October 2005
Northeast States Move Forward With Implementation Of Renewable Portfolio Standards
by Robert Olson  and David J. Shulock --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 2005/10/31)

States in the northeast continue to implement and improve upon their Renewable Portfolio Standard (“RPS”) programs. This article provides a brief summary of the latest developments in three states in the PJM control area: Delaware, Pennsylvania, and New Jersey, and two states in the NEPOOL control area: Rhode Island and Massachusetts.

Delaware
Delaware enacted its “Renewable Energy Portfolio Standards Act” in July, 2005. This act requires all retail sellers of electricity in the state, with the exception of municipal electric companies, to provide a minimum percentage of their energy from eligible energy sources.  This percentage escalates from 1% in 2007 to 10% in 2019. The state’s public utilities commission, which is required to implement the Act, may increase or decrease this escalation rate within parameters set by the general court. Beyond 2019, percentage requirements are to be set by the commission. The act requires the commission to adopt rules and to develop a REC tracking and trading program to enable compliance by retail sellers. Retail sellers may also comply by making alternative compliance payments. Alternative compliance payments begin at $25 for the first year in which an individual retail seller fails to meet the RPS requirements through the purchase of RECs. If that retail seller fails to meet the RPS requirements through the purchase of RECs in subsequent years, the alternative compliance payment that that retail seller must make increases to $35 in the second year of non-compliance, $45 in the third year, and $50 in the fourth and subsequent years of non-compliance.

To be eligible, generators must either be located in or sell their energy into the PJM control area. Eligible technologies include solar, wind, ocean, geothermal, fuel cells powered by renewable fuels, anaerobic digestion, hydro (30 MW or smaller), biomass, and landfill gas. Facilities that were in existence prior to January 1, 1998 are eligible; however, for each retail seller, no more than 1% of each year’s RPS requirement may be met from these resources. Beginning in compliance year 2020, facilities that were in existence prior to January 1, 1998 will no longer be eligible.

Specific energy sources are eligible for multiple credits. Retail sellers are to receive 300% credit for solar and fuel cells if they are installed before December 31, 2014 and 150% credit for wind energy installations sited in Delaware on or before December 31, 2012.

The Delaware Public Utilities Commission held its first work session on September 28, 2005, and intends to complete its rule-making process by July 31, 2006. The first compliance year begins on June 1, 2007.

Pennsylvania
Pennsylvania’s RPS legislation is unique because it includes demand side management and energy efficiency and load management programs and technologies as among those resources eligible for alternative energy credits (“AECs”). The legislation requires the Pennsylvania Public Utility Commission to issue standards for tracking and verifying savings from these resources and to develop a depreciation schedule for alternative energy credits created by these resources. The Commission issued its final order on these issues on September 29, 2005. In its order, the Commission uses two means to establish qualifications for AECs: a catalogue approach for standard energy savings measures that cannot be metered and general guidelines for metered and custom energy savings measures. The catalogue approach assigns energy savings to such things as energy efficient appliances, light bulbs, and HVAC equipment. Assigned energy savings are detailed in a reference manual that was issued along with the order. The AEC qualification of metered and custom demand side management and energy efficiency measures will be decided on a case-by-case basis.

The issuance of demand side management and energy efficiency guidelines represents the Commission’s first step toward establishing regulations to implement the commonwealth’s RPS program. The first compliance year is required to begin June 1, 2006.

New Jersey
The New Jersey Legislature authorized the establishment of an RPS in February 1999. The New Jersey Board of Public Utilities adopted rules governing the RPS program in February 2005. On August 31, 2005, the Board issued an order approving the use of Class I and Class II RECS issued by the PJM-EIS GATS once the PJMEIS GATS becomes operational. The PJM-EIS GATS is expected to become operational and begin issuing certificates on October 7, 2005.

Rhode Island
Rhode Island’s legislature passed RPS legislation in 2004, which is now codified at R.I.G.L. §39-26-1 et seq. That legislation requires the Rhode Island Public Utilities Commission to adopt rules to implement the state’s RPS program no later than December 31, 2005. Throughout 2005, a group comprised primarily of regulators, utility, and wind energy interests negotiated a set of rules for presentation to the Commission on August 15, 2005. On September 23, the Commission issued a notice of proposed rule-making and a set of draft rules that are based upon the rules submitted by the rulemaking group. The proposed rules require all sellers to end-users (including non-regulated power producers and excluding Block Island Power Company and the Pascoag Utility District) and all customers that buy electricity directly from wholesale markets to provide a minimum percentage of their energy from eligible energy sources. This percentage escalates from 3% in 2007 to 16% in 2019. Increases in this percentage after 2010 (or 4.5%) are subject to a Commission determination that there are existing or potential renewable energy supplies to meet the increase. The rules also provide that the Commission will determine whether the RPS requirement should extend into 2020 or cease. Alternative compliance payments are set at $50.00 to be adjusted for inflation.

To be eligible under the proposed rules, generators must either be located in or sell their energy into the NEPOOL control area under a unit-specific bilateral contract. Eligible technologies include solar, wind, ocean, geothermal, fuel cells powered by renewable fuels, hydro (30 MW or smaller), and biomass (including landfill gas and biogas). Biomass wood fuels must be free of resins, glues, laminates, paints, preservatives or other treatments and not be mixed with other materials that would burn, melt, or create any residue other than wood ash. Facilities that were in existence prior to January 1, 1998 are eligible; however, for each entity required to comply with the RPS, no more than 2% of each year’s RPS requirement may be met from these resources.

Although the statute does not so specify, the proposed rules provide that a facility that was in existence prior to January 1, 1998 can be considered “new” and therefore eligible to participate in the RPS above the 2% limitation imposed upon retail sellers if it (1) is retired and replaced with a new facility, or (2) replaces its “prime mover” (for biomass, the entire boiler) and either materially increases its efficiency or materially decreases its emissions and can show that 80% of its resulting tax basis is attributable to capital expenditures  made after December 31, 1997. Also, facilities in existence prior to January 1, 1998 are not subject to the 2% limitation placed upon retail sellers for the portion of their output attributable to efficiency improvements or additions to capacity after December 31, 1997 that were both sufficient to and intended to increase annual electricity output in excess of 10%.

The proposed rules are intended to go into effect on January 1, 2006. The first compliance year begins January 1, 2007.

Massachusetts
Between July 1 and August 18, 2005, the Massachusetts Division of Energy Resources conducted an inquiry into whether it should continue to categorically exclude from RPS eligibility those biomass facilities that use pile-burn stoker grate technology. Such facilities were excluded from the RPS under the assumption that they could not meet “low-emission” standards and were therefore not advanced combustion technologies. Advancements in pollution control technologies for pile burn facilities appear to have enabled compliance with low-emission standards for these facilities.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716