&EPA
United States Air and
Environmental Protection Radiation
Agency (6204J)
EPA430-R-94-OtO
November 1994
id Rain Program
Conservation and Renewable
Energy Reserve
UPDATE
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OVERVIEW
RAIN
PROGRAM
Established under EPA's Acid Rain Program, the Conservation and
Renewable Energy Reserve (The Reserve) promotes pollution pre-
vention.
ENERGY EFFICIENCY
SOURCE: OSRAM SYLVANIA, INC.
Allowances awarded to utilities
from the Reserve can be used for
compliance with the Acid Rain Pro-
gram or banked for future use.
These allowances can make it less
costly for affected utilities to com-
ply with the emissions limitations
mandated by the Acid Rain Pro-
gram.
The Reserve bonus allowances are
just the beginning of the benefits of
efficiency and renewable energy.
Both financial and environmental
benefits accrue as emissions of a
variety of pollutants are avoided at
the utilities that employ these tech-
nologies.
The Reserve is a pool of
300,000 sulfur dioxide
(SO2) allowances set aside
to award utilities that ini-
tiate efficiency and renew-
able energy programs. A
utility can earn one SO2 al-
lowance for every 500
megawatt hours of energy
saved through demand
side efficiency or renew-
able energy generation.
RENEWABLE ENERGY
SOURCE: AMERICAN WIND
ENERGY ASSOCIATION
"THESE [CONSERVATION AND RENEWABLE ENERGY] MEASURES NOT
ONLY REDUCE SO2 EMISSIONS - THUS FREEING UP ALLOWANCES - THEY
ALSO REDUCE EMISSIONS OF OTHER POLLUTANTS, SUCH AS NITROGEN
OXIDES, CARBON MONOXIDE, CARBON DIOXIDE, PARTICULATES AND
HAZARDOUS AIR POLLUTANTS."
-UTILITY ENVIRONMENT REPORT, MAY 13, 1994
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ACID-RAIN
n o a n
ENVIRONMENTAL IMPACT
OF THE RESERVE:
ENVIRONMENTAL
BENEFITS
The 300,000 bonus allowances contained in the Reserve repre-
sent a conversion of 150 billion kilowatt hours to efficiency or re-
newable energy. The net air pollution that will be avoided by the
full implementation of the Reserve program is estimated as fol-
lows: > :
120,000
110,000
450'
SOURCE: DEPARTMENT OF
THE INTERIOR
The bonus allowances awarded from the Reserve thus far repre-
sent an avoidance of approximately 6,400 tons of SO2, 3,900 tons
of NOX> and 1 million tons of CO2. The avoidance of 1 million tons
of CO2 is equivalent to planting 168 million trees a year'or taking
200,000 cars off the road each year.
FOR FURTHER INFORMATION ABOUT THE ACID RAIN PROGRAM
WRITE OR CALL:
US EPA
ACID RAIN DIVISION (62O4J)
ATTN: ENERGY EFFICIENCY SECTION
4OI M STREET sw
WASHINGTON, DC 2O46O
ACID RAIN HOTLINE
(202) 233-9620
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AGIDk
'RAIN
PROGRAM
BONUS ALLOWANCES
AWARDED FROM THE
RESERVE
In the Reserve's first year of operation, utilities from across the
nation received bonus allowances for measures ranging from effi-
cient lighting and motors to landfill gas renewable energy projects.
As of September 30, 1994 a total of 2,832 allowances had been
awarded to 15 utilities.
The recipients of the first bonus allowances from the Reserve were
announced at the National Association of Regulatory Utility Commis-
sioners Conference (NARUC) meeting in New York City. A total of
532 allowances were awarded to 5 utilities. The second group of 398
bonus allowances were awarded to 8 applicants in April 1994. An
additional 1,902 allowances were awarded to 6 applicants on Sep-
tember 30,1994.
THIS PROGRAM IS
CREATING A CULTURE
CHANGE WHERE UTILI-
TIES ARE,LOOKING
FOR OPPORTUNITIES
EVERYWHERE."
- JAMES MAHONEY,
NEW ENGLAND
ELECTRIC SYSTEM
OPPORTUNITY FOR
UTILITIES
The Reserve provides a unique opportunity for utilities to earn bo-
nus SO2 allowances through the implementation of efficiency or
renewable energy generation measures, thus making compliance
with the Acid Rain Program less costly.
As utilities add new energy efficiency or renewable energy mea-
sures each year, allowances earned from the Reserve can accu-
mulate rapidly. For example, the New England Electric System
(NEES) companies were awarded 130 allowances from the Re-
serve in 1993 and 1994. Based on current estimates of future effi-
ciency and renewable energy initiatives, the NEES companies ex-
pect to apply for a total of 14,000 allowances from the Reserve by
1999.
Utilities owning Phase I and/or Phase II plants began applying to
the Reserve on July 1, 1993. EPA accepts applications beginning
on July 1 of each year for the savings and generation of the previ-
ous year.
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BONUS ALLOWANCE
RECIPIENTS
ACID-RAIN
P R O 0 R A U
No. of
Allowances
Name of Recipient Awarded Initiative
City of Austin
New England Electric System
(Naragansett Electric,
Massachusetts Electric,
Granite State Electric)
Portland General Electric
Puget Sound Power and Light
Florida Power and Light
(ESI Energy)
Centerior Energy (Cleveland
Electric Illuminating Company,
Toledo Edison)
Connecticut Light and Power
Dayton Power and Light
Minnesota Power
Niagara Mohawk
Wisconsin Public Power Inc.
Sierra Pacific
PSI Energy
Otter Tail Power Company
Rochester Gas and Electric
Total Allowances Awarded
18
130
277
1,002
109
6
173
4
8
177
3
835
41
42
7
2,832
Commercial, residential, and municipal
efficiency programs
Commercial, industrial, residential efficiency
programs and landfill gas renewable energy
project
Commercial, industrial, and residential
efficiency programs
Commercial, industrial, and residential
efficiency programs
Geothermal energy
Commercial efficiency programs
Commercial, industrial, and residential
efficiency programs
Commercial and government efficiency
programs
Commercial, industrial, and residential
efficiency programs
Commercial, industrial, and residential
efficiency programs
Commercial, industrial, agricultural efficiency
programs and purchase of geothermal energy
Purchase of geothermal energy
Commercial, industrial, and residential
efficiency programs
Purchase of biomass energy
Commercial, industrial, and residential
efficiency programs
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ACID-RAIN
PROGRAM
ELIGIBILITY
REQUIREMENTS
Utilities affected in Phase I (1995-2000) of the Acid Rain Program
are eligible to earn Reserve allowances for savings or generation
of renewables from January 1,1992 up until their compliance date
of January 1, 1995. Utilities affected in Phase II (2000 on) of the
Acid Rain Program are eligible from January 1, 1992 up until their
compliance date of January 1, 2000.
To participate in the Reserve program a utility must meet the fol-
lowing requirements:
o Applicant must sell electricity (utility or independent power pro-
ducer).
o Applicant or the applicant's holding company must own or op-
erate, in whole or in part, a unit affected by the Acid Rain Pro-
gram in Phase I or Phase II.
o Applicant must be subject to a least cost plan or planning pro-
cess that is approved or accepted by the applicant's ratemaking
entity. The least cost plan or planning process must meet the
following requirements: (1) public participation; (2) evaluation
of a full range of resource options; (3) treatment of supply-side
and demand-side resources on a consistent and integrated
basis; (4) accounting for system operation and risk factors; and
(5) implementation of least-cost resources.
o Investor-owned utilities applying for credit from efficiency pro-
grams must be subject to a ratemaking process that provides
for "net income neutrality," whereby the utility's earnings are
not reduced due to its conservation efforts. Applications for net
income neutrality must be certified by the Department of En-
ergy.
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REGULATORY IMPACT
OF THE RESERVE
ACID\
'RAIN
PROGRAM
Because eligibility for allowances from the
Reserve is conditioned upon the implemen-
tation of least cost planning, Congress
clearly intended to encourage regulators to
level the playing field for investments in en-
ergy efficiency and renewables. Since en-
actment of the Clean Air Act Amendments,
there have been many such initiatives un-
dertaken by state regulators, some of which
specifically cited opportunities for bonus al-
lowance awards. Here are some examples:
"THE AVAILABILITY OF THESE ALLOWANCES
HAS ENCOURAGED PUBLIC UTILITY
COMMISSIONS TO ESTABLISH INTEGRATED
RESOURCE PLANNING PROGRAMS AND HAS
LED TO A MORE COLLEGIAL RELATIONSHIP
BETWEEN UTILITIES AND'PUCS."
-RENZ JENNINGS, CHAIR OF THE NATIONAL
ASSOCIATION OF REGULATORY UTILITY
COMMISSIONER'S SUBCOMMITTEE ON
RENEWABLES.
o Minnesota Public Utility Commission
opened two dockets to consider utility applications for allow-
ances from the Reserve.
o Public Utility Commission of Texas
proposed a policy statement encouraging integrated resource
planning for electric utilities. If adopted, it will establish a pro-
cedure whereby the Commission would review utility integrated
resource plans, facilitating applications to the Reserve.
o New York Public Service Commission
undertook a special review of its utilities' 'least-cost plans to
determine whether or not they met EPA's eligibility requirements
for the Reserve.
o Public Utilities Commission of Ohio
adopted a rate-making mechanism for its utilities that is intended
to meet the "net income neutrality" eligibility requirements for
allowances from the Reserve.
o Connecticut Department of Public Utility Control
opened a docket to consider utility applications for allowances
from the Reserve.
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