration CRS Center for Resource Solutions DOE Department of Energy EPA Environmental Protection Agency EPAct Energy Policy Act of 1992 EWG Exempt Wholesale Generator FERC Federal Energy Regulatory Commission HRC Hydropower Reform Coalition IOU Investor Owned Utilities IPP Independent Power Producer IRP Integrated Resource Planning ISO Independent System Operator ISO Independent System Operators KWh Kilowatt hours LIHI Low Impact Hydropower Institute MWh Megawatt hours NARUC National Association of Regulatory Utility Commissioners NEPOOL New England Power Pool PUC Public Utilities Commission PURPA Public Utility Regulatory Policies Act of 1978 QF Qualifying Facilities REC Renewable Energy Credit/Certificate RPS Renewable Portfolio Standard SBC System Benefit Charges WAPA Western Area Power Administration Table of Contents I. Hydropower and Green-Pricing Programs- Need for Transparency .......................................... 1 II. Electric Utility Industry: Challenges and Reforms .................................................................... 1 Impetus for Restructuring........................................................................................................... 2 Challenging the Electric-Supply Paradigm................................................................................... 3 Restructuring/Deregulation - Federal Actions............................................................................... 3 States Mull Customer-Choice..................................................................................................... 4 Restructuring/Deregulation Among the States.............................................................................. 5 Net Impact of Restructuring/Deregulation on Electric Utility Industry .............................................. 6 Net Impact of Restructuring/Deregulation on Deployment of Renewables....................................... 7 III. Green Pricing: An Examination ................................................................................................ 8 Evolution of Green Pricing ......................................................................................................... 8 First-Generation, Green-Pricing Programs................................................................................... 9 Acquisition of Renewable Energy ...................................................................................... 9 Methods of Payment ...................................................................................................... 10 Green-Power Standard............................................................................................................ 10 Disclosure ..................................................................................................................... 11 Certification ................................................................................................................... 11 Renewable Energy Certificates ................................................................................................ 11 Evolution of RECs.......................................................................................................... 12 REC Market................................................................................................................... 13 REC Transactions.......................................................................................................... 13 REC Chain-of-Custody Transparency .............................................................................. 14 The Presence of Hydro in Green-Pricing Programs.................................................................... 15 Utility Transparency........................................................................................................ 15 Marketer Transparency................................................................................................... 15 Certification Transparency .............................................................................................. 16 IV. Conclusion- Caveat Emptor! .............................................................................................. 16 End Notes ............................................................................................................................... 18 Hydropower Reform Coalition I. Hydropower and Green-Pricing Programs- Need for Transparency In 2008, about 850 electric utilities, a quarter of the electric utilities in the United States, offered green- pricing programs. Green pricing is “an optional utility service that allows customers an opportunity to support a greater level of utility company investment in renewable-energy technologies. Participating customers pay a premium on their electric bill to cover the incremental cost of the additional renewable energy.”1 At least 80 utilities in the United States currently include hydroelectricity in their green-pricing program. Hydropower Reform Coalition (HRC) does not dispute that moving water is a renewable-energy source, but extracting the energy is usually damaging to the local environment − hydropower’s low greenhouse-gas emissions notwithstanding. Indeed, Congress’s pending Renewable Energy Standard excludes conventional hydropower on the principle that its cumulative impacts to the environment outweigh its low greenhouse-gas emissions attribute. Given the impacts of hydropower facilities are site-specific, HRC supports inclusion of hydroelectricity − whether actual energy or Renewable Energy Certificates (RECs) − in green-pricing programs only from hydropower projects that are certified by the Low-Impact Hydropower Institute (LIHI) or equivalent certification programs. Therefore, while supportive of green-pricing programs in principle, HRC-member organizations require assurance that any hydroelectricity contained in green-pricing product offered by the utility in their individual members’ communities be sourced from a hydropower facility that meets the standards established by LIHI; otherwise, the HRC-member organizations will not be able to recommend participation in the program to their own members. Consumers desire information about the facilities from which green-pricing programs source energy and/or RECs to be assured the generators are indeed environmentally superior and thus worthy of their financial (and moral) support. Consequently, when deciding whether to participate in green-pricing programs in which hydroelectricity comprises a portion of the green-power product, consumers should be able to verify to their own satisfaction that the hydropower project from which energy or RECs are sourced has a negligible impact on the environment. The problem is that virtually no utility discloses the specific hydropower projects from which energy or RECs are sourced for use in its green-pricing program. In this paper, HRC examines the changes in the electric utility industry that gave rise to green-power programs and green-pricing in particular; describes the evolution of green-pricing programs in the United States; and analyzes the transparency of the chain-of-custody for green-pricing programs that offer hydroelectricity. II. Electric Utility Industry: Challenges and Reforms To understand the rationale for and evolution of green-pricing programs, it is necessary to examine the changing landscape of the electric utility industry during the 1980s and 1990s. The first green-pricing programs were established in the mid-1990s just as restructuring and deregulation of the electric-utility - 1 - Hydropower Reform Coalition industry promised competitive electricity markets throughout the country. “Restructuring” is the break up of electric utilities’ historic monopoly ownership and control over generation, while opening up access to utility owned transmission and distribution systems; whereas “deregulation” refers primarily to establishing competition among electric-power producers in wholesale or retail power sales markets, which in turn depended upon restructuring to provide for non-utility ownership of generation.2 Deregulation does not mean that government is abdicating regulatory authority over utilities, rather that the regulatory regime accommodates price competition on a regulated playing field. Hence “de-regulation” should more aptly have been termed “re-regulation.”3 Impetus for Restructuring Restructuring was a response to increasing electric rates in the 1970s. Utility monopoly ownership and control over electric power plants was rooted in the economy of scale of large, central-station, power plants: by virtue of huge capital investment in expensive generating equipment and associated facilities, one company could produce power more economically than could competitive firms. Many companies in the same market would not enjoy the large market of diverse customers, and they would be limited to using smaller and less-efficient equipment. Thus, the rationale for a regulated monopoly was that all customers would benefit if only one company produced power for an entire market. Until the 1970s, this rationale proved correct, as new and bigger power plants steadily reduced the average cost of electricity. Beginning in the 1970s, however, electric rates began to rise due to increasing costs of construction, increased fuel prices, and overbuilding.∗