EPA
'••A
United States
Environmental Protection Air and Radiation EPA/400/1 -91/008.B
Agency (ANR-445) April 1991
Acid Rain Advisory
Committee Meeting:
March 20-22,1991
Energy Conservation
and Renewables
Issue Papers
en
22
CO
HEADQUARTERS LIBRARY
ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
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INDEX
Energy Conservation and Renewables subcommittee
March 20 - 22, 1991
Document
number Title Sage
C-8 Allowance Application and Award Procedures 1
Issue Paper ( reprint from February
Subcommittee Packet)
C-10 Guidance on Conservation Measures Issue 11
Paper (reprint from February Subcommittee
Packet)
C-ll Minutes from February 20-21, 1991 16
Subcommittee Meeting
C-12 Renewable Energy Technologies Issue paper 19
C-13 Reduced Utilization and Energy Conservation 27
Issue Paper
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C8
ALLOWANCE APPLICATION AND AWARD PROCEDURES
ISSUE PAPER
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
ACID RAIN ADVISORY COMMITTEE
February 20-22, 1991
BACKGROUND
»
The authors of the Conservation and Renewable Energy Reserve
provision, Representative Edward Markey of Massachusetts and
Representative Carlos Moorhead of California, clearly articulated
the purpose of this particular amendment:
"[T]he Clean Air Act Amendments will help encourage
electric utility companies to pursue cost-effective energy
conservation and renewable energy measures by instituting a
cap on sulfur dioxide emissions. But the cap will not take
effect before the year 1996 or 2001. We believe that more
can and must be done in the next decade to encourage the
aggressive pursuit of conservation and renewables...
"We believe [this amendment] will create a strong and
effective incentive for utilities to immediately pursue
energy conservation and renewable energy sources as key
components of their acid rain control strategies. We
believe that this provision of the bill will establish a
balanced and workable approach that will provide certainty
for utility companies that are considering conservation and
renewables, while at the same time strengthening the
environmental goals of this legislation."1
The language was structured to encourage utilities and their
commissions to move forward with least cost planning and
regulatory reform. Such actions will not only facilitate Clean
Air Act compliance, but are key ingredients in economically-sound
and environmentally-healthy utility long run planning.
The authors left EPA with the task of designing procedures
for allocating allowances from the Conservation and Renewable
Energy TT<«enre ("Reserve11). These procedures must be consistent
with the-.legislative goals of:
o encouraging early and aggressive action by utilities;
o providing certainty for utilities in allowance
availability and distribution; and
o overall support for cleaner air throughout the U.S.
House Report 101-490, Part i, at 674-675 (1990).
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The major issues which need to be resolved are establishment
of first-cove-first-served rules, specific provisions governing
application and award of the allowances, and procedures for
verifying conservation program effectiveness and renewable energy!
generation (verification will be covered in issue paper C9).
I. FIRST-COME-FIRST-SERVED
Legislative Languaget (Sec 404 (f)(2)(A)): "In general —
the regulations under paragraph (4) of this subsection shall
provide that for each ton of sulfur dioxide emissions avoided by
an electric utility, during the applicable period, through the
use of qualified energy conservation measures or qualified
renewable energy, the Administrator shall allocate a single
allowance to such electric utility, oa a first-eome-first-served
basis from the Conservation and Renewable Energy Reserve
established under subsection (g), up to a total of 300,000
allowances for allocation from such Reserve.
Eatablishmaiyt of "First Day"; The law requires that the
rule be promulgated within eighteen months of passage of the
Clean Air Act Amendments of 1990. Whether or not "up front"
allowance applications are permitted, the "first day" could be
established to include any application postmarked between the
rule promulgation date and midnight on the day of an established
deadline2 (the merits/drawbacks of "up front" reservations will
be discussed below). Thus, at the earliest, applications could
be submitted in May 1992. Nineteen-ninety-two is also the first
year during which conservation programs and renewable energy
generation will be eligible for allowances from the Reserve. Two
illustrative examples might help clarify establishment of "first
day".
Example is If applications will be accepted for
conservation and renewable energy programs to be undertaken
in the future, any application postmarked before June 30,
1992 would be considered to have arrived on the "first day11.
Thereafter, applications would be sorted and reviewed based
on each successive daily postmark, until the allowances in
the- reserve- are gone.
2 Alternatively, a "strict construction" of the first-come-
first-serred language could be employed, in which applications
would be stamped with the precise EPA arrival date and time,
beginning immediately after the rule is promulgated. Strict
construction, by definition, would eliminate the possibility of
oversubscription. However, based on earlier input from
Subcommittee members regarding the difficulty of implementing
such ah option, the emphasis in this discussion is not on strict
construction.
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If applications are to be made only after
and renewable energy programs are in olace,
and
sine* the first year that allowances may be awarded for such
programs is 1992, the submission of applications would occur
sometime after calendar-year end. The deadline for "first
day11 submissions might then be set at January 31, 1993.
Thereafter, applications would be sorted and reviewed based
on each successive daily postmark, until the allowances in
the reserve are gone.
Oversubscription Potions; Zf applications for more than
300,000 allowances are submitted before the deadline of the
wfirst day1* (and are subsequently determined by EPA to be
complete and within the guidelines established in the rule), then
EPA must distribute these allowances based on a mechanism
explicitly established in the rule. A number of options exist:
o a pro rata distribution based on that utility's share
of approved allowances;
o a lottery system in which approved applications are
"drawn from a hat" until the 300,000 allowance ceiling
is reached;
o a "need-based" evaluation of environmental/economic
benefits of applications;
The rule established for handling "first day"
oversubscription will also apply to any day in which the 300,000
ceiling on the reserve is reached. In other; words, if
applications submitted on * particular day six months into the
program result in approved allowances exceeding 300,000, the
applications submitted on that day (the day which pushed the
reserve "over the top1*) will be subject to the established
oversubscription rule.
Early input from ARAC members indicates that the pro rata
solution to oversubscription seems to be the most desirable. This
is based both on ease of administration and fairness to Reserve
applicant*.
other rules in Title IV will need to specify first-
come-first-served provisions:
o Phase I Extensions
o IPP guarantees
It may b« desirable to have all of the first-come-first-
served provisions be consistent, however there may be compelling
reasons for different responses to oversubscription. The
Subcommittees need to keep this in mind during February
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discussions.
II. APPLICATION AND AWARDS
Legislative Language: (Sec 404 (f ) (2) :
»(D) Determination of Avoided Emissions —
(i) Application — In order to receive allowances under this
subsection, an electric utility shall make an application
which —
"(I) designates the qualified energy conservation
measures implemented and the qualified renewable energy
sources used for purposes of avoiding emissions,
"(II) calculated, in accordance with subparagraphs (F)
and (G) , the number of tons of emissions avoided by reason
of the implementation of such measures or the use of such
renewable energy sources; and
"(III) demonstrates that the requirements of
subparagraph (B) have been met.
Such application for allowances by a State-regulated
electric utility shall require approval by the State
regulatory authority with jurisdiction over such electric
utility. The authority shall review the application for
accuracy and compliance with this subsection and the rules
under this subsection. Electric utilities whose retail
rates are not subject to the jurisdiction of a state
regulatory authority shall apply directly to the
Administrator for such approval.
*(£) Avoided Emissions from Qualified Energy Conservation
Measures — . For the purposes of this subsection, the emission
tonnage deemed avoided by reason of the implementation of
qualified energy conservation measures for any calendar year
shall be a tonnage equal to the product of multiplying—
"(i) the kilowatt hours that would otherwise have been
supplied by the utility during such year in the absence of
such qualified energy conservation measures, by
"(ii) 0.004, and dividing by 2,000.
Avoided Emission from the Use of Qualified Renewable
Energy. .£•» The emissions tonnage deemed avoided by reason of the
use of qualified renewable energy by an electric utility for any
calendar year shall be a tonnage equal to the product of
multiplying ~
"(i) the actual kilowatt hours generated by, or
purchased from, qualified renewable energy, by
"(ii) 0.004, and dividing by 2,000.
Approaches to Allowance Reservations. Applications and Awards;
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There are a variety of ways to actually distribute the
allowance allocations and still fall within the guidelines
specified in the statute. Five potential approaches are outlined
below. Generally, they vary based on whether utilities will be
permitted to make reservations before a conservation program is
implemented/ and whether actual awards can be made "up front".
The examples are given because they highlight the ramifications
of implementing the different allocation methods. Zt is
important for the Subcommittee to consider these ramifications
when making final recommendations to the full ABAC.
Crittriat When evaluating these alternative methods it is
important to keep in mind the legislative objectives articulated
by the statute authors. For this reason, it may be useful for
the Subcommittee to evaluate each application option or "method11
on the basis of a number of criteria:
(1) How effective will this method of allowance distribution be
at encouraging early and aggressive action by utilities?
(2) HOW effective will this method be in. aiding utility planning
by providing "certainty" for utilities in terms of allowance
availability?
(3) How effectively will this method provide general support for
the environmental goals put forth in the Clean Air Act
Amendments of 1990?
(4) will this method be institutionally and bureaucratically
manageable?
(5) How effective will this method be at providing states and
individual utilities with sufficient flexibility in program
design and implementation?
(6) How effective will this method be at encouraging
participation in conservation and renewable energy by "new
players"?
(7) How likely is this method to invite "frivolous application"
or other utility gaming?
(8) Howftogmlly sound is this method?
Methods: Listed below are five options for structuring
application and award procedures. These are intended to be
illustrative examples, and do not encompass all possible methods
for distributing allowances from the Reserve. They do, however,
expose the complexities inherent in virtually any method that is
adopted.
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(A) Up front reservation, annual awards: This method implies
that reservations for allowances from the Reserve could be "
made in advance of conservation program implementation or in
advance of deployment of renewable energy technologies. In
order to have a reservation application "approved*1, the
utility must meet least cost planning and net income
neutrality requirements, as well as have state regulatory
approval as specified in Sec 404(f)(2)(D)(i) (see p.4 of
this paper). Allowances would be awarded annually after EPA
receives verification from the State authority regarding the
energy saved from the conservation program or generated from
the renewable energy resource (EPA must do this verification
if no state authority exists). Zf the utility is unable to
demonstrate the amount of energy savings/renewable electric
generation for which it had made reservations, the
allowances reserved for that calendar year go back into the
Reserve and become available to new applicants. If the
utility demonstrates less energy savings/renewable electric
generation than had been reserved, the utility is awarded
. the appropriate percentage of allowances, the remainder
become available to other applicants.- ~ '
Outstanding issues:
i) If a utility is unable to demonstrate energy
savings/renewable generation for a particular calendar
year, does it lose its reservation or "place in line"
for all consecutive years? What about in the case of
only partial program "success"?
ii) How far In advance can a reservation be made (e.g. can
a utility apply in 1992 for a renewable plant that will
come on-line in 1996)?
»
(B) Application upon program implementation, up front awards:
This method would require a utility to apply for allowances
after conservation measures or renewable generation
facilities are in place. At that time the utility would
show compliance with least cost planning and net income
neutrality requirements, as well as state regulatory
appcovml for conservation/renewable energy investments. The
allevances would be awarded for energy saved/generated
during that calendar year, as well as for all calendar years
remaining in the program (subject to allowance
availability). In essence, the initial program
"verification* would take place at the same time as program
application.
Outstanding issues:
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i) I* it legal and/or good public policy for allowances to
be distributed for energy to be saved or generated in
the future? What if the renewable plant goes out-of-
service for an extended period or there is a recall on
super-efficient refrigerators?
ii) Would additional program verification in the "out
years" be required?
(C) Application upon program implementation, annual awards:
This method combines aspects of the two described above. A
utility could not apply for allowances from the Reserve
until measures were installed or a renewable plant was on-
line. However, actual awards would be made annually, at
'calendar-year end, once a utility commission verifies that
energy was saved/generated. In this case, the utility would
not be guaranteed to get allowances beyond the first year —
this would depend upon availability of allowances in the
Reserve.
Outstanding issues:
i) Will the uncertainty associated with potentially only
receiving allowances for one year discourage
participation?
(D) Application upon program implementation, reservation of
allowances for duration of the program, annual awards: This
method is the same as (C), except that upon initial
application a utility would be reserving allowances to be
distributed each year, subject to utility commission
verification*
Outstanding issues:
•
i) Will the requirement to have measures installed
eliminate participation by "late starters"?
(2) Application upon program implementation, up front awards,
limitation em number of allowances that can be distributed
ia sjqr given year: This method is basically the same as the
oiMPjfeocribed in (B) above, with the added feature of
pla*I09 an upper limit on the number of allowances that
could be distributed in any given year. One example of how
this could work would be to limit the number of allowances
awarded in any given year to 100,000. The effect would be
to have the Reserve last at least three years, thus giving
"later starting" utilities the opportunity to take advantage
of the allowances (if less than 100,000 is applied for the
extra allowances remain in the Reserve).
Outstanding issues:
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i) If approved applications exceed the 100,000 allowance
ceiling (and assuming allowances are being awarded "up
front" or based on lifecycle savings/renewable
generation), how will the allowances be distributed
among the candidates?
ii) Under the sane case described above in (i), can the
utility reapply the following year for the remainder of
allowances attributable to that program that would have
been awarded had the ceiling not been reached? Or can
only additional programs/measures apply?
iii) Are there likely to b« legal challenges to EPA's
limiting the number of allowances to be distributed
annually?
Figure 1 (attached) provides a framework (in the form of a
blank matrix) for evaluating each of the methods described in
terms of the criteria listed above. For discussion purposes it
might be helpful if Subcommittee members would try to fill in the
matrix by assigning values (1-5, .1 being low, S being the best)
to each criteria for each method (a blank column and blank row
were left for your additions). For example, how effective is
method (A) at encouraging early and aggressive action by
utilities? This evaluation might assist in structuring what
will undoubtedly be a very lively discussion.
ZZZ. ADDITIONAL ISSUES FOR DISCUSSION
o How is this application and verification to be
integrated into required compliance plans?
o What will facilitate the coordination between utility
commissions and EPA?
o What are the critical timing issues, in terms of:
program initiation?
application processing?
• verification?
XV. CHAISE OF THE SUBCOMMITTEE
^.*
Thev~C6Mervation and Renewable Energy Subcommittee is
responsible for making a number of recommendations to the full
ARAC on February 21:
(1) appropriate guidelines governing "first-come^first-served";
(2) a method for allocating allowances from the Conservation and
Renewable Energy Reserve;
(3) guidelines on timing —for application review, coordination
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with states, etc.
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• H
cio
GUIDANCE ON CONSERVATION MEASURES
ISSUE PAPER
•
SUBCOMMITTEE OH CONSERVATION AND RENEWABLE ENERGY
ACID RAIN ADVISORY COMMITTEE
February 20-22, 1991
Backgrounds Representatives Markey and Hoorhead comment,, "We
have chosen not to delineate which energy conservation
technologies shall be eligible to earn allowances under this
provision. However, it is our expectation that EPA and the
states will take a thorough and comprehensive view of all
potentially appropriate technologies..."1
As part of the rule governing the Conservation and Renewable
Energy Reserve ("Reserve"), the statute requires EPA to list
"qualified energy conservation measures1*. The objective,
consistent with the objectives articulated in drafting all of the
provisions of this rule, .will be to provide guidance, set
appropriate standards, and allow maximum state flexibilty. In
the case of conservation measures, it is not in any party's
interest to have EPA be prescriptive, with demand side programs
still in the relatively early stage of development, much
opportunity for innovation remains for program design and
implementation. It is probably appropriate for EPA to foster
this innovation, and thus makes sense to allow for this in the
[specifications of "qualified conservation measures".
Legislative Languages
(Sec 404 (f)(!)):
"(A) Qualified Energy Conservation Measure. — The term
'qualified energy conservation measure* means a cost effective
measure, as* identified by the Administrator in consultation with
the Secretary of Energy, that increases the efficiency of the use
of electricity provided by an electric utility to its customers."
(Sec 404 (f)(2)):
"(B) Requirements for Issuance. — The Administrator shall
allocate? allowances to an electric utility under this subsection
only if lAX-of the following requirements are met:
;F- (i) Such electric utility is paying for the qualified
energy conservation measures or qualified renewable energy
directly or through purchase from another person."
"(G) Prohibitions. — (i) No allowances shall be
allocated under this subsection for the implementation of
House Report 101-490, Part 1, at 675.
L
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programs that are exclusively informational or educational in
nature.
(ii) No allowances shall be allocated for energy
conservation measures or for renewable energy that were
operational before January 1, 1992."
(Sec 404 (f)(4)):
"Regulations. — No later than 18 months after the date of
the enactment of the Clean Air Act Amendments of 1990 and in
conjunction with the regulations requires to be promulgated under
subsections (b) and (c), the Administrator shall, in consultation
with the Secretary of Energy, promulgate regulations under this
subsection. Such regulations shall list energy conservation
measures and renewable energy sources vhieh may be treated as
qualified eaergy conservation measures and qualified renewable
energy for purposes of this subsection..."
Potential Guidelines far Discussion: The following proposed
guidelines on "qualified energy conservation measures" were
provided by John Fox and his staff at FG&E. These guidelines
will be helpful in structuring Subcommittee discussion.
A "qualified energy conservation measure" is a material
or device installed in the home or facility of a customer to
whom a utility provides electricity:
* that reduces electricity consumption compared to
what it otherwise would have been,
that is cost effective (see below)
that does not increase the use by the customer of
any fuel other than electricity,
that has an expected useful life of at least three
years,
• whose installation cost is paid in whole or in
part directly by the utility,
:,„ - that appears on the list which follows, or which
V i» approved (using these criteria) by a state PUC
3T • (for regulated utilities) or the EPA (for non-
i&" regulated utilities) as part of a utility's
application, and
that is installed after January 1, 1992
— "Cost-effective" means, with respect to a qualified
energy conservation measure, that the value of the
electricity saved over the life of the measure exceeds the
total cost of installing and maintaining the measure over
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its useful life. These estimates would be based on a "Total
Resource Cost" or societal perspective (that is, including
the utility's and the participant's costs), and would use
discount rates and other costing procedures which the
utility uses in its least cost planning.
— Applications for allowances would be based on the
installation of measures which are subsidized by the
utility, not on the effects of programs on customer
purchases or behavior.
— Hot include efficiency improvements on utility-side of
the meter? not include fuel switching; not include load
management (because there are not necessarily any kHh
• savings)
Issues for Further Discussion;
o How should "operational before January 1, 1992" be
understood? 'Should expansion of existing DSM programs
constitute a "qualified conservation measure?" If so, how
large an expansion should be required?
o There was some discussion at the first ABAC meeting over
whether suppy-side efficiency improvements could be included
as "qualified conservation measures". Upon closer
examination of the language in the statute, some
Subcommittee members point out that these measures may be
precluded:
"... 'qualified energy conservation measure' means a
cost effective measure... that increases the efficiency
, of the use of electricity provided by an electric
utility to its customers."
Given the relatively small size of the Reserve, the vast
potential for demand side programs, and the incentives
already in place for supply -side efficiency improvements, it
aay bo appropriate to limit allowance awards to demand side
»TO« of *!»• Subcommittee:
The Conservation and Renewable Energy Subcommittee is
responsible for providing guidance on *qualified conservation
measures*. This guidance will be presented to the full ABAC on
February 21 (if time permits) for discussion, comment, and
concurrence.
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7
Attachment 1
Li*t of Qualified Energy conservation Measures
There are a number of conservation measures — practicable
in every sector of energy consumption — that could qualify for
energy conservation allowances. The program design and
implementation of these measures will vary by utility and by
region. Measures that will qualify for allowances from the
Conservation and Renewable Energy Reserve (assuming all other
rules and guidelines are met) include, but are not limited to,
the following:
RESIDENTIAL
Space Conditioning
o Furnace upgrades/replacements
o Air conditioners (central or room) upgrades/replacements
o Heat pumps .(ground source or conventional)
upgrades/replacements
Water Heating
o Upgrades/replacements
o R-ll wraps/blankets
o Low-flow showerheads
o Solar heating and/or pre-heat units
Other Appliances
o Refrigerator replacements
o Freezer replacements
o oven/range replacements
o Dishwasher replacements
o Clothes washer replacements
o Clothes dryer replacements
Lighting
o Lamp replacement
O DljBMCV
o Mot&B detectors
.-*•
i*.'r- -
Buildingr'lnvelope
o Attic insulation
o Window replacement
o Storm windows/doors
o caulking/weatherstripping
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p
COMMERCIAL
Haating/V«ntilation/Air Conditioning (HVAC)
o Heat pump replacement
o Fan motor efficiency
o Resizing of chillers
o Variable speed drive on fan motor
o Thermal storage
Lighting
o Electronic ballast replacements
o Delamping
o Reflectors
o Occupancy sensors
o Daylighting controls
Other end-uses
o Refrigerator replacement
o Freezer replacement
o Electric water heater replacement
INDUSTRIAL
Motors
o Retire old,inefficient motors
o Rebuild motors to operate more efficiently
o Replace motors with variable speed drive units
Lighting
o Electronic ballast replacement
o Metal halide lamp retrofits
o High pressure sodium retrofits
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The Subcommittee recognized one wrinkle in this approach relating
to renewable energy resources. Due to the typically longer lead
times for such projects, there was some discussion as to whether
renewables should have a dedicated portion set aside in the
reserve. The legislative intent appears to support conservation
and renewable energy development, but under a strict "first-come-
first-served" design, the entire reserve could well be exhausted by
the time most renewable facilities came on line. Consequently, the
Subcommittee shall discuss at the next meeting the potential merits
and drawbacks of earmarking a (small) fraction of the allowances
for renewable energy.. - - -
2* Verification Procedures
As specified under the statute, state PUCs will verify conservation
savings by utilities under their jurisdiction and EPA will verify
conservation savings for all qualifying non-PUC regulated
utilities. In terms of program verification, the primary concern
was that allowances reward demonstrated energy reductions, and that
"phantom negawatts1* not be credited.
General agreed-upon guidelines to be used by states/EPA shall
include:
regular reporting by the utility to its state regulatory
authority or to EPA (as appropriate) on the number of
conservation measures in place and the estimates of resulting
energy savings.
adoption of a verification process to assess the accuracy of
all in formation, contained in such reports.
consistency with the guidelines for qualifying energy
conservation measures
evaluation of the utility's stated savings against free
ridership and exogenous factors
It was recommended that specific methodologies not be prescribed,
thus allowing for diversity of defensible techniques currently
used, and future refinement of evaluation methodologies. Further,
too prescriptive a verification formula would further lengthen PUC
approval times which are estimated to be at least six months.
Given that the allocation system would be strictly "first-come-
first-served,*1 such delay would potentially jeopardize later
applicants* bids for allowances.
3. Qualifying Conservation Measures
EPA is required in the statute to assemble a "list" of potentially
alifying conservation measures. As a preamble to this list, the
iubcommittee agreed to several broad guidelines, as follows:
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Cll
SUMMARY MINUTES FROM FEBRUARY 20-21 MEETING OF
THE SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
The Conservation and Renewable Energy Subcommittee discussed three
major issues during its February 20-21 meetings: 1) Application and
Awards Procedures; 2} Verification Procedures; and 3) Qualified
Conservation Measures.
1* Application aad Awards Procedures
The Subcommittee generally agreed that a primary aim of the
Conservation and Renewable Energy Reserve ("Reserve") is to
encourage "new players'* to engage in conservation. The discussion
focused on how to achieve a proper balance between bringing in such
players without penalizing those that have been aggressively
pursuing DSM. .
Proposed strategies included: up-front reservations, graduated
annual limits, annual applications, and awards based on installed
conservation measures (e.g., demonstrated savings). The question
of providing "certainty" to prospective players in the allocation
of Reserve offsets played largely into this discussion. Initially,
input to the Subcommittee suggested that utilities that have not
been as involved with OSM would prefer to have a system of
reserving allowances until they could actually roll out their
programs. Later discussion by the Subcommittee revealed that the
converse problem might exist: that by allowing states and utilities
already pursuing DSM to reserve allowances up-front for the eight
year duration of the Reserve, the entire reserve would be soaked up
in short order. Because of the institutional inertia of getting
"under the umbrella" (i.e., implementing LCUP and NIK) it might be
impossible for newer players to even submit reservations before the
Reserve was exhausted.
The Subcommittee looked at some rough calculations of currently
eligible DSM programs, along with projections of emerging programs
to gauge the rate at which Reserve would likely be depleted. The
shared conclusion of the Subcommittee following this analysis was
that oversubscription would not occur for the first three or four
years.
Given this information, the prevailing view was that a strict
"first-come-first-served" mechanism would afford later applicants
some assurance that credits will be available after the second year
of the program. Under such a system, the allowances would be
awarded on a "rolling basis" using daily postmarks to assign
priority to the PUC and EPA approvals. On the first day of
oversubscription, allowances would be distributed pro rata to the
programs postmarked for that day.
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A "qualifying conservation measure" shall be considered a material
or device that:
reduces electricity consumption or utility generation
is cost effective (consistent with the utility's least cost
plan)
does not increase the use of commercially available fuel,
other than renewables, waste heat, or byproducts from
industrial processes
is covered for its costs in full or part by the utility
is installed after 1/1/92
is not solely educational or informational
The Subcommittee further advocated that whatever "laundry list11 of
measures SPA adopts be illustrative rather than comprehensive, and
be based on measures "currently in use.1* This approach allows for
the inclusion of future measures, as well as improvements in
existing ones. Finally, the list of measures is subject to
participating utilities having met the other requirements of the
rule (such as LCUP and NIN).
Although a tentative listing of these measures is attached to paper
|C10, the Subcommittee is waiting on input from various utility
commissions, utilities, and others to compile a more complete list
of measures currently in use.
The major unresolved issue facing the Subcommittee is whether
supply side improvements should be credited for conservation
allowances. While this opportunity (e.g., heat rate improvements
and power delivery efficiency gains) is certainly appropriate for
reduced utilization, it may or may not be consistent with the
legislative intent behind the Reserve. A conclusive legal opinion
on this question is pending.
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C12
RENEWABLE ENERGY TECHNOLOGIES
ISSUE PAPER
ACID RAIN ADVISORY COMMITTEE
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
March 20-22, 1991
BACKGROUND
During the spring of 1990 a proposal was put forth in the
Senate which laid the groundwork for what ultimately became the
Conservation and Renewable Energy Reserve in the Clean Air Act
Amendments of 1990. Senators Wyche Fowler (D - Georgia) and Mark
Hatfield (R - Oregon) proposed an amendment to set up an
allowance reserve for renewable energy projects. The
Markey/Moorhead Amendment proposed in the House (and passed into
law) appears to have the same general intent, although because* it
includes conservation as well as renewables, is broader;
Although the amendment initiated on the House-side prevailed in
the final legislation, specific rationale for the renewable
portion of the Conservation and Renewable Energy Reserve was
provided by Senator Fowler during the Clean Air Act debate. This
rationale provides a useful context for the issues to be
discussed by the Subcommittee during the March ARAC meeting:
...As we deliberate on how to get the cleanest air in the
most cost-effective manner, we must not overlook the
potential of conservation and renewable energy technologies
that are inherently clean. We will not ever have to debate
how to clean up their air pollution, or how we can pay to do
that, because renewables simply do not have the adverse
impacts of current energy sources... We can clean up what
we've got, but we also need to look to the future, to the
alternatives that emerging technologies will provide.
Renewable energy sources such as solar, wind, and
geothermal are emissions free. This amendment will bring
these and other renewable sources on line to lay a
foundation for better air quality...
This very small reserve of allowances will help build
more renewable sources into our energy infrastructure.
And...the creation of renewables allowances — that can be
earned as early as [1991]2 — will get the process of
cleaning up our air started sooner.
Development of renewables is important to meet our
1 The Fowler/HatfieId Amendment proposed an 80,000 allowance
reserve for renewable energy generation.
2 The Markey/Moorhead Amendment that ultimately passed into
egislation has a start year of 1992, not 1991.
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energy needs. At the sane tine, these technologies, along
with increased energy efficiency, can greatly reduce
emissions of acid rain precursors and global warming
gases...
Z hope that as we work on this clean air bill, and
craft solutions to existing emissions problems, we will also
have the foresight to recognize the potential of renewables
for the energy and environmental needs of the future. I
urge ny colleagues to adopt this amendment, and give
renewables the place they deserve in the fight for clean
air.
X. QUALIFIED RENEWABLE ENERGY GENERATION
Legislative Language; Sec 404(f)(l)
"(B) Qualified Renewable Energy. — The term
'qualified renewable energy1 means energy derived from
biomass, solar, geothermal, or wind as identified by the
Administrator in consultation with the Secretary of Energy."
Potential Guidelines; The definition provided in the
statute provides general guidance concerning the technologies
permissible for allowances from the Reserve, however further
elaboration in at least two areas is necessary:
(1) treatment of renewable/fossil hybrid generation; and
(2) appropriate categories of biomass.
(I) Renewable/Fossil Hybrids: Some renewable energy
technologies function well in concert with conventional fossil
fuel. The most notable example is the Luz solar thermal design,
in which natural gas is used to maintain steam temperatures and
pressures in cases of intermittent cloud cover or early
morning/late afternoon reductions in solar insolation during sone
months of the year. There has recently been discussion of
deployment of other hybrid technologies. These include
biomass/coal cofiring and wind/combustion turbine combinations.
The statute does not provide specific guidance on how the
generation from these technologies should be treated in terns of
calculating allowances.
Option 1 - Allowances based on Renewable Resource Input;
One option would be to allocate allowances based strictly on
renewable resource heat (Btu) input. This would mean that if Luz
used the sun for 75% of its generation in a calendar year, it
would receive allowances based on 75% of its total generation.
This option might also permit a coal plant using 20% biomass in
3 Senator Wyche Fowler, Congressional Record - Senate,
S 3777, April 3, 1990.
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its boiler to receive allowances for 20% of the generation from
that plant.
Option 1 Benefits and Drawbacks:
o reflects real reliance on renewable resources and
associated emissions reductions;
o provides incentive to maximise use of renewable
resource vis a vis fossil resource;
o requires EPA to collect more information on annual
operations.
Option 2 * Allowances based on Current PURPA Definitions:
Another option would be to use the rules embodied in the Public
Utility Regulatory Policies Act of 1978 (PURPA) as guidelines for
the Conservation and Renewable Energy Reserve. PURPA deals
specifically with renewable electricity generated from "small
power producers'*, and while the size of the facility is not
pertinent to provisions in the Acid Rain Title, it is possible
that the definitions governing fuel use may be.
The language in the JDRPA lav states:
"(A) 'small power production facility1 means a facility
which —
(i) produces electric energy solely by the use, as a
primary energy source, of biomass, waste, renewable
resources, or any combination thereof;...
"(B) 'primary energy source1 means the fuel or fuels
used for the generation of electric energy, except that such
term does not include, as determined under rules prescribed
by the Commission, in consultation with the Secretary of
Energy ~
"(i) the minimum amounts of fuel required for
ignition, startup, testing, flame stabilization,
and control uses, and s
*(ii) the minimum amounts of fuel required to
alleviate or prevent —
"(I) unanticipated equipment outages, and
"(II) emergencies, directly affecting the
public health, safety, or welfare, which
would result from electric power
outages;..."
* Public Law 95-617: Title II — Certain Federal Energy
I Regulatory Commission and Department of Energy Authorities, Sec.
201. Definitions.
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The Federal Energy Regulatory Commission (FERC) promulgated
regulations which further defined "primary energy source" with:
(b) Fuel Use. (l) (i) The primary energy source of the <
facility must be biomass, waste, renewable resources,
geothermal resources, or any combination thereof, and
75 percent or more of the total energy input must be ~
from these sources.
(ii) Any primary..energy-source which, on the
basis of its energy content, is 50 percent or more
biomass shall be considered biomass.
(2) Use of oil, natural gas, and coal by a
facility may not, in the aggregate, .exceed 25 percent
of the total energy input of the facility during any
calendar year period.
For purposes of allocating allowances from the Conservation
and Renewable Energy Reserve, application of these definitions
could imply that all electricity generated at a facility
conforming to the above-listed criteria would be counted toward
allowance awards.
Option 2 Benefits and Drawbacks:
o utilities/regulators/QFs/IPPs familiar with the rules;
o simplicity of information required by EPA (only total
plant generation);
o would exclude use of renewables if they represented
less than 75% of the heat input at a facility;
o ties Conservation and Renewable Energy Reserve rule to
PURPA — may not be appropriate
- apples and oranges: language promulgated in PURPA
is to define a "Qualifying Facility" — setting a
threshold is appropriate for establishing whether
a facility is or ia not renewable for the purposes
of being guaranteed a contract with a purchasing
utility at the utility's avoided cost.
Establishment of avoided cost and other contract
provisions are done outside of this definitional
threshold. In the case of the Conservation and
Renewable Energy Reserve, allowance awards are
being calculated (in essence, money will be
changing hands) based on the definition provided
5 18 CFR Part 292 ~ Regulations Under Sections 201 and 210
of the Public Utility Regulatory Policies Act of 1978 With Regard
to Small Power Production and Cogeneration, subpart B (292.204).
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in the rule.
- there has been recent discussion of raising the
allowable fossil fuel input ceiling to 35-50% —
would EPA then be subject to pressures to change
the rules governing this allowance reserve?
o no incentive for a facility to increase its use of
renewable resource input beyond the 25% fossil input
ceiling;
o emissions implications of hybrids not acknowledged.
Option 3s Use PURPA Definition as the Basis for
Applications, base Allowance Allocations on Renewable Btu Input;
Alternatively, facilities could be required to meet the above-
listed criteria in order to apply, but actual allowances could be
calculated solely on the basis of renewable resource Btu input
(subtracting out the Btu input from non-renewable sources).
Option 3 Benefits and Drawbacks:
o reflects real reliance on renewable resources and
associated emissions reductions (assuming overall
renewable use is at least 75% of the Btu input);
o provides incentive to maximize use of renewable
resource vis a vis fossil resource (assuming overall
renewable use is at least 75% of the Btu input);
o would exclude use of renewables if less than 75% of
heat input at a facility;
o requires EPA to collect more information on annual
operations;
o ties Conservation and Renewable Energy Reserve rule to
PURPA — may not be appropriate
as stated above, the 25% ceiling on fossil input
may be raised — would EPA then be subject to
pressures to change the rules governing this
allowance reserve?
(2) Appropriate Biomass Categories: The generally accepted
viewpoint is that the definition of biomass includes:
o wood and wood waste;
o herbaceous crops and agricultural waste;
o municipal solid waste;
o landfill gas.
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Although there seems to be little disagreement, the Subcommittee
needs to discuss whether these categories are appropriate to
specify in the.rules.
IX. APPLICATION AND AWARDS FOR RENEWABLE ENERGY GENERATION
Introduction; During the February ARAC the Subcommittee
discussed application and awards procedures for the Reserve.
Most of the discussion was centered on treatment of conservation
measures. It was acknowledged during that discussion that the
procedures recommended by the Subcommittee might de facto
preclude any allowances from being awarded to renewable energy
generation, due to longer lead times required for new renewable
energy capacity. Based on the legislative intent of the Reserve,
it might be useful to have another discussion on the options for
ensuring that both conservation and renewables participate in the
Reserve.
Legislative Language; (Sec 404 (f)(2)
"(D) Determination of Avoided Emissions —
(i) Application — In order to receive allowances under this
subsection, an electric utility shall make an application
which —
"(I) designates the qualified energy conservation
measures implemented and the qualified renewable energy
sources used for purposes of avoiding emissions,
"(II) calculated, in accordance with subparagraphs (F)
and (G), the number of tons of emissions avoided by reason
of the implementation of such measures or the use of such
renewable energy sources; and
"(III) demonstrates that the requirements of
subparagraph (B) have been met. .
Such application for allowances by a State-regulated
electric utility shall require approval by the State
regulatory authority with jurisdiction over such electric
utility. The authority shall review the application for
accuracy and compliance with this subsection and the rules
under this subsection. Electric utilities whose retail
rates are not subject to the jurisdiction of a State
regulatory authority shall apply directly to the
Administrator for such approval.
"(E) Avoided Emissions from Qualified Energy Conservation
Measures — For the purposes of this subsection, the emission
tonnage deemed avoided by reason of the implementation of
qualified energy conservation measures for any calendar year
shall be a tonnage equal to the product of multiplying—
"(i) the kilowatt hours that would otherwise have been
supplied by the utility during such year in the absence of
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such qualified energy conservation measures, by
"(ii) 0.004, and dividing by 2,000.
*{J) Avoided Emission from the Use of Qualified Renewable
Energy. — The emissions tonnage deemed avoided by reason of the
use of qualified renewable energy by an electric utility for any
calendar year shall be a tonnage equal to the product of
multiplying —
"(i) the actual kilowatt hours generated by, or
purchased from, qualified renewable energy, by
"(ii) 0.004, and dividing by 2,000.
The Renewable Energy "Set-Aside" Option; One option for
ensuring that the Reserve would not be depleted before new
renewable resources had an opportunity to take advantage of the
Reserve would be to set aside a portion of the 300,000 allowances
for renewable energy applications. The following table lists,
for illustrative purposes, allowances that could be set aside to
allow for different amounts of renewable energy capacity
(assuming an average 70% capacity factor):
CAPACITY ALLOWANCES/YEAR ALLOWANCES OVER 5 YRS
200 MW 2453 12,264
500 MW 6132 30,660
750 MW 9198 45,990
1000 MW 12,264 61,320
000 MW 24,528 122,640
If the Subcommittee recommends that some portion of
allowances be set aside for renewable applications, a number of
other procedures need to be discussed. Some procedural issues
arise with the establishment of a set-aside:
o the size of the set-aside (in terms of allowances)
o the relationship of the set-aside to the "general pot"
of allowances:
establishment of a "window" for applications,
after which, in the case of undersubscription,
allowances go back into .the general pot
- what to do in the case of oversubscription to the
renewables set-aside (do renewables then apply for
allowances from the general pot according to the
rules set up for the general pot?)
Other procedural issues are the same as those discussed in
February, although applied specifically to renewables:
o up front reservations or not?
o allowances annually or for all the years remaining in
the Reserve?
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8
Issues for Discussion;
o the need for the set-aside;
o the legality of establishing a renewables set-aside;
o the defensibility/desirability of establishing different
rules for the conservation and renewable energy portions of
the Reserve.
CHARGE OF THE SUBCOMMITTEE
The Subcommittee on Conservation and Renewable Energy is
responsible for discussing and making recommendations on the
following issues:
o guidelines on qualified renewable energy generation,
including treatment of renewable/.fossil hybrids and
categories of biomass;
o whether or not a "set-aside" for renewable technologies
is appropriate, and if so, the*procedures governing the
"set-aside".
These recommendations will be presented to the full ARAC on
March 21 (or 22).
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C13 REVISED
REDUCED UTILIZATION AND ENERGY CONSERVATION
ISSUE PAPER
ACID RAIN ADVISORY COMMITTEE
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
March 20-22, 1991
BACKGROUND
Utilities subject to emissions limitations in Phase I of the
implementation of the Acid Rain Title may come into compliance a
number of ways:
(1) installation of controls on Phase I units;
(2) switching Phase I units to lower sulfur coal or other
fuels with lower sulfur emissions;
(3) purchasing allowances to cover emissions at Phase I
units;
(4) reducing utilization at Phase I units baseline levels.
If a utility selects option (4) it can either designate one
or more "compensating units" whose generation will be increased
to compensate for the reduced utilization at the Phase I affected
unit, or implement conservation and efficiency improvements at
at unit or somewhere else in the system. The explanation of
bw a utility expects to achieve this reduced utilization is
required "up front" (by February 1993) as part of the Phase I
permit and compliance plan. The compliance plan covers the five-
year period from 1995-2000, and can be amended any time during
the 5-year Phase I period.
If a utility designates a Phase II affected unit as the
"compensating unit", the Phase II unit becomes an affected Phase
I unit and will be allocated allowances pursuant to a statutory
formula based on its actual or allowable 1985 emissions rate
(whichever is lower). The primary legislative objective in
crafting this provision is to ensure that Phase I emissions
targets are not violated through increasing output (and
emissions£ at units not regulated during Phase I. The provision,
however, also offers an opportunity for utilities to accumulate
excess allowances by bringing a low-sulfur emitting Phase II unit
into the system in place of a higher sulfur emitter. These
allowances can be "banked" for later use.
The ARAC Permits Subcommittee has been considering the
reduced utilization provision in detail, focusing a great deal of
attention on unplanned outages. (One proposal is that if a
utility fails to identify either a compensating unit or units, or
onservation measures that explain why reduced utilization
1 curs, the utility could opt to forfeit excess allowances that
*•**•
m
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it accrues, rather than designate a compensating unit.)
For more information and background on reduced utilization
see issue paper P7, minutes from conference calls and meetings
(P21 and P15) distributed in the January ABAC packet, and
document P23 in the March ABAC mailing. Additional documents
will be available at the meeting*
CONSERVATION ISSUES
The Conservation and Renewable Energy Subcommittee needs to
make recommendations to the Permits Subcommittee on Qualified
Conservation Measures and Verification Procedures for the
purposes of the reduced utilization provision. A joint meeting
of the two Subcommittees is scheduled for the morning of the
March 20 ARAC meeting to allow for a full discussion of these
issues.
Qualified Conservation Measures:
The list of measures to qualify for reduced utilization-
conservation is likely to be the same as for the Conservation and
Renewable Energy Reserve, plus additional measures, depending on
whether or not supply-side efficiency improvements are ultimately
included on the C/RE list.
Verification Procedures;
~^^^^^^^^
For the purposes of the Conservation and Renewable Energy
Reserve, the Subcommittee recommended deferring to state
commissions for verification. This is consistent with the
regulatory oversight that will take place as part of the least
cost planning process and net income neutrality provisions
required for applications. However, in the case of reduced
utilization, there is no statutory requirement that either least
cost planning or income neutrality be in place for utilities that
choose to comply with the Acid Rain Title through conservation
and improved energy efficiency. This implies that there might
not be the same assurances of state-level scrutiny over reduced
utilization conservation programs as the C/RE Subcommittee was
assuming there would be for the allowance reserve program.
Another important distinction with conservation associated
with reduced utilization is that the calculation of allowances
will be tied directly to emissions avoided at Phase I plants,
which by definition emit >2.5 Ibs/mmBtu (this is in contrast to
the emission rate of .4 Ibs/mmBtu which will be used to calculate
allowances for the Conservation and Renewable Energy Reserve,
regardless of actual avoided emissions). The implication is that
the emissions reductions stakes may be fairly high. In other
words, a utility will have to prove that enough energy was saved
by particular conservation programs to justify the reduced heat
-------
input (* heat rate - generation) at a particular affected unit
low the established 1985 baseline.
The Subcommittee needs to outline procedures to be used by
EPA for verifying that amount of reduced utilization that can be
tied to conservation measures. In states where LCP and NIN are
in place, EPA may be able to defer to state commissions; in
states where this is not the case, rigorous yet straightforward
guidelines and review procedures need to be outlined. Options
may include:
o having EPA staff (at the Regional level) use existing
published (and consistent) national average engineering
data on appliances and other conservation measure
efficiencies to calculate energy savings;
o having EPA staff (at the Regional level) use region-
specific engineering and statistical data on appliances
and other conservation measure efficiencies. This,data
could be developed specifically for the purposes of
this program by an independent laboratory or
contractor;
o having independent experts/contractors provide reduced
utilization verification on a case-by-case basis;
o others?
CHARGE OP THE SUBCOMMITTEE
The Subcommittee on Conservation and Renewable Energy is
responsible for discussing and making recommendations on the
following issues:
o items to include on the list of qualified conservation
measures, for the purposes of reduced utilization;
o guidelines on how to verify energy saved through
qualified conservation measures, for the purposes of
reduced utilization.
These recommendations will be presented to the full ARAC on
March 22.
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f
•*.
-------
United States
Environmental Protection Air and Radiation EPA/400/1-91/008.B
Agency (ANR-445) April 1991
9 EPA Acid Rain Advisory
i x/ Committee Meeting:
* March 20-22,1991
Energy Conservation
and Renewables
Issue Papers
-------
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INDEX
Energy Conservation and Renevables Subcommittee
March 20 - 22, 1991
Document
Number Title . Page
C-8 Allowance Application and Award Procedures 1
- Issue Paper ( reprint from February
Subcommittee Packet)
C-10 Guidance on Conservation Measures Issue 11
Paper (reprint from February Subcommittee
Packet)
C-ll Minutes from February 20-21, 1991 16
Subcommittee Meeting
C-12 Renewable Energy Technologies Issue paper 19
C-13 Reduced Utilization and Energy Conservation 27
Issue Paper
-
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C8
ALLOWANCE APPLICATION AND AWARD PROCEDURES
ISSUE PAPER
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
ACID RAIN ADVISORY COMMITTEE
< February 20-22, 1991
BACKGROUND
*
The authors of the Conservation and Renewable Energy Reserve
provision, Representative Edward Markey of Massachusetts and
Representative Carlos Moorhead of California, clearly articulated
the purpose of this particular amendment:
"[T]he Clean Air Act Amendments will help encourage
electric utility companies to pursue cost-effective energy
conservation and renewable energy measures by instituting a
cap on sulfur dioxide emissions. But the cap will not take
effect before the year 1996 or 2001. We believe that more
can and must be done in the next decade to encourage the
aggressive pursuit of conservation and renewables...
"We believe [this amendment] will create a strong and
effective incentive for utilities to immediately pursue
energy conservation and renewable energy sources as key
components of their acid rain control strategies, we
believe that this provision of the bill will establish a
balanced and workable approach that will provide certainty
for utility companies that are considering conservation and
renewables, while at the same time strengthening the
environmental goals of this legislation."1
The language was structured to encourage utilities and their
commissions to move forward with least cost planning and
regulatory reform. Such actions will not only facilitate Clean
Air Act compliance, but are key ingredients in economically-sound
and environmentally-healthy utility long run planning.
The author* left EPA with the task of designing procedures
for allocating allowances from the Conservation and Renewable
Energy TtMenre ("Reserve1*). These procedures must be consistent
with the-, legislative goals of:
o encouraging early and aggressive action by utilities;
o providing certainty for utilities in allowance
availability and distribution; and
o overall support for cleaner air throughout the U.S.
1 House Report 101-490, Part 1, at 674-675 (1990).
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The major issues which need to be resolved are establishment
of first-come-first-served rules, specific provisions governing •
application and award of the allowances, and procedures for
verifying conservation program effectiveness and renewable energy
generation (verification will be covered in issue paper C9) .
I. FIRST-COME-FIRST-SERVED
Legislative Languages (Sec 404 (f)(2)(A)): "In general —
the regulations under paragraph (4) of this subsection shall
provide that for each ton of sulfur dioxide emissions avoided by
an electric utility, during the applicable period, through the
use of qualified energy conservation measures or qualified
renewable energy, the Administrator shall allocate a single
allowance to such electric utility, OB a first-eoma-firat-serve*
basis from the Conservation and Renewable Energy Reserve
established under subsection (g) , up to a total of 300,000
allowances for allocation from such Reserve.
Establishment of "First Oav"; The law requires that the
rule be promulgated within eighteen months of passage of the
Clean Air Act Amendments of 1990. Whether or not "up front"
allowance applications are permitted, the "first day" could be
established to include any application postmarked between the
rule promulgation date and midnight on the day of an established
deadline2 (the merits/drawbacks of "up front" reservations will
be discussed below) . Thus, at the earliest, applications could
be submitted in May 1992. Nineteen-ninety-two is also the first A
year during which conservation programs and renewable energy
generation will be eligible for allowances from the Reserve. Two
illustrative examples might help clarify establishment of "first
day" .
is if applications will be accepted for
conservation and renewable energy programs to be undertaken
in the future, any application postmarked before June 30,
1992 would be considered to have arrived on the "first day".
Thereafter, applications would be sorted and reviewed based
on each successive daily postmark, until the allowances in
th* reaerve- are gone.
* Alternatively, a "strict construction" of the first-come-
first-serre* language could be employed, in which applications
would be stamped with the precise EPA arrival date and time,
beginning immediately after the rule is promulgated, strict
construction, by definition, would eliminate the possibility of
oversubscription* However, based on earlier input from
Subcommittee members regarding the difficulty of implementing
such an option, the emphasis in this discussion is not on strict
construction.
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jftfp^pia 2; Zf applications are to be made only after
swable energy programs are in nlac
^__ and
sines the first year that allowances may be awarded for such
programs is 1992, the submission of applications would occur
sometime after calendar-year end. The deadline for "first
day" submissions might then be set at January 31, 1993.
Thereafter, applications would be sorted and reviewed based
on each successive daily postmark, until the allowances in
the reserve are gone.
Oversubscription Potions; If applications for more than
300,000 allowances are submitted be'fore the deadline of the
"first day" (and are subsequently determined by EPA to be
complete and within the guidelines established in the rule), then
EPA must distribute these allowances based on a mechanism
explicitly established in the rule. A number of options exist:
, o a pro rata distribution based on that utility's share
of approved allowances;
o • a lottery system in which approved applications are
"drawn from a hat" until the 300,000 allowance ceiling
is reached;
o a ••need-based" evaluation of environmental/economic
benefits of applications;
The rule established for handling "first day"
oversubscription will also apply to any day in which the 300,000
ceiling on the reserve is reached. In other words, if
applications submitted on -a particular day six months into the
program result in approved allowances exceeding 300,000, the
applications submitted on that day (the day which pushed the
reserve "over the top") will be subject to the established
oversubscription rule.
Early input froa ARAC members indicates that the pro rata
solution to oversubscription seems to be the most desirable. This
is based both on ea*e of administration and fairness to Reserve
applicants.
' V*1
other rules in Title IV will need to specify first-
come-first-served provisions:
o Phase Z Extensions
o IPP guarantees
It may be desirable to have all of the first-come-first-
served provisions be consistent, however there may be compelling
reasons for different responses to oversubscription. The
Subcommittees need to keep this in mind during February
-------
discussions.
ZZ. APPLICATION AMD AWARDS
Legislative Languagei (Sec 404 (f)(2):
"(D) Determination of Avoided Emissions —
(i) Application — In order to receive allowances under this
subsection, an electric utility shall make an application
which —
"(I) designates the .qualified energy conservation
measures implemented and the qualified renewable energy
sources used for purposes of avoiding emissions,
"(II) calculated, in accordance with subparagraphs (F)
and (G), the number of tons of emissions avoided by reason
of the implementation of such measures or the use of such
renewable energy sources; and
"(III) demonstrates that the requirements of
subparagraph (B) have been met.
Such application for allowances by. a State-regulated
electric utility shall require approval by the state
regulatory authority with jurisdiction over such electric
utility. The authority shall review the application for
accuracy and compliance with this subsection and the rules
under this subsection. Electric utilities whose retail
rates are not subject to the jurisdiction of a State
regulatory authority shall apply directly to the
Administrator for such approval.
"(S) Avoided Emissions from Qualified Energy Conservation
Measures — For the purposes of this subsection, the emission
tonnage deemed avoided by reason of the implementation of
qualified energy conservation measures for any calendar year
shall be a tonnage equal to the product of multiplying—
"(i) the kilowatt hours that would otherwise have been
supplied by the utility during such year in the absence of
such qualified energy conservation measures, by
"(ii) 0.004, and dividing by 2,000.
Avoided Emission from the Use of Qualified Renewable
Energy* .51— Tne emissions tonnage deemed avoided by reason of the
use of qualified renewable energy by an electric utility for any
calendar year shall be a tonnage equal to the product of
multiplying —
"(i) the actual kilowatt hours generated by, or
purchased from, qualified renewable energy, by
"(ii) 0.004, and dividing by 2,000.
Approaches to Allowance Reservations. Applications and Awards:
-------
There are a variety of ways to actually distribute the
allowance allocations and still fall within the guidelines
specified in the statute. Five potential approaches are outlined
below. Generally, they vary based on whether utilities will be
permitted to make reservations before a conservation program is
implemented, and whether actual awards can be made "up front".
The examples are given because they highlight the ramifications
of implementing the different allocation methods. It is
important for the Subcommittee to consider these ramifications
when making final recommendations to the full ABAC.
Criterias When evaluating these alternative methods it is
important to keep in mind the legislative objectives articulated
by the statute authors. For this reason, it may be useful for
the Subcommittee to evaluate each application option or "method"
on the basis of a number of criteria:
(1) How effective will this method of allowance distribution be
at encouraging early and aggressive action by utilities?
(2) How effective will this method be in aiding utility planning
by providing "certainty" for utilities in terms of allowance
availability?
(3) How effectively will this method provide general support for
the environmental goals put forth in the Clean Air Act
Amendments of 1990?
(4) Will this method be institutionally and bureaucratically
manageable?
(5) How effective will this method be at providing states and
individual utilities with sufficient flexibility in program
design and implementation?
(6) How effective will this method be at encouraging
participation in conservation and renewable energy by "new
players"? .
(7) How likely is this method to invite "frivolous application"
or other utility gaming?
(8) HoifSIagally sound is this method?
Methodst Listed below are five options for structuring
application and award procedures. These are intended to be
illustrative examples, and do not encompass all possible methods
for distributing allowances from the Reserve. They do, however,
expose the complexities inherent in virtually any method that is
adopted.
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(A) Up front reservation, annual awards: This method implies
that reservations for allowances from the Reserve could be *
mad* in advance of conservation program implementation or in
advance of deployment of renewable energy technologies. In
order to have a reservation application "approved1*, the
utility must meet least cost planning and net income
neutrality requirements, as veil as have state regulatory '
approval as specified in Sec 404(f)(2)(D)(i) (see p.4 of
this paper). Allowances would be awarded annually after EPA
receives verification from the State authority regarding the
energy saved from the conservation program or generated from
the renewable energy resource (EPA must do this verification
if no state authority exists). If the utility is unable to
demonstrate the amount of energy savings/renewable electric
generation for which it had made reservations, the
allowances reserved for that calendar year go back into the
Reserve and become available to new applicants. If the
utility demonstrates less energy savings/renewable electric
generation than had been reserved, the utility is awarded
the appropriate percentage of allowances, the remainder
become available to other applicants.- ' .
Outstanding issues:
i) If a utility is unable to demonstrate energy
savings/renewable generation for a particular calendar
year, does it lose its reservation or "place in line"
for all consecutive years? What about in the case of
only partial program "success"?
ii) How far In advance can a reservation be made (e.g. can
a utility apply in 1992 for a renewable plant that will
cone on-line in 1996)?
»
(B) Application upon program implementation, up front awards:
This method would require a utility to apply for allowances
after conservation measures or renewable generation
facilities are in place. At that time the utility would
show compliance with least cost planning and net income
neutrality requirements, as well as state regulatory
approval for conservation/renewable energy investments. The
alleMnces would be awarded for energy saved/generated
during that calendar year, as well as for all calendar years
remaining in the program (subject to allowance
availability). In essence, the initial program
"verification" would take place at the same time as program
application.
Outstanding issues:
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i) Z* it legal and/or good public policy for allowances to
b* distributed for energy to be saved or generated in
the future? What if the renewable plant goes out-of-
•ervice for an extended period or there is a recall on
super-efficient refrigerators?
ii) Would additional program verification in the "out
years11 be required?
(C) Application upon program implementation, annual awards:
This method combines aspects of the two described above. A
utility could not apply for allowances from the Reserve
until measures were installed or a renewable plant was on-
line. However, actual awards would be made annually, at
' calendar-year end, once a utility commission verifies that
energy was saved/generated. In this case, the utility would
not be guaranteed to get allowances beyond the first year —
this would depend upon availability of allowances in the
Reserve.
Outstanding issues:.
i) Will the uncertainty associated with potentially only .
receiving allowances for one year discourage
participation?
(D) Application upon program implementation, reservation of
allowances for duration of the program, annual awards: This
method is the same as (C), except that upon initial
application a utility would be reserving allowances to be
distributed each year, subject to utility commission
verification.
Outstanding issues:
•
i) Will the requirement to have measures installed
eliminate participation by "late starters"?
(1) Application upon program implementation, up front awards,
limitation oa number of allowances that can be distributed
la may given year: This method is basically the same as the
ime^rtMi I ilnil in (B) above, with the added feature of
pla«$i)9 an upper limit on the number of allowances that
could b« distributed in any given year. One example of how
this could work would be to limit the number of allowances
awarded in any given year to 100,000. The effect would be
to have the Reserve last at least three years, thus giving
"later starting" utilities the opportunity to take advantage
of the allowances (if less than 100,000 is applied for the
extra allowances remain in the Reserve).
Outstanding issues: -
-------
8
i) Zf approved applications exceed the 100,000 allowance
ceiling (and assuming allowances are being awarded "up
front1* or based on lifecycle savings/renewable
generation), how will the allowances be distributed
aaong the candidates?
ii) Under the same case described above in (i), can the
utility reapply the following year for the remainder of
allowances attributable to that program that would have
been awarded had the ceiling not been reached? or can
only additional programs/measures apply?
iii) Are there likely to be legal challenges to EPA's
limiting the number of allowances to be distributed
annually?
Figure 1 (attached) provides a framework (in the form of a
blank matrix) for evaluating each of the methods described in
terms of the criteria listed above. For discussion purposes it
might be helpful if Subcommittee members would try to fill in the
matrix by assigning values (1*5, 1 being low, 5 being the best)
to each criteria for each method (a blank column and blank row
were left for your additions). For example, how effective is
method (A) at encouraging early and aggressive action by
utilities? This evaluation might assist in structuring what
will undoubtedly be a very lively discussion.
ZZZ. ADDITIONAL ISSUES FOR DISCUSSION
o Hov is this application and verification to be
integrated into required compliance plans?
o What will facilitate the coordination between utility
commissions and EPA?
o What are the critical timing issues, in terms of:
program initiation?
- application processing?
• verification?
ZV* CBJUBSS OF TBS SUBCOMMITTEE
The/teMervation and Renewable Energy Subcommittee is
responsible for making a number of recommendations to the full
ARAC on February 21:
(1) appropriate guidelines governing Mfirst-come-first-serve4M;
(2) a method for allocating allowances from the Conservation and
Renewable Energy Reserve;
(3) guidelines on timing — for application review, coordination
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with states, etc.
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CRITERIA FOR EVALUATING ALLOWANCE APPROACHES
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CIO
GUIDANCE OH CONSERVATION MEASURES
ISSUE PAPER
•
SUBCOMMITTEE OH CONSERVATION AND RENEWABLE ENERGY
ACIP RAIN ADVISORY COMMITTEE
February 20-22, 1991
Background; Representatives Markey and Moorhead comment, "We
have chosen not to delineate which energy conservation
technologies shall be eligible to earn allowances under this
provision. However, it is our expectation that EPA and the
states will take a thorough and comprehensive view of all
potentially appropriate technologies...1*1
As part of the rule governing the Conservation and Renewable
Energy Reserve ("Reserve"), the statute requires EPA to list
"qualified energy conservation measures". The objective,
consistent with the objectives articulated in drafting all of the
provisions of this rule, will be to provide guidance, set
appropriate standards, and allow maximum' state flexibilty. In
the case of conservation measures, it is not in any party's
interest to have EPA be prescriptive. With demand side programs
still in the relatively early stage of development, much
opportunity for innovation remains for program design and
implementation. It is probably appropriate for EPA to foster
this innovation, and thus makes sense to allow for this in the
specifications of "qualified conservation measures".
Legislative Language;
(Sec 404 (f)(1)):
"(A) Qualified Energy Conservation Measure. — The term
'qualified energy conservation measure1 means a cost effective
measure, as- identified by the Administrator in consultation with
the Secretary of Energy, that increases the efficiency of the use
of electricity provided by an electric utility to its customers."
(Sec 404 (f)(2)):
"(B) Requirements for Issuance. — The Administrator shall
allocate allowances to an electric utility under this subsection
only if all of the following requirements are met:
r- (1) Such electric utility is paying for the qualified
energy conservation measures or qualified renewable energy
directly or through purchase from another person."
•(6) Prohibitions. — (i) No allowances shall be
allocated under this subsection for the implementation of
House Report 101-490, Part 1, at 675.
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programs that are exclusively informational or educational in
nature.
(ii) Ho allowances shall be allocated for energy
conservation measures or for renewable energy that were
operational before January 1, 1992."
(Sec 404 (f)(4)):
"Regulations. — No later than 18 months after the date of
the enactment of the Clean Air Act Amendments of 1990 and in
conjunction with the regulations requires to be promulgated under
subsections (b) and (c), the Administrator shall, in consultation
with the Secretary of Energy, promulgate regulations under this
subsection, such regulations shall list energy conservation
measures and renewable energy sources which may be treated as
qualified energy conservation measures and qualified renewable
energy for purposes of this subsection..."
Potential Guidelines gor Discussion, i The following proposed
guidelines on "qualified energy conservation measures'* were
provided by John Fox and his staff at PG&E. These guidelines
will be helpful in structuring Subcommittee discussion..
A "qualified energy conservation measure1* is a material
or device installed in the home or facility of a customer to
whom a utility provides electricity:
that reduces electricity consumption compared to
what it otherwise would have been,
that is cost effective (see below)
*
- that does not increase the use by the customer of
any fuel other than electricity,
>
that has an expected useful life of at least three
years,
whose installation cost is paid in whole or in
part directly by the utility,
:~. - that appears on the list which follows, or which
> is approved (using these criteria) by a state PUC
=k__ (for regulated utilities) or the EPA (for non-
X" regulated utilities) as part of a utility's
application, and
that is installed after January 1, 1992
— "Cost-effective** means, with respect to a qualified
energy conservation measure, that the value of the
electricity saved over the life of the measure exceeds the
total cost of installing and maintaining the measure over
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its useful life. These estimates would be based on a "Total
Resource Cost" or societal perspective (that is, including
the utility's and the participant's costs), and would use
discount rates and other costing procedures which the
utility uses in its least cost planning.
— Applications for allowances would be based on the
installation of measures which are subsidized by the
utility, not on the effects of programs on customer
purchases or behavior.
~ Not include efficiency improvements on utility-side of
the meter; not include fuel switching; not include load
management (because there are not necessarily any fcwh
•savings)
Issues for Further Discussion;
o How should "operational before January 1, 1992" be
understood? 'Should expansion of existing DSM programs
constitute a "qualified conservation measure?" It so, how
large an expansion should be required?
o There was some discussion at the first ARAC meeting over
whether suppy-side efficiency improvements could be included
as "qualified conservation measures". Upon closer
examination of the language in the statute, some
Subcommittee members point out that these measures may be
precluded:
"...'qualified energy conservation measure* means a
cost effective measure... that increases the efficiency
' of the use of electricity provided by an electric
t utility to its customers."
Given the relatively small size of the Reserve, the vast
potential for demand side programs, and the. incentives
already in place for supply-aide efficiency improvements, it
may be) appropriate to limit allowance awards to demand side
Charge of the Subcommittees
The Conservation and Renewable Energy Subcommittee is
responsible for providing guidance on 'qualified conservation
measures'. This guidance will be presented to the full ABAC on
February 21 (if time permits) for discussion, comment, and
concurrence.
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Attachment 1
List of Qualified Energy conservation Measures
There are a number of conservation measures — practicable
in every sector of energy consumption — that could qualify for
energy conservation allowances. The program design and
implementation of these measures will vary by utility and by
region. Measures that will qualify for allowances from the
Conservation and Renewable Energy Reserve (assuming all other
rules and guidelines are met) include, but are not limited to,
the following:
RESIDENTIAL
Space Conditioning
o Furnace upgrades/replacements
o Air conditioners (central or room) upgrades/replacements
o Heat pumps (ground source or conventional)
upgrades/replacements
Water Heating
o Upgrades/replacements
o R-ll wraps/blankets
o Low-flow showerheads
o Solar heating and/or pre-heat units
Other Appliances
o Refrigerator replacements
o Freezer replacements
o Oven/range replacements
o Dishwasher replacements
o Clothes washer replacements
o Clothes dryer replacements
Lighting
o Lamp replacement
O OijBBSXS)
o Motion detectors
tf
i*.'r- —
Building tevelop*
o Attic insulation
o Window replacement
o Storm windows/doors
o Caulking/weatherstripping
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COMMERCIAL
Heating/Ventilation/Air Conditioning (HVAC)
o Heat pump replacement
o Fan motor efficiency
o Resizing of chillers
o Variable speed drive on fan motor
o Thermal storage
Lighting
o Electronic ballast replacements
o Delaaping
o Reflectors
o Occupancy sensors
o paylighting controls
Other end-uses
o Refrigerator replacement
o Freezer replacement
o Electric water heater replacement
INDUSTRIAL
Motors
o Retire old,inefficient motors
o Rebuild motors to operate more efficiently
o Replace motors with variable speed drive units
Lighting
o Electronic ballast replacement
o Metal halide lamp retrofits
o High pressure sodium retrofits
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The Subcommittee recognized one wrinkle in this approach relating
to renewable energy resources. Due to the typically longer lead
times for such projects, there was some discussion as to whether
renewables should have a dedicated portion set aside in the
reserve. The legislative intent appears to support conservation
ajjd renewable energy development, but under a strict "first-come-
first-served" design, the entire reserve could well be exhausted by
the time most renewable facilities came on line. Consequently, the
Subcommittee shall discuss at the next meeting the potential merits
and drawbacks of earmarking a (small) fraction of the allowances
for renewabla energy- ... - -
2. Verification Procedures
As specified under the statute, state PUCs will verify conservation
savings by utilities under their jurisdiction and EPA will verify
conservation savings for all qualifying non-PUC regulated
utilities. In terms of program verification, the primary concern
was that allowances reward demonstrated energy reductions, and that
"phantom negawatts" not be credited.
General agreed-upon guidelines to be used by states/EPA shall
include:
regular reporting by the utility to its state regulatory
authority or to EPA (as appropriate) on the number of
conservation measures in place and the estimates of resulting
energy savings.
adoption of a verification process to assess the accuracy of
all in formation, contained in such reports.
consistency with the guidelines for qualifying energy
conservation, measures
evaluation of the utility's stated savings against free
ridership and exogenous factors
It was recommended that specific methodologies not be prescribed,
thus allowing for diversity of defensible techniques currently
used, and future refinement of evaluation methodologies. Further,
too prescriptive a verification formula would further lengthen PUC
approval times which are estimated to be at least six months.
Given that the allocation system would be strictly "first-come-
first-served,1* such delay would potentially jeopardize later
applicants' bids for allowances.
3. Qualifying Conservation Measures
EPA is required in the statute to assemble a "list1* of potentially
alifying conservation measures. As a preamble to this list, the
Subcommittee agreed to several broad guidelines, as follows:
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Cll
SUMMARY MINUTES FROM FEBRUARY 20-21 MEETING OF
THE SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
The Conservation and Renewable Energy Subcommittee discussed three
major issues during its February 20-21 meetings: l) Application and
Avards Procedures; 2) Verification Procedures; and 3) Qualified
Conservation Measures.
1. Application and Awards Procedures
The Subcommittee generally agreed that a primary aim of the
Conservation and Renewable Energy Reserve ("Reserve") is to
encourage "new players*1 to engage in conservation. The discussion
focused on how to achieve a proper balance between bringing in such
players without penalizing those that have been aggressively
pursuing DSM. . -
Proposed strategies included: up-front reservations, graduated
annual limits, annual applications, and awards based on installed
conservation measures (e.g., demonstrated savings). The question
of providing "certainty" to prospective players in the allocation
of Reserve offsets played largely into this discussion. Initially,
input to the Subcommittee suggested that utilities that have not
been as involved with DSM would prefer to have a system of
reserving allowances until they could actually roll out their
programs. Later discussion by the Subcommittee revealed that the
converse problem might exist: that by allowing states and utilities
already pursuing DSM to reserve allowances up-front for the eight
year duration of the Reserve, the entire reserve would be soaked up
In short order. Because of the institutional inertia of getting
"under the umbrella" (i.e., implementing LCUP and NIN) it might be
impossible for newer players to even submit reservations before the
Reserve was exhausted.
The Subcommittee looked at some rough calculations of currently
eligible DSM programs, along with projections of emerging programs
to gauge the rate at which Reserve would likely be depleted. The
shared conclusion of the Subcommittee following this analysis was
that oversubscription would not occur for the first three or four
years.
Given this information, the prevailing view was that a strict
"first-come-first-served" mechanism would afford later applicants
some assurance that credits will be available after the second year
of the program. Under such a system, the allowances would be
awarded on a "rolling basis" using daily postmarks to assign
priority to the PUC and EPA approvals. on the first day of
oversubscription, allowances would be distributed pro rata to the
programs postmarked for that day.
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A "qualifying conservation measure" shall be considered a material
or device that:
reduces electricity consumption or utility generation
is cost effective (consistent with the utility's least cost
plan)
does not increase the use of commercially available fuel,
other than renevables, waste heat, or byproducts from
industrial processes
is covered for its costs in full or part by the utility
is installed after 1/1/92
is not solely educational or informational
The Subcommittee further advocated that whatever "laundry list*1 of
measures SPA adopts be illustrative rather than comprehensive, and
be based on measures "currently in use." This approach allows for
the inclusion of future measures, as well as improvements in
existing ones. Finally, the list of measures is subject to
participating utilities having met the other requirements of the
rule (such as LCUP and NIN).
Although a tentative listing of these measures is attached to paper
0, the Subcommittee is waiting on input from various utility
commissions, utilities, and others to compile a more complete list
of measures currently in use.
The major unresolved issue facing the Subcommittee is whether
supply side improvements should be credited for conservation
allowances. While this opportunity (e.g., heat rate improvements
and power delivery efficiency gains) is certainly appropriate for
reduced utilization, it may or may not be consistent with the
legislative intent behind the Reserve. A conclusive legal opinion
on this question is pending.
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C12
RENEWABLE ENERGY TECHNOLOGIES
ISSUE PAPER
ACID RAIN ADVISORY COMMITTEE
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
March 20-22, 1991
BACKGROUND
During the spring of 1990 a proposal was put forth in the
Senate which laid the groundwork for what ultimately became the
Conservation and Renewable Energy Reserve in the Clean Air Act
Amendments of 1990. Senators Wyche Fowler (D - Georgia) and Mark
Hatfield (R - Oregon) proposed an amendment to set up an
allowance reserve for renewable energy projects. The
Markey/Moorhead Amendment proposed in the House (and passed into
law) appears to have the same general intent, although because* it
includes conservation as well as renewables, is broader.
Although the amendment initiated on the House-side prevailed in
the final legislation, specific rationale for the renewable
portion of the conservation and Renewable Energy Reserve was
provided by Senator Fowler during the Clean Air Act debate. This
rationale provides a useful context for the issues to be
discussed by the Subcommittee during the March ARAC meeting:
...As we deliberate on how to get the cleanest air in the
most cost-effective manner, we must not overlook the
potential of conservation and renewable energy technologies
that are inherently clean. We will not ever have to debate
how to clean up their air pollution, or how we can pay to do
that, because renewables simply do not have the adverse
impacts of current energy sources... We can clean up what
we've got, but we also need to look to the future, to the
alternatives that emerging technologies will provide.
Renewable energy sources such as solar, wind, and
geothermal are emissions free. This amendment will bring
these and other renewable sources on line to lay a
foundation for better air quality...
This very small reserve of allowances will help build
more renewable sources into our energy infrastructure.
And...the creation of renewables allowances — that can be
earned as early as [1991] — will get the process of
cleaning up our air started sooner.
Development of renewables is important to meet our
1 The Fowler/Hatfield Amendment proposed an 80,000 allowance
reserve for renewable energy generation.
2 The Markey/Moorhead Amendment that ultimately passed into
'legislation has a start year of 1992, not 1991.
-------
energy needs. At the same time, these technologies, along
with increased energy efficiency, can greatly reduce
emissions of acid rain precursors and global warming
gases...
I hope that as we work on this clean air bill, and
craft solutions to existing emissions problems, we will also
have the foresight to recognize the potential of renewables
for the energy and environmental needs of the future. I
urge ny colleagues to adopt this amendment, and give
renewables the place they deserve in the fight for clean
air.
I. QUALIFIED RENEWABLE ENERGY GENERATION
Legislative Language! Sec 404(f)(1)
"(B) Qualified Renewable Energy. — The term
'qualified renewable energy* means energy derived from
biomass, solar, geothermal, or wind as identified by the
Administrator in consultation with the Secretary of Energy."
Potential Guidelines: The definition provided in the
statute provides general guidance concerning the technologies
permissible for allowances from the Reserve, however further
elaboration in at least two areas is necessary:
(1) treatment of renewable/fossil hybrid generation; and
(2) appropriate categories of biomass.
(1) Renewable/Fossil Hybrids: Some renewable energy
technologies function well in concert with conventional fossil
fuel. The most notable example is the Luz solar thermal design,
in which natural gas is used to maintain steam temperatures and
pressures in cases of intermittent cloud cover or early
morning/late afternoon reductions in solar insolation during some
months of the year. There has recently been discussion of
deployment of other hybrid technologies. These include
biomass/coal cofiring and wind/combustion turbine combinations.
The statute does not provide specific guidance on how the
generation from these technologies should be treated in terms of
calculating allowances.
Option 1 - Allowancesbased on Renewable Resource Input;
One option would be to allocate allowances based strictly on
renewable resource heat (Btu) input. This would mean that if Luz
used the sun for 75% of its generation in a calendar year, it
would receive allowances based on 75% of its total generation.
This option might also permit a coal plant using 20% biomass in
3 Senator Wyche Fowler, Congressional Record - Senate,
S 3777, April 3, 1990.
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.its boiler to receive allowances for 20% of the generation from
that plant.
Option 1 Benefits and Drawbacks:
o reflects real reliance on renewable resources and
associated emissions-reductions;
o provides incentive to maximize use of renewable
resource vis a vis fossil resource;
o requires EPA to collect more information on annual
operations.
Option 2_•Allowances based on Current PORPA Definitions:
Another option would be to use the rules embodied in the Public
Utility Regulatory Policies Act of 1978 (PURPA) as guidelines for
the Conservation and Renewable Energy Reserve. PURPA deals .
specifically with renewable electricity generated from "small
power producers1*, and while the size of the facility is not
pertinent to provisions in the Acid Rain Title, it is possible
that the definitions governing fuel use may be.
The language in the PURPA lav states:
"(A) 'small power, production facility* means a facility
which —
(i) produces electric energy solely by the use, as a
primary energy source, of biomass, waste, renewable
resources, or any combination thereof;...
"(B) *primary energy source1 means the fuel or fuels
used for the generation of electric energy, except that such
term does not include, as determined under rules prescribed
by the Commission, in consultation with the Secretary of
Energy —
"(i) the minimum amounts of fuel required for
ignition, startup, testing, flame stabilization,
and control uses, and
"(ii) the minimum amounts of fuel required to
alleviate or prevent —
"(I) unanticipated equipment outages, and
"(II) emergencies, directly affecting the
public health, safety, or welfare, which
would result from electric power
outages;..."
4 Public Law 95-617: Title II — Certain Federal Energy
(Regulatory Commission and Department of Energy Authorities, Sec.
201. Definitions.
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The Federal Energy Regulatory Commission (FERC) promulgated
regulations which further defined "primary energy source11 with:
(b) Fuel Use. (l) (i) The primary energy source of the
facility nust be biomass, waste, renewable resources,
geothermal resources, or any combination thereof, and
75 percent or more of the total energy input must be
from these sources.
(ii) Any primary energy source which, on the
basis of its energy content, is 50 percent or more
biomass shall be considered biomass.
(2) Use of oil, natural gas, and coal by a
facility may not, in the aggregate, .exceed 25 percent
of the total energy input of the facility during any
calendar year period.
For purposes of allocating allowances from the Conservation
and. Renewable Energy Reserve, application of these definitions
could imply that all electricity generated at a facility
conforming to the above-listed criteria would be counted toward
allowance awards.
Option 2 Benefits and Drawbacks:
o utilities/regulators/QFs/ZPPs familiar with the rules;
o simplicity of information required by EPA (only total
plant generation);
o would exclude use of renewables if they represented
less than 75% of the heat input at a facility;
o ties Conservation and Renewable Energy Reserve rule to
PURPA — may not be appropriate
apples and oranges: language promulgated in PURPA
is to define a "Qualifying Facility" — setting a
threshold is appropriate for establishing whether
a facility is or ta not renewable for the purposes
of being guaranteed a contract with a purchasing
utility at the utility's avoided cost.
Establishment of avoided cost and other contract
provisions are done outside of this definitional
threshold. In the case of the Conservation and
Renewable Energy Reserve, allowance awards are
being calculated (in essence, money will be
changing hands) based on the definition provided
5 18 CFR Part 292 — Regulations Under Sections 201 and 210
of the Public Utility Regulatory Policies Act of 1978 With Regard
to Small Power Production and (regeneration, Subpart B (292.204).
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in the rule.
there has been recent discussion of raising the
allowable fossil fuel input ceiling to 35-50% —
would EPA then be subject to pressures to change
the rules governing this allowance reserve?
o no incentive for a facility to increase its use of
renewable resource input beyond the 25% fossil input
ceiling;
o emissions implications of hybrids not acknowledged.
Option 3t Use PURPA Definition asthe Basis for
Applicationsr baseAllowance Allocations on Renewable Btu Input:
Alternatively, facilities could be required to meet the above-
listed criteria in order to apply, but actual allowances could be
calculated solely on the basis of renewable resource Btu input
(subtracting out the Btu input frpia non-renewable sources). .
Option 3 Benefits and Drawbacks:
o reflects real reliance on renewable resources and
associated emissions reductions (assuming overall
renewable use is at least 75% of the Btu input);
o provides incentive to maximize use of renewable
resource vis a vis fossil resource (assuming overall
renewable use is at least 75% of the Btu input);
o would exclude use of renewables if less than 75% of
heat input at a facility;
o requires EPA to collect more information on annual
operations;
o ties Conservation and Renewable Energy Reserve rule to
PURPA — may not be appropriate
- as stated above, the 25% ceiling on fossil input
may be raised — would EPA then be subject to
pressures to change the rules governing this
allowance reserve?
(2) Appropriate Biomass categories: The generally accepted
viewpoint is that the definition of biomass includes:
o wood and wood waste;
o herbaceous crops and agricultural waste;
o municipal solid waste;
o landfill gas.
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Although there seems to be little disagreement, the Subcommittee
needs to discuss whether these categories are appropriate to
specify in the rules.
XI. APPLICATION AND AWARDS FOR RENEWABLE ENERGY GENERATION
Introductions During the February ARAC the Subcommittee
discussed application and awards procedures for the Reserve.
Most of the discussion was centered on treatment of conservation
measures, it was acknowledged during that discussion that the
procedures recommended by the Subcommittee might de facto
preclude any allowances from being awarded to renewable energy
generation, due to longer lead times required for new renewable
energy capacity. Based on the legislative intent of the Reserve,
it might be useful to have another discussion on the options for
ensuring that both conservation and renewables participate in the
Reserve.
Legislative Language; (Sec 404 (f )(2)
n(D) Determination of Avoided Emissions --
(i) Application — In order to receive allowances under this
subsection, an electric utility shall make an application
which —
"(I) designates the qualified energy conservation
measures implemented and the qualified renewable energy
sources used for purposes of avoiding emissions,
"(II) calculated, in accordance with subparagraphs (F)
and (G), the number of tons of emissions avoided by reason
of the implementation of such measures or the use of such
renewable energy sources; and
"(III) demonstrates that the requirements of
subparagraph (B) have been met.
Such application for allowances by a State-regulated
electric utility shall require approval by the State
regulatory authority with jurisdiction over such electric
utility. The authority shall review the application for
accuracy and compliance with this subsection and the rules
under this subsection. Electric utilities whose retail
rates are not subject to the jurisdiction of a State
regulatory authority shall apply directly to the
Administrator for such approval.
"(E) Avoided Emissions from Qualified Energy Conservation
Measures — For the purposes of this subsection, the emission
tonnage deemed avoided by reason of the implementation of
qualified energy conservation measures for any calendar year
shall be a tonnage equal to the product of multiplying—
*(i) the kilowatt hours that would otherwise have been
supplied by the utility during such year in the absence of
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such qualified energy conservation measures, by
"(ii) 0.004, and dividing by 2,000.
w(7! Avoided mission from the Use of Qualified Renewable
* Energy. — The emissions tonnage deemed avoided by reason of the
use of qualified renewable energy by an electric utility for any
/ calendar year shall be a tonnage equal to the product of
* multiplying —
M(i) the actual kilowatt hours generated by/ or
purchased from/ qualified renewable energy/ by
"(ii) 0.004, and dividing by 2/000.
The Renewable Energy "Set-Aside1* Option: One option for
ensuring that the Reserve would not be depleted before new
renewable resources had an opportunity to take advantage of the
Reserve would be to set aside a portion of the 300,000 allowances
for renewable energy applications. The following table lists,
for illustrative purposes, allowances that could be set aside to
• allow for different amounts of renewable energy capacity
(assuming an average 70% capacity factor):
ALLOWANCES/YEAR ALLOWANCES OVER 5 YRS
200 MW 2453 , 12,264
500 MW 6132 30,660
750 MW 9198 45,990
000 MW 12,264 61,320
000 MW 24,528 122,640
-If the Subcommittee recommends that some portion of
allowances be set aside for renewable applications, a number of
other.procedures need to be discussed. Some procedural issues
arise with the establishment of a set-aside:
o the size of the set-aside (in terms of allowances)
o the relationship of the set-aside to the "general pot"
of allowances:
establishment of a "window" for applications,
after which, in the case of undersubscription,
allowances go back into the general pot
- what to do in the case of oversubscription to the
renewables set-aside (do renewables then apply for
allowances from the general pot according to the
rules set up for the general pot?)
Other procedural issues are the same as those discussed in
February, although applied specifically to renewables:
o up front reservations or not?
o allowances annually or for all the years remaining in
the Reserve?
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8
Issues for Discussion;
o the need for the set-aside;
o the legality of establishing a renevables set-aside;
o the defensibility/desirability of establishing different
rules for the conservation and renewable energy portions of
the Reserve.
CHARGE OF THE SUBCOMMITTEE
The Subcommittee on Conservation and Renewable Energy is
responsible for discussing and making recommendations on the
following issues:
o guidelines on qualified renewable energy generation,
including treatment of renewable/fossil hybrids and
categories of biomass;
o whether or not a "set-aside11 for renewable technologies
is appropriate, and if so, the'procedures governing the
••set-aside".
These recommendations will be presented to the full ARAC on
March 21 (or 22).
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C13 REVISED
REDUCED UTILIZATION AND ENERGY CONSERVATION
ISSUE PAPER
ACID RAIN ADVISORY COMMITTEE
SUBCOMMITTEE ON CONSERVATION AND RENEWABLE ENERGY
March 20-22, 1991
BACKGROUND
Utilities subject to emissions limitations in Phase I of the
implementation of the Acid Rain Title may come into compliance a
number of ways:
(1) installation of controls on Phase I units;
(2) switching Phase I units to lower sulfur coal or other
fuels with lower sulfur emissions;
(3) purchasing allowances to cover emissions at Phase I
units; .
(4) reducing utilization at Phase I units baseline levels.
If a utility selects option (4) it can either designate one
or more "compensating units" whose generation will be increased
to compensate for the reduced utilization at the Phase I affected
unit, or implement conservation and efficiency improvements at
at unit or somewhere else in the system. The explanation of
'ow a utility expects to achieve this reduced utilization is
required "up front" (by February 1993) as part of the Phase I
permit and compliance plan. The compliance plan covers the five-
year period from 1995-2000, and can be amended any time during
the 5-year Phase I period.
If a utility designates a Phase .II affected unit as the
"compensating unit!' * the Phase II unit becomes an affected Phase
I unit and will be allocated allowances pursuant to a statutory
formula based on its actual or allowable 1985 emissions rate
(whichever is lower). The primary legislative objective in
crafting this provision is to ensure that Phase I emissions
targets are not violated through increasing output (and
emissionsfc at units not regulated during Phase I. The provision,
however, also offers an opportunity for utilities to accumulate
excess allowances by bringing a low-sulfur emitting Phase II unit
into the system in place of a higher sulfur emitter. These
allowances.can be "banked" for later use.
The ARAC Permits Subcommittee has been considering the
reduced utilization provision in detail, focusing a great deal of
attention on unplanned outages. (One proposal is that if a
utility fails to identify either a compensating unit or units, or
pnservation measures that explain why reduced utilization
'curs, the utility could opt to forfeit excess allowances that
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it accrues, rather than designate a compensating, unit.) \
For acre information and background on reduced utilization
see issue paper P7, minutes from conference calls and meetings
(P21 and P15) distributed in the January ARAC packet, and
document P23 in the March ARAC mailing. Additional documents
will be available at the meeting.
CONSERVATION ISSUES
The Conservation and Renewable Energy subcommittee needs to
make recommendations to the Permits Subcommittee on Qualified
Conservation Measures and Verification Procedures for the
purposes of the reduced utilization provision. A joint meeting
of the two Subcommittees is scheduled for the morning of the
March 20 ARAC meeting to allow for a full discussion of these
issues.
Qualified Conservation Measurest
The list of measures to qualify for reduced utilization-
conservation is likely to be the same as for the Conservation and
Renewable Energy Reserve, plus additional measures, depending on
whether or not supply-side efficiency improvements are ultimately
included on the C/RE list.
VerificationProcedurest
For the purposes of the Conservation and Renewable Energy
Reserve, the Subcommittee recommended deferring to state
commissions for verification. This is consistent with the
regulatory oversight that will take place as part of the least
cost planning process and net income neutrality provisions
required for applications. However, in the case of reduced
utilization, there is no statutory requirement that either least
cost planning or income neutrality be in place for utilities that
choose to comply with the Acid Rain Title through conservation
and improved energy efficiency. This implies that there might
not be the same assurances of state-level scrutiny over reduced
utilization conservation programs as the C/RE Subcommittee was
assuming there would be for the allowance reserve program.
Another important distinction with conservation associated
with reduced utilization is that the calculation of allowances
will be tied directly to emissions avoided at Phase I plants,
which by definition emit >2.5 Ibs/mmBtu (this is in contrast to
the emission rate of .4 Ibs/mmBtu which will be used to calculate
allowances for the Conservation and Renewable Energy Reserve,
regardless of actual avoided emissions). The implication is that
the emissions reductions stakes may be fairly high* In other
words, a utility will have to prove that enough energy was saved
by particular conservation programs to justify the reduced heat
*,
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input (* heat rate ** generation) at a particular affected unit
the established 1985 baseline, i .' *
_" ' f«: .'. . .»> . . f? i ' '• - -\
The Subcommittee needs to outline procedures to be used by
EPA for verifying that amount of reduced utilization that can be
x tied to conservation measures. In states where LCP and NIN are
in place, EPA may be able to defer to state commissions; in
0 states where this is not the case, rigorous yet straightforward
guidelines and review procedures need to be outlined. Options
may include:
o having EPA staff (at the Regional level) use existing
published (and consistent) national average engineering
data on appliances and other conservation measure
efficiencies to calculate energy savings;
o having EPA staff (at the Regional level) use region-
specific engineering and statistical data on appliances
and other conservation measure efficiencies. This data
could be developed.specifically for the purposes of.
this program by an independent laboratory or
contractor;
o having independent experts/contractors provide reduced
utilization verification on a case-by-case basis;
others?
CHARGE OF THE SUBCOMMITTEE
The Subcommittee on Conservation and Renewable Energy is
responsible for discussing and making recommendations on the
following issues:
o items to include on the list of qualified conservation
measures, for the purposes of reduced utilization;
o guidelines on how to verify energy saved through
qualified conservation measures, for the purposes of
reduced utilization.
These recommendations will be presented to the full ARAC on
March 22.
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