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Renewable Subsidies in the Age of Deregulation

Fortnightly Magazine - December 1997

employed for pricing pool-dispatched power in deregulated systems, such as that which displaces NEPEX in New England.

9S. Rep. No. 95-361, 95th Cong. 1st Sess. 32 (1977), reprinted in 1978 U.S. Code Cong. & Ad. News 8173, 8178.

10See FERC v. Mississippi, 456 U.S. 742, 745-46 (1982).

11Eugene M. Trisko, "Environmental Externalities: Thinking Globally, Taxing Locally," Public Utilities Fortnightly, March 1, 1993 p. 52.

12Energy Policy Act of 1992, 102 Pub. L. No. 486, 1992 H.R. Rep. No. 776, 106 Stat. 2776 (Oct. 12, 1992).

13California, Massachusetts, Nevada, New York, Vermont and Wisconsin require quantitative consideration of environmental externalities in utility planning. These range from the Massachusetts system - since stricken by the state Supreme Judicial Court - for explicit monetary quantified externality values, to that of Vermont, where a proxy percentage adder distinguishes supply-side and demand-side resource externalities.

14Hawaii, Virginia and Colorado have required only qualitative consideration of externalities. William Kenworthy, "Regulatory Review," Electric Light & Power, March 1993.

15Net metering effectively sells renewable power to the utility at the retail rate, now typically significantly above utility avoided cost. While sanctioned for small qualifying facility projects by PURPA, it may be at odds with recent FERC precedent on wholesale pricing for renewable power.

16Voluntary actions of power marketers or retailers to offer so-called "green power," which result without regulatory compulsion, are legally acceptable. There is contention in New England as to whether only new renewable should count as "green" power, so as to tilt the total portfolio evolution, or existing diverse portfolios can be segmented to sell the "green" slice, but deliver intermixed generation.

17States must be careful on how far their regulations reach back "upstream" into wholesale markets. These requirements can affect market entry and participation. Without directly regulating the wholesale transaction, states could indirectly influence the wholesale transaction by regulation of retail sellers, who are wholesale buyers. States must create a proper record, based on fuel diversity, reliability, conservation, intergenerational equity issues and other factors. A New York decision held that a state cannot compel a utility to purchase power from a particular wholesale source. Consol. Edison Co. v. NY PSC, 63 N.Y.2d 424, 438, 472 N.E.2d 981, 987 (1984).

18The state can promote certain renewable generation technologies through transmission and distribution charges. For example, where renewable energy is intermittent, the demand component of T&D charges, based on capacity equivalence rather than on maximum rated capacity, would lower the effective cost of transmitting intermittent resources, without discriminating. This lower cost of transmission would offset the often higher cost of generation of renewable energy resources. States could evaluate the total delivered cost of various energy resources, rather than just the cost of generation and delivery to the utility bus.

19New protocols must be devised for system operation, including dispatch and curtailment which might involve individual utilities, a power pool or an independent system operator. Dispatch could occur based on lowest marginal cost of operation or include environmental externalities in the dispatch protocol. FERC holds substantial authority over these transmission issues.

20The FERC has sanctioned the use of tax credits to