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A Federal Mandate Requires Federal Action

Issue 4 and Volume 85.

by Larry F. Eisenstat and Michael J. Rustum

For some time, Congress has been poised to adopt a nationwide renewable portfolio standard of 15 percent to 20 percent. Similar to what many states have already, a federal RPS would require retail electric utilities in every state to include a specific percentage of renewable energy in their generation portfolios, or to purchase credits from other utilities that generate renewable energy.


Will today’s regulatory environment actually permit a federal RPS to be implemented and its goals to be achieved? Business as usual clearly won’t cut it.
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Electricity generated by renewable resources, such as wind, solar, biomass, geothermal and water, will reduce not only nitrogen oxide, sulfur dioxide and mercury emissions, thereby enabling utilities more easily to meet Clean Air Act requirements, but greenhouse gas emissions as well. In fact, in order to lower greenhouse gas emissions to those levels contemplated by separately proposed federal legislation, it is hard to imagine how to do so without a federal RPS or other market-based mechanism to promote electricity generated with renewable resources.

No doubt, then, compliance with any federal RPS will require a considerable nationwide increase in renewable generation resources, wind power in particular. But will today’s regulatory environment actually permit a federal RPS to be implemented and its goals to be achieved? And will the nation’s electric infrastructure be able to handle the influx of substantially more intermittent resources such as wind?

Absent a congressional mandate, the Federal Energy Regulatory Commission is confronting this challenge, albeit on a case-by-case basis. In Order No. 890, FERC sought to improve both local and regional transmission planning to optimize the use of the transmission system and to better reform the extremely burdensome energy and generation imbalance penalties that intermittent resources, such as wind, previously had no choice but to pay. Unfortunately Order No. 890 alone will not lead to our adding anywhere near the amount of renewable generation needed to satisfy a federal RPS. Nor will adding just two National Interest Electric Transmission Corridors, which is all that DOE and FERC have proposed designating under the Energy Policy Act of 2005, neither of which were the corridors the wind industry identified as being critical to supporting the industry’s growth.

On the bright side, FERC at least appears to be willing to accept innovative pricing proposals to expand the transmission grid, including a financing mechanism for the construction of interconnection facilities to connect location-constrained resources (e.g., wind) to the California grid. (See California Independent System Operator Corp., 119 FERC ¶ 61,061 (2007). ) But the details for implementing this funding mechanism have yet to be filed and no other region has followed suit.

If past is prologue, most regional expansion proposals likely will be threatened by parochial interests and complicated funding arrangements. Indeed, absent Congress passing the equivalent of the National Interstate and Defense Highways Act of 1956, this time to further the expansion of the transmission grid, it will be left to FERC and the states to promote such infrastructure projects as are necessary for utilities to meet a federal RPS. Yet, neither has the authority nor the resources to mandate a nationwide coordinated approach to processing new siting applications or requests for interconnection and transmission at the state and federal levels.

Put simply, maximum renewable penetration will very likely require not only federal transmission siting authority but authorizing the FERC to consolidate control areas in order to take full advantage of the geographic diversity of renewable energy resources.

Business as usual clearly won’t cut it. There must be a federal mandate to the effect that federal and state government set and enforce national goals. Otherwise, there is little, if any, chance of meeting the existing state RPS objectives, let alone new federal targets. The consequences could be very severe given that even the most aggressive RPS proposed appears to fall well short of what ultimately will be required to meet greenhouse gas emission reduction targets.

Authors

Larry F. Eisenstat is head of the energy practice and Michael J. Rustum is an energy partner with Dickstein Shapiro LLP. They can be reached at [email protected] and [email protected], respectively.