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Electricity & Energy Policy

Jump to: Federal-Level Electricity Policy & the Energy Policy Act of 2005; Advanced Research Projects Agency – Energy Act; Renewable Energy Research and Development Policies; State & Local Policy; Renewable Portfolio Standards; or International Energy and Electricity Policy

Introduction

This section discusses federal, state and local, and international energy and electricity policy. At the federal level, special focus is placed on the Energy Policy Act of 2005, efforts to diversify energy supply, renewable energy research and development programs, and the Advanced Research Projects Agency – Energy Act. At the state and local level, focus is placed on the changing role of state and local regulations, and the development of renewable portfolio standards. At the international level, focus is placed on the increasingly globalized and interconnected nature of the world’s energy and electricity systems.

Federal-Level Electricity Policy & the Energy Policy Act of 2005

Although energy, electricity, or technology policy are hardly new concepts, the focus of this section will be on recently enacted energy policy – namely, the Energy Policy Act of 2005 (EPAct) and the impacts that EPAct has on the electricity industry. EPAct (Full Act: Pub.L. 109-058; Summary: Research Service) was signed into law on August 8, 2005 and serves as the first comprehensive national energy legislation since the Energy Policy Act of 1992 – having immense and widespread effects on countless industries across the United States, North America, and arguably, the world [1]. At the very least, EPAct has had and will have future impact on energy efficiency; renewable energy development; the type of fuels used in the vehicles of the future; electricity interconnection and reliability; the roles of the Federal Energy Regulatory Commission (FERC), the Public Utility Regulatory Policy Act (PURPA), and the Public Utility Holding Company Act (PUHCA); and the oil, gas, nuclear, coal, renewable, and newly emerging hydrogen industries [1].

In the thirteen years since the last round of federal-level energy legislation, the US energy and electricity sectors aged – further jeopardizing the industry’s ability to uphold reliability and stability of the electricity grid [2]. This realization, coupled with the occurrence of the August 2003 Blackout, forced legislators to focus on four main “themes”: (1) establishing electric reliability standards; (2) modernizing transmission systems; (3) mandating new Public Utility Regulatory Policy Act (PURPA) standards (including net and smart metering, and interconnection standards); and (4) establishing market and merger reformation rules. Through these themes, EPAct encourages needed investment in the nation’s energy infrastructure, helps boost electric reliability, and promotes a diverse mix of fuels to generate electricity. Furthermore, the bill enhances protections for electricity consumers, and encourages energy efficiency and conservation [3].

Specifically, EPAct mandates the creation of a self-regulatory Electric Reliability Organization (ERO) that spans North America, with oversight by the Federal Energy Regulatory Commission (FERC). The ERO’s purpose is to establish and enforce electric reliability standards for the bulk-power system. In 2006, FERC certified the North American Electric Reliability Corporation (NERC) as the ERO for the United States [4]. As the ERO, NERC is responsible for establishing and enforcing FERC-approved electric reliability standards [5]. Furthermore, Mexican and Canadian authorities have promised to back NERC’s regulations with the force of law [6]. It is important to realize that FERC strictly limits the power of the ERO and has authority over the ERO in all manners, including the ability to enforce standards when the ERO has not done so [2].

To assist in transmission system modernization, under EPAct, the Department of Energy (DOE) has the authority to conduct a study of electric transmission congestion every three years and to designate “national interest electric transmission corridors,” which will receive special attention and funding to ensure reliability is upheld [2, 5]. The corridors are established based on the level of electric congestion in the area, the economic vitality of development of the corridor, end markets served by the corridor, and prices of electricity resulting from any electricity congestion. FERC then has the authority to issue permits for the construction of transmission facilities in the corridor (if it determines that the host state does not have the authority to approve the siting). Recognizing the importance of electric reliability, EPAct grants the ERO and FERC power to acquire right-of-way by the exercise of right of eminent domain for siting transmission expansion [2, 5].

Modernization is also be assisted through mandates which require FERC establishment of incentive-based rate treatments for public utilities to transmit electric energy in interstate commerce. This requirement will benefit consumers by ensuring reliability and reducing delivered power cost by reducing transmission congestions. FERC’s rule promotes reliability and economically efficient transmission and generation by promoting capital investment in the enlargement, improvement, maintenance and operation of all facilities; provides a return on equity that attracts new investment; encourages deployment of transmission technologies and other measures to increase the capacity and efficiency of existing facilities; and allows the recovery of all prudently incurred costs necessary to comply with mandatory reliability standards [2].

EPAct amends PURPA to include multiple new provisions including mandates that require electric utilities to introduce net metering services to any electric consumer who requests such services. Under EPAct, utilities may also offer each of their customer classes a time-based rate schedule, under which the rate charge by the electric utility varies during different time periods and reflects the variance in the utility’s costs of generating and purchasing electricity at the wholesale level. Also, electric utilities are required to develop a plan to minimize dependence on one fuel source and to ensure that the electric energy it sells to consumers is generated using a diverse range of fuels and technologies, including renewable technologies [2].

Furthermore, EPAct mandates the adoption of IEEE 1574 Standard for Interconnecting Distributed Resources with Electric Power Systems. IEEE 1574 is a “technology-neutral” standard which does not specify specific types of equipment needed to meet interconnection requirements. Instead, the standard focuses on ensuring the ability for interconnection of any on-site facility. In doing so, it addresses both operational and safety issues while focusing on the functional requirements of the interconnection and not on the specific types of equipment to meet the functional requirements. The standard will increase the diversity of the electricity supply by facilitating development of fuel cells, photovoltaics and other distributed energy generation technologies, and help ensure the reliability and safety of the nation’s electric power system [7].

The final major theme of EPAct’s Electricity Section is that of market rules and merger reform. EPAct provides FERC the authority to obtain information necessary to facilitate price transparency and participation in markets for electric energy sales in interstate commerce from any electric utility or transmitting utility. This will allow FERC to protect consumers and competitive markets from the adverse effects of potential collusion or other anticompetitive behaviors [2].

Diversifying Supply

EPAct promotes a wide spectrum of cleaner fuels for new electric generating plants. Specifically, it authorizes $200 million per year from 2006 to 2014 for the Clean Coal Power Initiative; authorizes funding for nuclear power research and development and establishes a new production tax credit for electricity produced at new nuclear generation facilities; and promotes renewable energy sources by extending or increasing tax credits for wind, biomass, geothermal, solar, fuel cells, and distributed generation [8].

In addition to EPAct, the US has numerous other federal policies to promote the development of renewable energy with incentives for the development of biomass, ethanol, wind, solar, geothermal, and overall energy efficiency. Via the policies, the federal government provides research and development funding and incentives, investment and production tax credits, increases public awareness, provides mediums for third party finance, and sets guidelines for voluntary programs.

Despite the progressive measures discussed above, there have been widespread criticisms of EPAct for its lack of including measures to reduce dependence on foreign oil and curtail greenhouse gas emissions, and coming up short in many other areas [9].

Advanced Research Projects Agency – Energy Act

The Advanced Research Projects Agency – Energy Act (ARPA-E) (Full Text) is an act which resides on the notion that initiatives of the Energy Policy Act of 2005 are not aggressive enough to satisfy the nation’s demand for reducing dependence on foreign energy sources, establishing advanced energy R&D programs, or accelerating higher education in the energy realm. ARPA-E seeks to establish a new agency, modeled after the Department of Defense’s Defense Advanced Research Projects Agency (DARPA), and in charge of addressing these issues, monitoring progress, and ensuring that high quality energy research and program development throughout the nation [10]. On 25 April 2007, the House Subcommittee on Science and Technology considered the ARPA-E act and the bill now proceeds to consideration by the full Committee [11].

Renewable Energy Research and Development Policies

It is widely acknowledged that spending on research and development (R&D) has long been positively associated with the pace and quality of technological innovation. In the fields of energy and electricity, spending on R&D is an important precursor to the technological advances required to secure sufficient, safe, and environmentally-acceptable energy supplies, and to use them more efficiently [12]. This recognized fact, coupled with the increasingly widespread interest in renewable and alternative energy forms has spurred a recent influx of R&D initiatives aimed at renewable energy technologies.

In addition to those newer incentives identified in the Energy Policy Act of 2005, a number of smaller, but equally effective initiatives (most enacted pre-EPAct) exist to promote renewable energy technologies. For example, the Biomass Research and Development Act, enacted in 2000, authorizes $49 million to conduct R&D on bio-based products and bioenergy; the Energy for the New Millennium act, enacted in 1999, provides funding for R&D of various solar photovoltaic technologies; the Solar Energy Research Act, enacted in 1974, is still in effect, authorizing and funding R&D for solar concentrating power, photovoltaics, and solar thermal technologies; the Economic Recovery Act of 1981, which provides aggressive incentives for wind and geothermal power, and can at least be partially credited for the growth in wind power during the mid- to late-1990s; other initiatives exist as well.

State & Local Policy

Although federal-level policy has recently obtained much recognition among media and the general public, state and local policies also play an essential role in electricity markets. State and local regulators and lawmakers address a wide array of important issues, from retail competition to resource procurement [13]. The most prominent state-level policy initiative of the day revolves around the issue of electricity deregulation. Many states have initiated proceedings to restructure retail electric service and how it is regulated, and many have introduced retail competition methods [14]. (See EEI’s status of electricity competition by state.)

A second major subject that has obtained recent interest among state-level planners is that of the role of municipal utilities. According to the Edison Electric Institute, “municipal utilities are electric systems that are owned and operated by a government entity for the purpose of supplying electric service to residents. Unlike shareholder-owned electric companies, they are not regulated by state public utility commissions. While the first municipal utility was created in 1882, most were formed during the 1920s and 1930s. Significantly, the conditions under which public power was established nearly 100 years ago no longer exist today.” Municipal utilities have been insulated from deregulation rules in place since 1996, mostly because they have not been affected by state laws mandating retail electric competition [15]. The EEI’s report echoes most of the argument currently taking place among state-level planners; that municipal utilities should not exist in electric markets and that instead there should be a completely deregulated arena in which retail customers of shareholder-owned electric companies are able to choose their generation provider.

The role of state regulatory agencies in the electric arena has expanded greatly in recent years. Traditionally, state regulatory agencies were in charge of setting rates for regulated entities, evaluating the quality of service provided, deciding whether to certify proposed generating facilities, and resolving territorial disputes [16]. Today, states must, in addition to those traditional roles, address competition-related issues, consider merger proposals, study the adverse affects of purchases of capacity and energy made by their utilities, participate in litigation before FERC, engage in advocacy activities, and work with other states in new and different ways [16]. The roles of state regulators and state-level policy will continue to become more involved and important in the future.

Renewable Portfolio Standards

A renewable portfolio standard (RPS) is a policy set by federal or state governments requiring a certain percentage of electricity supplied by generators in that state be derived from various renewable sources. These sources may include wind, solar, geothermal, biomass, wave, tidal, or other renewables (in some cases, hydropower is included, but due to controversy over its renewable nature, some states omit the source from their RPS).

Prior to passing EPAct, a proposal was brought forth which would require all US utilities to generate 10% of their power from renewable energy sources by 2020. This proposal was rejected and to this date there is no federal-level policy mandating at a nation-wide RPS [9]. Thus, many progressive states have taken initiative to enact their own, state-level RPS requirements. The diversity of programs is astounding: Massachusetts, for example, requires a 4% renewable share by 2009 with a 1% increase thereafter; New York requires 24% renewables by 2013; California requires 20% by 2010; Arizona requires 15% by 2025; and the list goes on. For full, regularly updated information regarding state-level RPS initiatives, see the Database of State Incentives for Renewables & Efficiency (DSIRE), which provides detailed RPS information by state and US territory.

International Energy and Electricity Policy

In an increasingly interconnected world, there has recently emerged a demand for more coordinated energy and electricity policy crossing international borders. The World Forum on Energy Regulation (WFER), which in October 2006 attracted more than 600 participants from 85 countries to the Washington, DC meeting, provides an opportunity for officials from around the world to share experiences and seek sustainable solutions to energy and electricity challenges, ranging from access and affordability to complex competitive market design [17].

The WFER participants discussed how electricity and gas markets are changing and how regulation is evolving; changes regarding scale, functioning, and complexity of these markets, as well as policies that impact the design and performance of energy markets; and new social goals, environmental targets, and issues regarding security of supply [17].

The 2006 meeting also established the International Energy Regulation Network (IERN). IERN serves to facilitate the exchange and analyze information concerning electricity and natural gas market regulation on an international basis, to the benefit of local, state, national, and international regulators [18]. Clearly, traditional international borders are becoming less restricting, even in energy and electricity arenas. With an increasingly globalized world, this trend is set to continue in the coming decades.