California has a plan to track green electricity, but can it be trusted?

All electricity is the same, but the California Energy Commission wants to change that. It plans a system to authenticate the source of electricity to allow consumers to buy power from specific generators. Standard documents called "Certificates of Specific Generation" would certify financial transactions. Presumably, the plan would help document the authenticity of non-generic electricity products, such as green power.

Nevertheless, the plan raises a host of issues, and it has its detractors, judging from comments heard at a workshop conducted Nov. 2 on power source disclosure:

* Authentication. Demand proof of a chain of transactions?

* Trading. Make tags tradeable, without requiring a paper trail?

* Line Losses. Relevant in measuring and tagging specific resources?

* Generic Disclosure. Fair and impartial for retailers who don't sell a fuel-specific product? An impediment to out-of-state power imports?

* Double Counting. Can the CEC prevent this?

* Geographic Scope. Only in California, or the entire Western Interconnection?

* Consumer Awareness. Do they need to know all the details?

The CEC opened the tagging program to comply with Senate Bill 1305, the Electricity Source Disclosure Program, enacted in California in 1997 to ensure that retail electric suppliers furnish consumers with "accurate, reliable and simple-to-understand information" on sources of electric energy. The law required suppliers to disclose fuel source information in a standard format to be developed by the CEC.

On June 24, 1998, the CEC issued rules for all retail suppliers in California to display a power content label describing their products. The label also must disclose the makeup of generic electricity, to allow consumers to compare the retailer's power content, or resource mix, against what they might otherwise receive. This generic mix is called the "California Power Mix," or "net system power."

Now the CEC staff has written a computer program called GENREPORT, which allows a generator to report its output to the CEC while creating corresponding certificates with sequential serial numbers to aid verification. The certificates ensure that the kilowatt-hours were generated in the correct calendar year by a facility connected to the Western System Coordinating Council grid. If false declarations are made by a generator, then the holder of a certificate has an actionable civil claim.

The Paper Trail: A Chain of Custody?

In essence, the tagging plan tracks the money, not the power. Under any alternative, no retailer need prove an actual physical transmission link between the claimed generation and the use of energy by the retailer's customers. But that still leaves open the question of authentication - designing a system that creates an auditable contract trail and avoids double counting, yet is simple enough to encourage participation.

With tradeable certificates, no chain of transactions need be shown to certify the source of power. The certificate would operate much like "bearer" financial instruments: a certificate in the possession of the claiming retailer would be sufficient to prove the source of power. The bearer need not identify the transactions by which it acquired the certificate, or whether they involved a transfer of power or were simply financial in nature. By contrast, if a "settlements" approach is used, a retailer claiming to supply electricity from a specific resource mix would have to show a chain of transactions leading back to the generator, with each transaction involving a sale and purchase of kilowatt-hours.

At the Nov. 2 workshop Barrett Stambler, representing PacifiCorp, said that tradable certificates would encourage renewable development. Tradable certificates would allow smaller businesses that cannot meet rigorous credit requirements to participate in the green market, because the dollar value of their transactions could be limited to the value of the green premium instead of the full value of electricity. Janel Guerrero, of Enron, agreed that tradable certificates would be good for small companies, especially those with clients in more than one state. Allan Ingram, of Bonneville Power Administration, believes that certificates would promote liquidity in the green market and get more players into renewables.

Nevertheless, in its written comments on the certificates, consumer advocate group, The Utility Reform Network, or TURN, said it opposes a system of tradeable certificates representing claims of clean energy. It pointed to research in New England, which it said has shown that such a system tends to undermine credibility with consumers. That concern was raised again at the Nov. 2 meeting by TURN representative Gayatri Schilberg, who pointed out that credibility is essential in green power marketing, and that tradeable tags could erode consumer confidence.

At the end of the day, the issue may come down to consumer confidence. At the workshop, Bub Beebe of the Sacramento Municipal Utility District warned that consumers want to see a strong linkage between what's generated and what they are buying. They understand that money is fungible, said Beebe - just as the money that comes out of the ATM isn't the same cash they deposit in their account. But Beebe warned that consumers may not be ready to consider electricity in an analogous way.

On the national front, the Environmental Marketing Subcommittee of the Energy Deregulation Working Group of the National Association of State Attorneys General also is considering how marketers should substantiate environmental claims. Last summer, the U.S. Federal Trade Commission filed comments on the NASAG's draft guidelines, urging that less is more - that product labels are important, but that consumers should not be told that a tagging system is in use, as such schemes tend only to raise suspicion. (For more, see Mail, this issue, p. 20.)

Line Losses: A Needless Detail?

Participants at the workshop also expressed concern over a CEC staff proposal for "deeming" losses on out-of-state purchases - 5 percent for each crossing of a state border, and 10 percent for each crossing of an international border. According to Bob Grow, CEC program manager, that method would make in-state generation more valuable because of its proximity to California consumers.

Jan Pepper, representing the Automated Power Exchange, responded that losses should be left to existing market mechanisms and that marketers would be willing to pay more for in-state generation anyway. Steven Kelly, with the Independent Energy Producers, agreed, and said that attempting to account for losses would introduce undue complexity and was not needed because the market would give due consideration to losses.

Meanwhile, the California Independent System Operator is reviewing how it calculates lines losses and assigns them to scheduling coordinators. On Dec. 1, the ISO submitted a 125-page report to the U.S. Federal Energy Regulatory Commission, comparing its current method to an alternative procedure that would assign the full marginal loss for actual scheduled transactions to each coordinator. (See FERC Docket ER00-703-000.)

Out-of-State Imports:

Unfair Discrimination?

In written comments submitted for the workshop, Dana Griffith of the Northern California Power Agency raised the issue of whether the method of calculation of net system power might discriminate against out-of-state power imports and the retailers that rely on such imports for their supply.

Such discrimination might occur because a retailer that offers no fuel-specific product must label its power as representing the fuel mix in the description of net system power, which makes broad (and perhaps misleading) claims on the attributes of power imported from out of state or through a power pool.

Griffith noted that some NCPA members were upset at having to disclose a fuel mix containing 16 percent nuclear power (the 1998 nuclear share in net system power), when their purchases from Pacific Northwest region consist of less nuclear and more hydropower. (See Sidebar, The Product Label.) Thus, Griffith advocates a system that would acknowledge the power mix in the Pacific Northwest as an acceptable generic alternative to net system power.

Lowell Watros, from the city of Redding, expressed similar concerns. Redding had voted in the early 1980s not to participate in nuclear-based power, and despite that vow, when the city purchases power from the Pacific Northwest, it must disclose the net system power numbers, which include nuclear. In disclosing net system power, customer confusion has been created, and Watros requested the CEC give an exception for long-term contracts with the Pacific Northwest region that would allow them to claim a different default power mix.

Ahead: Tagging Throughout U.S. West?

Staff members at the California Energy Commission believe that the certificate plan could mark the beginning of a tagging system for the entire western region. Their use would be voluntary, however. If a retailer should regard them as a threat to credibility, it could document its purchases in another way.

Energy commissioner and presiding member Michal C. Moore intends to move forward with a tradeable certificates program, and CEC will conduct a pilot program early this year. If specialized power marketing becomes more prevalent throughout the West in coming years, it is predicted that the certificates program may be turned over to a multi-state body.

Lori A. Burkhart is a contributing legal editor at Public Utilities Fortnightly.

The Product Label

Does the generic mix make a difference?

The Retailer. A California retailer will list the fuel sources for its electricity supply on its product label, and compare that against the generic fuel mix, known as "net system power."

The Generic Mix. State law defines NSP as "the mix of electricity fuel source types¼representing the sources of electricity consumed in California that are not disclosed as specific purchases." In practical terms, NSP represents the percentage of generation produced in California during the previous calendar year from each of the fuel type categories represented in the statute. Imports of out-of-state generation are added in by fuel type, but self-generation is excluded, as are any specific purchases by fuel type.

Assumptions on Imports. The California Energy Commission must make certain controversial assumptions in calculating the generic mix. Some data is hard to get. Some companies withhold data, claiming it is confidential.

Imports from out of state may differ from the California mix, but if such imports come from power pools, and are not linked to a specific resource, they will be characterized as generic according to a standard formula, even if that formula may distort the makeup of resources from a particular region. Thus, for its 1998 analysis of net system power, the CEC staff used data from system operators to estimate imports and characterized fuel sources on the basis of fuel mix assumptions for non-firm energy contained in a 1994 report. It assumed that power imported into California from the Pacific Northwest as 80 percent hydro and 20 percent coal. For imports from the Southwest, it assumed 74 percent coal and 26 percent natural gas.

Source: California Energy Commission

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