By Paul N. Belval and Alex G. Filotto, Day, Berry & Howard LLP
As with many states that have undertaken electric industry restructuring, the five New England states that have enacted electric utility restructuring statutes (Vermont has not yet enacted such legislation) have included in those statutes environmental policy goals that will require that certain disclosures regarding fuel sources and emissions, among other things, be included on customer bills and in reports to state regulatory authorities. Finding an accurate, efficient, and economical method of verifying those disclosures, for purposes of both advertising claims and compliance with the various state policies and regulations, has proven to be a challenge. The solution currently proposed in New England is a generation information system based on a central database and tradable certificates.
At press time, Connecticut, Maine, Massachusetts, New Hampshire and Rhode Island have enacted electric industry restructuring legislation. A feature common to these restructuring acts are generation information requirements that fall into one or more of three broad categories:
- Information disclosure requirements-Included in some form in the restructuring legislation of all five New England states, they provide retail customers with data on fuel and emissions (and whether union labor is used in the case of the Massachusetts statute) of a retail load serving entity’s (LSE) resources, allowing customers to evaluate electric suppliers based on these criteria.
- Renewable portfolio standards (RPS)-In Connecticut, Maine and Massachusetts statutes, these mandate that a minimum percentage of the power sold by a retail LSE (LSE) be generated with renewable resources, the definition of which varies somewhat from state to state.
- Emissions performance standards-Also known as generation performance standards (which are in the Massachusetts and Connecticut acts), these provide emissions requirements for electricity sold in a given jurisdiction.
In an effort to find a region-wide system for the accumulation of data required by these statutes (and by existing truth in advertising laws that necessitate that LSE prove claims made about the sources of their power), several participants in the New England Power Pool (NEPOOL)-the power pool comprised of approximately 180 participants in the New England bulk power market-ISO New England Inc., the independent system operator for the New England transmission system and power markets, and state energy and environmental regulators began meeting in 1999. Through their joint efforts, they have crafted a conceptual design for a generation information system (GIS) database and tradable certificate system that will facilitate demonstrating compliance with the policies and regulations of the various New England states.
Because of the impossibility of tracing a particular electron from its generation source to its ultimate usage and the impending implementation of a system that will separate the financial commitments for power from the actual dispatch of generating units, the GIS system needed to be flexible enough to work within these physical constraints while still providing the data required to demonstrate compliance with the law. After considering a number of alternatives, the working group comprised of representatives of NEPOOL, ISO New England and the state regulators has proposed the regional GIS that would separate the electricity generated by a particular unit from certain of that unit’s attributes, specifically fuel source, emissions and use of union labor, and then issue “certificates” representing those particular attributes.
The proposed system would operate as follows: Generating entities would report to the GIS system administrator the attributes of each MWh of generation, which would then be put into the GIS database. Based on that information, the system would generate certificates profiling the hourly generation attributes of the power produced, such as the nature of the resources used and the emissions produced. Certificates would be created after the settlement of the other NEPOOL markets and would be based on those settlements. The certificates would be eligible for sale and would be used as the basis for demonstrating compliance with the information disclosure, RPS, generation performance standard and truth-in-advertising requirements of the various states.
Certificates for power generated with desirable attributes, such as power generated with renewable resources or by low-emission units, would presumably have greater value and would command a higher price in the secondary market. The entities owning those generating units could therefore supplement the amounts they receive for their power with the amounts paid for their certificates, thereby permitting them to bid less for their power and to compete more effectively in the economic dispatch regime of NEPOOL.
As currently contemplated, LSEs, which are responsible to the state regulatory agencies, would have to have certificates accounting for all of the power they sell in a given time period. Those LSEs, as well as other participants in the New England bulk power markets, could buy and trade these certificates in bilateral arrangements or on a secondary market, as well as self-supplying those certificates, in order to demonstrate compliance with the various state requirements. The GIS would record any transfers of certificates. The certificates would form the basis for the disclosures on customer bills and in advertising, and state regulators would be responsible for auditing LSEs’ certificate-based disclosures.
In early November 2000, NEPOOL approved the working group’s conceptual design and formed a GIS Advisory Committee, including representatives of NEPOOL members and ISO New England, which, in consultation with the state utility and environmental regulators, will oversee the process of identifying, soliciting and negotiating with potential third parties to administer the GIS. A request for proposals for a GIS administrator is being developed. It is currently contemplated that NEPOOL will contract with the GIS administrator and will work, through the GIS Advisory Committee, with ISO New England and the GIS administrator to create rules and procedures for its GIS system. ISO New England would supervise the day-to-day operation of the GIS system.
The unfolding process of electricity restructuring presents new challenges for the electric industry. The continued development and implementation of a GIS database and certificate system will require the continued effort of NEPOOL, ISO New England and state regulatory agencies and will be watched by those facing similar compliance issues outside of New England.
Paul N. Belval (860-275-0381) is a partner in the Administrative and Regulatory Law and Institutional Finance Departments and Alex G. Filotto (860-275-0511) is an associate in the Administrative and Regulatory Law Department at Day, Berry & Howard LLP in Hartford, Connt. They are acting as counsel to NEPOOL in the development of the GIS in New England. The Day, Berry & Howard Web site is www.dbh.com.