Paul N. Belval, Day, Berry & Howard LLP
As a result of an innovative new generation information system, retail suppliers of electricity in New England are now able to use tradable “certificates” representing the fuel source, emissions and other attributes of power to demonstrate their compliance with recently enacted renewable portfolio standard, emission performance standard and billing disclosure laws in the area. The system, which has been identified as a “best practice” for regional transmission organizations, could become a model for a nationwide system if the national renewable portfolio standard being contemplated by Congress is adopted.
By way of background, certain state laws and regulations in the New England region require that retail suppliers of electricity comply with numerous environmental standards which vary from state to state but include, for example: so called “renewable portfolio standard” laws requiring that a minimum level of renewal resources (e.g., wind, hydroelectric and solar) be used to generate electric power; requirements that retail suppliers of electricity disclose on customers’ bills the fuel source (e.g., coal, nuclear, landfill gas), emissions and other characteristics of the power they sell; and “emission performance standard” requirements limiting pollutants by generating plants serving those states to maximum levels on a pounds per MWh basis. These fuels types, emissions, and other characteristics (such as the use of union labor) make up the “attributes” of electric power.
On July 15, the New England Power Pool (“NEPOOL”) implemented a new information system, the first of its kind in the United States, which tracks all of these attributes for all of the electricity produced and consumed in the New England region for purposes of demonstrating compliance with these laws and regulations.
Paul N. Belval
Under this generation information system the attributes of each MWh of energy generated and imported into New England are now recorded on an electronic certificate. A computer system developed and operated by Automated Power Exchange Inc. of Santa Clara, California provides owners of entitlements in electric generators with certificates that reflect the attributes of electricity they produced. Retail electric suppliers, which are subject to the environmental laws described above, can then acquire and use those certificates to demonstrate compliance with those environmental laws. Such detailed information has never been produced or tracked for all of the electric generation in the region before.
A particularly valuable aspect of these certificates is that they unbundle the environmental attributes of electricity from the associated energy and reserves and can be bought and sold separately from those commodities. A separate market is being created for the purchase and sale of these certificates, and a retail supplier of electricity that falls short of compliance with respect to any particular standard is now able to satisfy its obligations by purchasing certificates that represent the requisite characteristics otherwise lacking in its attributes portfolio.
One of the anticipated benefits of the new generation information system is the new stream of cash it could produce for the developers and owners of renewable generating resources. As a result of the requirements for “greener,” lower emission generating units, these certificates will create another commodity that can be sold by those generators to subsidize energy and reserve sales that might otherwise be above market prices. In addition, the GIS recognizes the impossibility of tracing particular electrons from their source to their use in an integrated transmission system as in New England, and it permits existing markets to operate encumbered by the attribute concerns created by the new laws. Finally, the GIS will provide regulators with an easily verifiable system, and those regulators are being trained to use the system to access the information they require.
Last year, the NEPOOL generation information system was identified as a “best practice” in the Federal Energy Regulatory Commission’s regional transmission organization discussions. A renewable portfolio standard was included in the U.S. Senate’s version of the federal energy legislation, and if that standard survives in any final law, the NEPOOL generation information system could form the basis for a tradable certificates model to be used nationally.
Belval is a partner in Day, Berry & Howard’s energy group. He has counseled a group of participants in the New England power markets that have been working with New England air and energy regulators and Automated Power Exchange Inc. to develop and implement the generation information system. He can be reached at email@example.com or 860-275-0100.