FLORIDA’S EFFORTS TO DEVELOP A RENEWABLE PORTFOLIO STANDARD Florida Department of Environmental Protection Central District 13 th Annual Power Generation Conference Michael G. Cooke Ruden McClosky July 30, 2009

2 A Renewable Portfolio Standard is a requirement that utilities generate, or obtain, a percentage of electricity using some form of “renewable” energy. A Renewable Portfolio Standard is a requirement that utilities generate, or obtain, a percentage of electricity using some form of “renewable” energy. “Renewable” energy generally considered to be energy derived from natural resources which can be replenished [e.g. solar, wind, geothermal, ocean current] but also – waste heat, biomass, WTE “Renewable” energy generally considered to be energy derived from natural resources which can be replenished [e.g. solar, wind, geothermal, ocean current] but also – waste heat, biomass, WTE

3 “Actually, I’ve always thought that we [The Grateful Dead] were like a public works, really a utility as much as anything else.” Jerry Garcia

4 “Tipper and Al came to a show that last time we were in Washington. They’re nice people, a nice family. We made every effort not to frighten them.” Jerry Garcia

5 *Five states, North Dakota, South Dakota, Utah, Virginia, and Vermont, have set voluntary goals for adopting renewable energy instead of portfolio standards with binding targets. Per U.S. DOE, as of May 2009, 29 states and the District of Columbia have RPS policies (mandatory) in place.

6 The American Clean Energy and Security Act of 2009, which is a leading climate change bill in Congress (passed by the U.S. House of Representatives on 6/26/09), includes an RPS Provision. The American Clean Energy and Security Act of 2009, which is a leading climate change bill in Congress (passed by the U.S. House of Representatives on 6/26/09), includes an RPS Provision. American Clean Energy and Security Act of 2009 American Clean Energy and Security Act of 2009 (aggregate of renewable energy and electricity savings) 6% by % by %by % by %by 2020

7 Stuff that’s hidden and murky and ambiguous is scary because you don’t know what it does. Jerry Garcia Jerry Garcia

8 What are the advantages and disadvantages of renewable energy technologies? What are the advantages and disadvantages of renewable energy technologies?

9 “Our audience is like people who like licorice. Not everybody likes licorice, but the people who like licorice really like licorice.” Jerry Garcia Some Advantages of Renewable Energy Some Advantages of Renewable Energy Energy independenceEnergy independence New technologies promote economic growthNew technologies promote economic growth Distributed generationDistributed generation Limited or no emissions of GHGsLimited or no emissions of GHGs Some proven technologies (vs. carbon sequestration technology)Some proven technologies (vs. carbon sequestration technology)

10 “It’s pretty clear now that what looked like it might have been some kind of counterculture is, in reality, just the plain old chaos of undifferentiated weirdness.” Jerry Garcia Some Disadvantages of Renewable Energy Some Disadvantages of Renewable Energy Certain forms of renewable energy are intermittent – not useful for baseload generation (therefore duplicative)Certain forms of renewable energy are intermittent – not useful for baseload generation (therefore duplicative) Greater expenseGreater expense Distributed generationDistributed generation And …And …

11 Siting IssuesSiting Issues I’m goin’ where the wind don’t blow so strange maybe off on some high cold mountain chain. Jerry Garcia Jerry Garcia North Carolina – 12.5% RPS by 2021 for IOUs; 10% RPS by 2018 for munis and coops. North Carolina – 12.5% RPS by 2021 for IOUs; 10% RPS by 2018 for munis and coops. Many wind resources in NC are concentrated along mountain ridge crests in west and along the coastline in the east – e.g. Outer Banks. Many wind resources in NC are concentrated along mountain ridge crests in west and along the coastline in the east – e.g. Outer Banks. North Carolina Mountain Ridge Protection Act of 1983 – protects many mountain ridges from development. North Carolina Mountain Ridge Protection Act of 1983 – protects many mountain ridges from development.

12 If climate change policies are implemented, development of alternative energy technologies with low GHG emissions will be needed. If climate change policies are implemented, development of alternative energy technologies with low GHG emissions will be needed.

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14 “Somebody has to do something,... it’s just incredibly pathetic that it has to be us.” Jerry Garcia

15 Public Utilities Regulatory Policy Act of 1978 (PURPA). Implementation of PURPA in Florida, Section , F.S. Florida Renewable Energy Generation, Sections and -.92, F.S. Governor’s Executive Order The 2008 Florida Energy Bill, HB 7135 (Chapter Law ): RPS Provisions Major Federal and Florida Renewable Energy Policy Initiatives

16 KEEPING COSTS LOW: A Recurring Theme of Federal and Florida Renewable Energy Policies to Date.

17 “Truth is something you stumble into when you think you’re going someplace else.” Jerry Garcia Jerry Garcia

18 PURPA & Implementation of PURPA in Florida

19 Public Utilities Regulatory Policy Act of 1978 (PURPA), an overview In 1978, Congress passed the Public Utilities Regulatory Policy Act (PURPA) with the purpose of encouraging the development of more efficient energy generation from industrial waste heat and renewables.

20 Public Utilities Regulatory Policy Act of 1978 (PURPA), an overview PURPA requires utilities to purchase power from established non-utility Qualified Facilities (QFs). QFs are small power producers and cogenerators who sell power to utilities.

21 Public Utilities Regulatory Policy Act of 1978 (PURPA), an overview at “avoided cost” at “avoided cost” “Avoided cost” means the cost the utility would have incurred by producing the power itself or purchasing from another supplier. “Avoided cost” means the cost the utility would have incurred by producing the power itself or purchasing from another supplier. Federal Energy Regulatory Commission’s (FERC’s) directed states to implement PURPA. Federal Energy Regulatory Commission’s (FERC’s) directed states to implement PURPA.

22 Implementation of PURPA in Florida, Section , F.S. Section , F.S., requires utilities to purchase power from QFs and renewable energy generators within their service territories at the “full avoided cost.”

23 Implementation of PURPA in Florida, Section , F.S. The “avoided cost payment” is divided into two categories: Capacity and Energy. “Capacity – The size of the customer base that has been calculated, as well as how much money it would cost to build a power plant to meet that demand. Once this is determined, the payment is fixed. In order to get the full payment, however, the generator must be operating when needed, especially during peak times. If not, penalties are enforced.” “Energy – The amount of fuel and maintenance that would be required to operate a plant. Based on kilowatt hours produced by the renewable energy generator and sold to the utility, this payment fluctuates because of changes in fuel prices.”

24 RENEWABLE ENERGY GENERATION – 2005, 2006 & 2008 FLORIDA ENERGY BILLS

25 Florida Renewable Energy Generation, Section , F.S. In 2005, the Legislature created Section , F.S., to promote the development of renewable energy resources in Florida In 2005, the Legislature created Section , F.S., to promote the development of renewable energy resources in Florida Legislative goals – Legislative goals – help diversify fuel types and decrease Florida’s growing dependency on natural gas for electric production,help diversify fuel types and decrease Florida’s growing dependency on natural gas for electric production, minimize the volatility of fuel costs,minimize the volatility of fuel costs, encourage investment within the state,encourage investment within the state, improve environmental conditions, andimprove environmental conditions, and make Florida a leader in new innovative technologies.make Florida a leader in new innovative technologies.

26 Florida Renewable Energy Generation, Section , F.S. “Renewable energy” is defined as “electrical energy produced from a method that uses one or more of the following fuels or energy sources: hydrogen produced from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean energy, and hydroelectric power... and waste heat, from sulfuric acid manufacturing operations.” “Renewable energy” is defined as “electrical energy produced from a method that uses one or more of the following fuels or energy sources: hydrogen produced from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean energy, and hydroelectric power... and waste heat, from sulfuric acid manufacturing operations.” Section (2)(d), F.S. Section (2)(d), F.S.

27 Florida Renewable Energy Generation, Section , F.S. Renewable Energy Contracts - This statute requires public utilities to continuously offer renewable energy contracts to generators of renewable energy; the term of the renewable energy contract must be at least 10 years, with prudent and reasonable costs associated with the contract being recoverable from the ratepayers through the appropriate recovery clause. Section (3), F.S. Renewable Energy Contracts - This statute requires public utilities to continuously offer renewable energy contracts to generators of renewable energy; the term of the renewable energy contract must be at least 10 years, with prudent and reasonable costs associated with the contract being recoverable from the ratepayers through the appropriate recovery clause. Section (3), F.S.

28 Florida Renewable Energy Generation, Section , F.S. RPS Goals - In 2006, the Florida legislature added Section , F.S., authorizing FPSC to establish appropriate “goals” for renewable energy generation in the state. RPS Goals - In 2006, the Florida legislature added Section , F.S., authorizing FPSC to establish appropriate “goals” for renewable energy generation in the state.

29 July 2007 Office of the Governor, Executive Order (Number ) NOW, THEREFORE, I CHARLIE CRIST, as Governor of Florida,... request the Florida Public Service Commission to take the following actions for the electric utility sector in order to open the market to clean, renewable energy technologies, thus avoiding future greenhouse gas emissions: Not later than September 1, 2007, initiate rulemaking to require that utilities produce at least 20 % of their electricity from renewable sources (Renewable Portfolio Standard) with a strong focus on solar and wind energy.Not later than September 1, 2007, initiate rulemaking to require that utilities produce at least 20 % of their electricity from renewable sources (Renewable Portfolio Standard) with a strong focus on solar and wind energy.

Florida Energy Bill, HB 7135 (Chapter Law ) On May 28, 2008, Governor Crist signed the 2008 Florida Energy Bill into law. This comprehensive energy package was designed to increase energy efficiency, develop renewable energy technologies, and decrease carbon emissions in Florida. On May 28, 2008, Governor Crist signed the 2008 Florida Energy Bill into law. This comprehensive energy package was designed to increase energy efficiency, develop renewable energy technologies, and decrease carbon emissions in Florida.

Florida Energy Bill, HB 7135 (Chapter Law ) Specifically, as noted in , F.S., (re: RPS goals) that it was the intent of the Legislature to: Promote the development of renewable energyPromote the development of renewable energy Protect the economic viability of Florida’s existing renewable energy facilities (yet may provide added weight to solar pv and wind)Protect the economic viability of Florida’s existing renewable energy facilities (yet may provide added weight to solar pv and wind) Diversify the types of fuel used to generate electricity in FloridaDiversify the types of fuel used to generate electricity in Florida Lessen Florida’s dependence on natural gas and fuel oilLessen Florida’s dependence on natural gas and fuel oil Minimize fuel volatilityMinimize fuel volatility Encourage investment in the stateEncourage investment in the state Improve environmental conditionsImprove environmental conditions And – at the same time – minimize costs of power supply to electric utilities and their customersAnd – at the same time – minimize costs of power supply to electric utilities and their customers

32 I’m shopping around for something to do that no one will like. Jerry Garcia

Florida Energy Bill, HB 7135 (Chapter Law ) It required the Commission to develop rules to establish a Renewable Portfolio Standard (RPS) and Renewable Energy Credit (REC) trading system to encourage the development of supply-side renewable generation. It reserved to the legislature the right to ratify these rules.

34 Renewable Portfolio Standard (RPS) Rulemaking, Section , F.S. Per statute, the RPS rule would require investor owned utilities (i.e., FP&L, Progress Energy, TECO, Gulf Power, etc.) to supply renewable energy to its customers directly or by procuring renewable energy through acquiring Renewable Energy Credits (RECs). Per statute, the RPS rule would require investor owned utilities (i.e., FP&L, Progress Energy, TECO, Gulf Power, etc.) to supply renewable energy to its customers directly or by procuring renewable energy through acquiring Renewable Energy Credits (RECs).

35 Renewable Portfolio Standard (RPS) Rulemaking, Section , F.S. In developing the RPS rule, the Commission was directed to evaluate the current and forecasted levelized cost in cents per kilowatt hour and current and forecasted installed capacity in kilowatts for each renewable energy generation method through 2020; the Commission was required to consult with DEP and the FECC. The Commission was directed to present a “draft” rule to the Legislature by February 1, 2009.

36 FLORIDA RENEWABLE PORTFOLIO STANDARD

Florida Energy Bill RPS Rulemaking Timeline The PSC held first RPS rulemaking workshop in July The PSC held first RPS rulemaking workshop in July October 2008: a staff draft RPS rule was reviewed by PSC. October 2008: a staff draft RPS rule was reviewed by PSC. December 2008: a further proceeding was held to consider the draft RPS rule. December 2008: a further proceeding was held to consider the draft RPS rule. January 2009: PSC voted on draft. January 2009: PSC voted on draft. February 1, 2009: The RPS draft rule was submitted to the Legislature. February 1, 2009: The RPS draft rule was submitted to the Legislature.

38 Summary of Draft RPS Rule as submitted to Florida Legislature RPS Percentage and Timing 7 percent by 1/1/ percent by 1/1/ percent by 1/1/ percent by 1/1/2021 Eligible resources – only Florida renewable energy resources as defined in Section (2), F.S. are eligible [366.92(2), F.S., cross-references § , F.S., to wit: hydrogen, biomass, solar energy, geothermal energy, wind energy, ocean energy, waste heat or hydroelectric power.] Compliance mechanism – each IOU must produce renewable energy percentage or purchase sufficient RECs Rate Cap – incremental compliance costs above avoided cost limited to 2 percent

39 Frequency of Review – FPSC to review impacts at least every three years Frequency of Review – FPSC to review impacts at least every three years Mandatory Standards – IOUs must comply or face penalties of up to 50 basis points on authorized return on equity. Provisions for excused noncompliance (insufficient supply of Florida renewable energy or prohibitive costs) included in rule. Mandatory Standards – IOUs must comply or face penalties of up to 50 basis points on authorized return on equity. Provisions for excused noncompliance (insufficient supply of Florida renewable energy or prohibitive costs) included in rule. Encouragement of Solar/Wind – Carve out of minimum of 25 percent of RPS must be provided by solar and wind. 75 percent of rate cap dedicated to Solar/Wind. Encouragement of Solar/Wind – Carve out of minimum of 25 percent of RPS must be provided by solar and wind. 75 percent of rate cap dedicated to Solar/Wind.

40 Florida Renewable Energy Potential Assessment Navigant Consulting was engaged to provide assessment of technical and economic potential for renewables in Florida through Navigant Consulting was engaged to provide assessment of technical and economic potential for renewables in Florida through Navigant Consulting’s estimates of achievable renewables start with a base of 4.4 percent of existing renewables. Navigant Consulting’s estimates of achievable renewables start with a base of 4.4 percent of existing renewables.

41 Florida Renewable Energy Potential Assessment To project future renewable energy development, Navigant Consulting identified key drivers that could impact the renewable energy market. To project future renewable energy development, Navigant Consulting identified key drivers that could impact the renewable energy market. The most significant of these drivers are: The most significant of these drivers are: (1) fossil fuel prices,(1) fossil fuel prices, (2) cost of carbon under greenhouse gas emissions policies,(2) cost of carbon under greenhouse gas emissions policies, (3) federal and state renewable energy tax credits and other incentives,(3) federal and state renewable energy tax credits and other incentives, (4) the availability and cost of debt and equity, and(4) the availability and cost of debt and equity, and (5) the rate cap established for the purchase of RECs.(5) the rate cap established for the purchase of RECs.

42 Florida Renewable Energy Potential Assessment Navigant Consulting then created three scenarios for potential renewable energy development in which the five key drivers were used. These scenarios are summarized as: Unfavorable – low fossil fuel prices, 1 percent rate cap, no extension of current government renewable incentives per current policies, tight financial markets, and carbon pricing of $10/ton by 2020;Unfavorable – low fossil fuel prices, 1 percent rate cap, no extension of current government renewable incentives per current policies, tight financial markets, and carbon pricing of $10/ton by 2020; Mid-favorable – mid range fossil fuel prices, 2 percent rate cap, partial extension of government renewable incentives, moderate financial markets, and carbon pricing of $30/ton by 2020; andMid-favorable – mid range fossil fuel prices, 2 percent rate cap, partial extension of government renewable incentives, moderate financial markets, and carbon pricing of $30/ton by 2020; and Favorable - high fossil fuel prices, 5 percent rate cap, government renewable incentives extended through 2020, widely available debt and equity, carbon pricing of $50/ton by 2020.Favorable - high fossil fuel prices, 5 percent rate cap, government renewable incentives extended through 2020, widely available debt and equity, carbon pricing of $50/ton by 2020.

43 Florida Renewable Energy Potential Assessment Navigant Consulting concluded that: Under the unfavorable scenario for renewable development, which includes a 1 percent rate cap, renewable energy in Florida could be 5 percent of IOU retail sales by 2020;Under the unfavorable scenario for renewable development, which includes a 1 percent rate cap, renewable energy in Florida could be 5 percent of IOU retail sales by 2020; Under the mid-favorable scenario for renewable development, which includes a 2 percent rate cap, renewable energy in Florida could be 11 percent of IOU retail sales by 2020; andUnder the mid-favorable scenario for renewable development, which includes a 2 percent rate cap, renewable energy in Florida could be 11 percent of IOU retail sales by 2020; and Under the most favorable scenario for renewable development, which includes a 5 percent rate cap, renewable energy in Florida could be 24 percent of IOU retail sales by 2020.Under the most favorable scenario for renewable development, which includes a 5 percent rate cap, renewable energy in Florida could be 24 percent of IOU retail sales by 2020.

44 Florida Renewable Energy Potential Assessment Renewable Energy as a Percentage of IOU Retail Sales

Florida Energy Act Legislative Ratification Per legislative staff, ratification could include (but not limited to) the following: Per legislative staff, ratification could include (but not limited to) the following: Incorporating the rules into statue, orIncorporating the rules into statue, or Directing the agencies to modify the rule; orDirecting the agencies to modify the rule; or Approving rules, but retaining oversight of any subsequent amendmentsApproving rules, but retaining oversight of any subsequent amendments Source: Florida Senate Committee on Communications and Public Utilities’ Report, “Legislative Process for Rule Ratification of Renewable Portfolio Standard and Cap-and-Trade Regulatory Reform” (September 2008). Source: Florida Senate Committee on Communications and Public Utilities’ Report, “Legislative Process for Rule Ratification of Renewable Portfolio Standard and Cap-and-Trade Regulatory Reform” (September 2008).

46 Ratification Process – 2009 SB 1154 – drafted by Senator King SB 1154 – drafted by Senator King Adopted percentage requirements similar to FPSC “draft” rule (including 20% by end of 2020)Adopted percentage requirements similar to FPSC “draft” rule (including 20% by end of 2020) Changed the mix of eligible sources to include nuclear energy and fossil fuel with CCS – Clean Energy Portfolio StandardChanged the mix of eligible sources to include nuclear energy and fossil fuel with CCS – Clean Energy Portfolio Standard No more than 25% of the required amount of clean energy each year could come from nuclear/fossil fuel with CCS sourcesNo more than 25% of the required amount of clean energy each year could come from nuclear/fossil fuel with CCS sources Passed Florida SenatePassed Florida Senate Referred at end of session to Florida House; did not leave committee in HouseReferred at end of session to Florida House; did not leave committee in House

47 Constantly choosing the lesser of two evils is still choosing evil. Jerry Garcia