Increasing the Use of Clean Energy Supply in Florida Removing Key Barriers and Creating New Opportunities Ted Bronson Power Equipment Associates, for US Environmental Protection Agency Florida PSC Renewable Energy Workshop January 19, 2007

Overview of Presentation Introduction Standardized Interconnection Rules Utility Rates Renewable Portfolio Standards Contact Information

What is Clean Energy? Clean energy includes demand- and supply-side resources that deliver clean, reliable, and low-cost ways to meet energy demand and reduce peak electricity system loads. Clean energy resources include: Energy Efficiency reduces demand for energy and peak electricity system loads. Common energy efficiency measures include hundreds of technologies and processes for practically all end uses across all sectors of the economy. Renewable Energy is partially or entirely generated from non-fossil energy sources. Renewable energy definitions vary by state, but usually include solar, wind, geothermal, biomass, biogas, and low-impact hydroelectric power. Combined Heat & Power, also known as cogeneration, is a clean, efficient approach to generating electric and thermal energy from a single fuel source. Inherently an energy efficiency measure.

Clean Energy Benefits Clean energy can reduce electricity demand and meet load growth to help address many state energy challenges Primary Clean Energy Benefits Reduce energy demand Meet load growth with fewer environmental consequences State Energy Challenges Electricity demand continues to rise Electricity transmission systems are overburdened Many base-load plants are aging Volatile natural gas prices and financial risk as well as high energy prices Reducing emissions to improve air quality and comply with clean air rules. Additional Clean Energy Benefits Reduced energy-related air emissions Increased power reliability Increased fuel diversity Efficient use of natural resources Increased state economic development

State Approaches to Encourage Clean Energy Five state approaches with significant potential to increase clean energy supply. State Approaches to Encourage Clean Energy Supply Renewable Portfolio Standard (RPS) Establish requirements for electric utilities and other retail electric providers to serve a specified minimum percentage (or absolute amount) of customer load with eligible sources of renewable electricity. Standardized Interconnection Rules Establish clear application processes and technical requirements that apply to utilities within the state which reduce uncertainty and prevent time delays that clean distributed generation systems can encounter in obtaining approval for grid connection. Public Benefit Funds (PBF) for State Clean Energy Programs Are a pool of resources used by states to invest in clean energy supply projects and are typically created by levying a small fee on customers’ electricity rates. Utility Rates Electric and natural gas rates, set by Public Utility Commissions, can be designed to support clean distributed generation projects and avoid unintended barriers, while also providing appropriate cost recovery for utility services on which consumers depend. Output Based Environmental Regulations (OBR) Establish emissions limits per unit of productive energy output of a process (i.e., electricity, thermal energy, or shaft power), with the goal of encouraging the use of efficient fuel conversion (through CHP) and renewable energy as air pollution control measures. Focus on Interconnection and Standby Rates for this discussion since they are primary barriers. Also discuss RPS and importance of including CHP.

Introduction Standardized Interconnection Rules Utility Standby Rates Renewable Portfolio Standards Contact Information

Standard Interconnection Encourages Clean Energy Policy Objective: Establish clear and uniform application processes and technical requirements for connecting distributed generation (DG) systems to the electrical grid. Policy Advantages: These rules are an important mechanism for improving the market condition for clean DG by: Ensuring that the costs of interconnection are the same throughout the state and are commensurate with the nature, size, and scope of the DG project. Helping DG project developers accurately predict the time and costs involved in the application process and the technical requirements for interconnection. Ensuring that the project interconnection meets the safety and reliability needs of both the energy end-user and the utility.

States With Standard Interconnection Rules As of December 2006, 18 states have adopted standard interconnection rules; 14 more are in the process. States with Standard Interconnection Rules Source: EPA Standardized Interconnection Rules An Effective Policy to Encourage Distributed Generation. http://www.epa.gov/chp/pdf/interconnection_fs_123006.pdf

Key Features of Standard Interconnection Rules Standard interconnection rules address the application process and specify technical requirements for interconnecting DG systems Key design feature Application Process Includes all phases of the application process May specify: application forms, timelines, fees, dispute resolution process, insurance requirements and interconnection agreements (contractual documents) Technical Interconnection Requirements Includes technical protocols and standards that govern how generators must interconnect with the electrical grid Standard may conform to industry or national standards (such as IEEE 1547 and UL 1741) May specify: type of permissible technology and system size, electrical grid attributes at point of interconnect, and equipment and protocols required at point of interconnect

Elements of Successful Implementation A number of best practices have emerged for effective implementation of standard interconnect rules. Elements of Successful Implementation Utility regulatory Commission leadership! Work collaboratively with interested stakeholder to develop clear, concise interconnection rules that are applicable to all potential DG technologies. Consider using existing rules and models as templates, including the National Association of Regulatory Utility Commissioners1, MidAtlantic Distributed Resources Initiative2, and rules of other states (Oregon). Address all components of the interconnection process, including issues related to both the application process and technical requirements. Consider making the application process and related fees commensurate with generator size. Create a streamlined process for small and simpler systems that are certified compliant to IEEE 1547 and UL Standard 1741. Develop standards that cover the scope of the desired DG technologies, generator types, sizes, and distribution system types. After adopting a standard, monitor effectiveness and update as needed based on rule effectiveness. http://www.naruc.org/associations/1773/files/dgiaip_oct03.pdf http://www.energetics.com/madri/pdfs/inter_modelsmallgen.pdf

Leading State Examples The Oregon PUC is in the process of developing uniform interconnection technical standards, procedures and agreements. They began the process in 2006 with the MADRI model rule and have initiated a stakeholder process to move forward. Currently, a draft Standard Small Generator Rule is open for comment.  There have been several key improvements to the MADRI model rule: "field certification", non-inverter based Level 2 fast tracking up to 2 MW, and an increase of Level 1 to up to 25 kW. See: http://www.puc.state.or.us/PUC/admin_rules/intercon.shtml New York was one of the first states to issue standard interconnection requirements for DG systems. Enacted in 1999, the initial requirements were limited to DG systems rated up to 300 kW connected to radial distribution systems. New York modified these interconnection requirements to include interconnection to radial and secondary network distribution systems for DG with capacities up to 2 MW. See: http://www.dps.state.ny.us/distgen.htm. In November 1999, the Texas Public Utility Commission adopted substantive rules that apply to interconnecting generation facilities up to 10 MW. This ruling applies to both radial and secondary network systems. The rules require that Texas utilities evaluate applications based on pre-specified screening criteria, including equipment size and the relative size of the DG system to feeder load. These rules are intended to streamline the interconnection process for applicants. Texas ’s interconnection standards can be found in the Distributed Generation Interconnection Manual, available at: http://www.puc.state.tx.us/electric/business/dg/dgmanual.pdf

EPA Interconnection Resources EPA Clean Energy-Environment Guide to Action Chapter 5.4 – Interconnection Standards http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm EPA Fact Sheet: Standardized Interconnection Rules An Effective Policy to Encourage Distributed Generation http://www.epa.gov/chp/state_resources/interconnection.htm Survey of Interconnection Rules. Prepared by the Regulatory Assistance Project for EPA http://www.epa.gov/chp/pdf/survey_interconnection_rules121806.pdf The Regulatory Assistance Project prepared a Survey of Interconnection Rules (PDF, 56 pp., 964K, About PDF) for the June 2006 Oregon Public Service Commission Workshop on Interconnection of Distributed Generation. This paper addresses the regulatory context for interconnection of smaller scale distributed generation (DG). The paper is intended to highlight critical issues in interconnection and to provide a condensed recitation of the provisions for interconnection that are contained in existing interconnection rules and in selected draft and model interconnection rules.

Introduction Standardized Interconnection Rules Utility Standby Rates Renewable Portfolio Standards Contact Information

Utility Rates and Clean Energy (1 of 2) Electric utilities may have rate structures that create barriers to the development of clean distributed generation. Utility Rate Issues Related to Clean Energy Exit Fees Exit (or stranded asset recovery) fees are charged by utilities to departing loads to recover the fixed costs of capital assets without shifting these cost to other customers. Standby Rates Distributed clean energy facilities usually need to have standby power accessible. Utilities assess these rates based on the costs of providing intermittent service (i.e., the capability to provide grid power when needed). Buyback Rates Utilities often buyback electricity from distributed clean energy projects. The rate for the power can be a critical component of project economics.

Utility Rates and Clean Energy (2 of 2) States are employing strategies to avoid undue barriers and reap the benefits of clean DG while providing utilities with appropriate cost recovery. Rate Strategies to Encourage DG Clean Energy Exit Fee Exemptions Some states have adopted exit fee exemptions for existing loads that leave a utility’s distribution system that are replaced with clean DG. (e.g. IL, MA, NY) Standby Rates Some states are exploring approaches to standby rates that may more accurately reflect utility cost of providing standby service. (e.g. OR, CA, NY) Buyback Rates Some states have net-metering regulation that provide small generators a guaranteed purchase price for excess generation. Decoupling States are evaluating new rate designs to “decouple” utility profits from sales volume removing a utility disincentive to support DG. Rate Calculation States are attempting to ensure that rates accurately reflect the costs and benefits of clean DG. Quantifying DG Benefits States may wish to explore ways to ensure that the benefits of clean DG can accrue to the electricity grid. Natural Gas Rates Some states have established favorable natural gas rates for CHP facilities. (e.g. CT, CA, NY)

Elements of Successful Implementation Best practices have emerged based on state experiences. Elements of Successful Design & Implementation Ensure that state PUC commissioners and staff have current and accurate information regarding the rate issues for clean DG and their potential benefits for the electric system. Open a PUC docket to explore actual costs and system benefits of onsite clean energy supply and appropriateness of related rates. Establish a working group of interested stakeholders to consider design issues and develop recommendations for revised rates. Identify if existing or pending Renewable/Energy Efficiency Portfolio Standards or other policies, which might be significant drivers to new onsite clean DG, generate a need for rate evaluations. Whenever new rates are adopted, monitor utility compliance, pace of new clean energy installations, and impact on rate payers.

Leading State Examples California and New York have established revised standby rate structures that ensure fair and reasonable treatment of clean DG. Other states have adopted exit fee exemptions for existing loads that leave a utility's distribution system. Illinois, Massachusetts, and New York allow certain levels of exemption from these fees for loads that are replaced by clean DG, specifically CHP and renewables. In 2004, the Oregon Public Utilities Commission approved a settlement regarding Portland General Electric Company’s tariffs for partial requirements customers. The load served by the on-site generation is treated in the same manner as any other load on the system, which under Oregon rules is obligated to have (or contract for) its share of contingency reserves. The on-site generation is, in effect, both contributing to and deriving benefits from the system’s overall reserve margin. Under the new rates, the partial requirements customer must pay or contract for contingency reserves equal to 7.0 percent (3.5 percent each for spinning and supplemental reserves) of the “reserve capacity” (i.e., either the nameplate capacity of the on-site unit or the amount of load it does not want to lose in case of an unscheduled outage; if the customer is able to shed load at the time its unit goes down, then it will be able to reduce the amount of contingency reserves it must carry). A similar pricing package has been adopted by PacifiCorp. Three states have established special gas rates for electric generators, including CHP projects. California has special gas tariffs for all electric generators. In 2003, the New York PSC ordered natural gas companies to create a rate class specifically for DG users and certify that they had removed rate-related barriers to DG. In 2005, the Connecticut Energy Independence Act included a provision that the natural gas delivery charges for customer-sited DG be waived and those costs recovered by the electric distribution company.

EPA Rates Resources EPA Clean Energy-Environment Guide to Action Chapter 6.3 – Emerging Approaches: Removing Unintended Utility Rate Barriers to Distributed Generation Chapter 6.2 - Utility Incentives for Demand-Side Resources http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm EPA Fact Sheet: Utility Rates - Designing Rates to Level the Playing Field for Clean Energy Supply http://www.epa.gov/chp/state_resources/utility.htm National Action Plan for Energy Efficiency1 Chapter 2 - Utility Ratemaking & Revenue Requirements http://www.epa.gov/cleanenergy/actionplan/report.htm The Regulatory Assistance Project prepared a Survey of Interconnection Rules (PDF, 56 pp., 964K, About PDF) for the June 2006 Oregon Public Service Commission Workshop on Interconnection of Distributed Generation. This paper addresses the regulatory context for interconnection of smaller scale distributed generation (DG). The paper is intended to highlight critical issues in interconnection and to provide a condensed recitation of the provisions for interconnection that are contained in existing interconnection rules and in selected draft and model interconnection rules. 1. Facilitated by EPA and DOE

Introduction Standardized Interconnection Rules Utility Rates Renewable Portfolio Standard Contact Information

Renewable Portfolio Standards (RPS) and Clean Energy Policy Objective: RPS requirements create market demand for clean energy supply by mandating that utilities and electricity providers serve load with a minimum requirement of clean energy. Policy Advantages: Due to market-based approach, has potential to achieve policy objectives efficiently and at relatively modest cost (ratepayer impacts generally range from less than 1% increases to 0.5% savings). Spreads compliance costs among all customers. Functions in both regulated and unregulated state electricity markets. Provides a clear and long-term target for clean energy generation that can increase investors’ and developers’ confidence in the prospects for renewable energy.1 1. Provided the state sends strong signals that this is a policy that will last.

States With RPS Requirements (1 of 2) As of December 2006, RPS requirements have been established in 21 states plus the District of Columbia. Five of these states include CHP or waste heat recovery as an eligible resource.. States with RPS Requirements = CHP/waste heat recovery Source: Navigant Consulting, Inc., Database of State Incentives for Renewable Energy (DSIRE) and California Energy Commission. Notes: In Minnesota the RPS is mandatory for the largest utility, Xcel, however, for the rest of the utilities and service providers it is a “good faith effort”. Under a separate agreement, and in addition to the RPS requirements, Xcel is required to build or contract for 125 MW of biomass electricity, and must build or contract for 1,125 MW of wind by 2010. In addition, Illinois has established a non-mandatory state goal for renewable energy. Arizona explicitly includes renewably fueled CHP systems

States With RPS Requirements (2 of 2) States with RPS requirements mandate that between 1 – 25%1 of electricity be generated from renewable sources by a specified date. Note: 1. Higher percentages are typically for states that already have a relatively large amount of RE, like NY, CA and ME Source: Navigant Consulting, Inc, Database of State Incentives for Renewable Energy (DSIRE) and California Energy Commission.

Key Features of RPS Design? (1 of 3) States tailor RPS requirements to fit policy objectives, electricity market conditions and renewable potential. Key features of effective RPS design Goals and Objectives To produce the best RPS design for the state, it is important to articulate goals and objectives early in the process that serve as a guide for design choices and avoid protracted rule implementation debate. Applicability RPS requirements are most commonly applied to investor-owned utilities and electric service providers. It is unusual for mandatory RPS requirements to extend to municipal utilities and cooperatives, as these entities are predominately self-regulated. Eligibility To support RPS goals, issues that states typically have considered include: What fuel sources and technologies are eligible? Do existing renewable sources count toward compliance? What geographic areas are eligible (e.g., generation within the state boundary or within a regional power pool)? Are central and customer-sited systems treated differently? (See Table on next slide.) Compliance Generally three ways that electricity suppliers may comply with the RPS requirements; Own a renewable energy facility, Purchase Renewable Energy Certificates, Purchase electricity from a renewable facility inclusive of all renewable attributes. Trend is for CHP to be an eligible resource in both RPS and EEPS: CT and PA both include CHP with EE in their RPS’s. The overall design of RPS requirements can influence investor confidence, the ability of markets to develop, and opportunities for project developers and investors to recover capital investments.

Key Features of RPS Design? (2 of 3) Eligibility of technologies varies by state and depends on whether an energy resource or technology supports state goals.

Key Features of RPS Design? (3 of 3) Several best practices for RPS design features have emerged based on state experiences. Key features in RPS design Accounting methods (e.g., energy production versus installed capacity requirements; RECs or bundled energy only). Time horizons for compliance periods Mandatory or voluntary participation Flexible compliance mechanisms to guard against high prices or the lack of supply of renewable energy Coordination with Federal and State energy policies Cost recovery mechanisms for utilities Enforcement mechanisms for non-compliance Incorporate “technology tiers” and/or “credit multipliers” to encourage particular technologies.

Elements of Successful Implementation A number of best practices have emerged for implementing effective RPS requirements based on state experiences. Elements of Successful Implementation Develop broad support, including top-level support of the Governor and/or legislature and hold action –oriented facilitated discussions among key stakeholders. Determine mix and amount of clean energy desired. (Careful analysis and modeling of expected impacts prior to establishing target is key to success.) Establish a long timeline to encourage private investment. Establish cost caps on the price to comply with RPS requirements, high enough to encourage use of a range of eligible technologies but low enough to protect electricity suppliers. Make sure a credible non-compliance mechanism is in place in the form of penalties; however, provide flexibility in compliance.

Leading State Examples The legislation for California’s RPS requirements was enacted in September 2002. California’s RPS requirements originally required retail sellers of electricity to purchase 20% renewable electricity by 2017. Because of perceived significant IOU progress towards this goal, California accelerated this goal of 20% renewables to 2010 and set the state's 2020 goal at 33%.  Retail sellers of electricity are required to increase their procurement of eligible renewable-energy resources by at least 2% per year, so that 20% of their retail sales are procured from eligible renewable energy resources by 2010. http://www.energy.ca.gov/portfolio/index.html The Connecticut RPS was originally promulgated in 1998 and took effect July 1, 2000, establishing requirements for two classes of renewable generating resources. In June 2005, Connecticut passed “An Act Concerning Energy Independence,” establishing a new RPS Class III that must be fulfilled with CHP and electricity savings from Conservation and Load Management programs. The new standard will require electric suppliers and distribution companies to obtain 1% of their generation from Class III resources beginning in 2007 and increasing by 1% per year until leveling out at 4% in 2010 and thereafter. The total RPS requirement started at 4% in 2004 and will rise to and remain at 14% in 2010 and thereafter (including the new Class III). http://www.cga.ct.gov/2005/ACT/PA/2005PA-00001-R00HB-07501SS1-PA.htm. Connecticut’s “An Act Concerning Energy Independence.” Class III renewable energy source" means the electricity output from combined heat and power systems with an operating efficiency level of no less than fifty per cent that are part of customer-side distributed resources developed at commercial and industrial facilities in this state on or after January 1, 2006, or the electricity savings created at commercial and industrial facilities in this state from conservation and load management programs begun on or after January 1, 2006.” Eligible CHP systems must be developed on or after January 1, 2006. Existing units that have been modified on or after 2006 can earn credits only for the incremental output gains. A CHP system must meet a total efficiency level of at least 50%. In addition, the sum of all useful electrical energy output must comprise at least 20% of the technology’s total usable energy output. The sum of all thermal energy products must also constitute at least 20% of the technology’s usable energy output.

EPA RPS Resources EPA Clean Energy-Environment Guide to Action Chapter 5.1 – Renewable Portfolio Standards http://www.epa.gov/cleanenergy/stateandlocal/guidetoaction.htm EPA Fact Sheet: Renewable Portfolio Standards An Effective Policy to Support Clean Energy Supply http://www.epa.gov/chp/state_resources/rps.htm EPA white paper: Energy Portfolio Standards and the Promotion of Combined Heat and Power Forthcoming The Regulatory Assistance Project prepared a Survey of Interconnection Rules (PDF, 56 pp., 964K, About PDF) for the June 2006 Oregon Public Service Commission Workshop on Interconnection of Distributed Generation. This paper addresses the regulatory context for interconnection of smaller scale distributed generation (DG). The paper is intended to highlight critical issues in interconnection and to provide a condensed recitation of the provisions for interconnection that are contained in existing interconnection rules and in selected draft and model interconnection rules.

EPA CHP Partnership Voluntary program that seeks to reduce the environmental impact of power generation by promoting the use of CHP. Facilitate CHP Project Identification Development Implementation Recognition www.epa.gov/chp

EPA Initiatives Several initiatives focused on assisting state policy makers, including utility commissions, with promoting clean energy. EPA Utility Commission Assistance EPA Clean Energy-Environment State Partnership Program State Energy Efficiency and Renewable Energy Projects (EE/RE Projects) National Action Plan for Energy Efficiency

Utility Commission Technical Assistance The aim is to assist state utility commissions in identifying and evaluating policies and programs that promote/support the deployment of clean DG. Focus on state utility commission rules and policies that significantly affect the deployment of customer-sited clean DG Interconnection standards Standby rates Eligibility requirements of Energy Portfolio Standards.

Clean Energy-Environment State Partnership Program Voluntary Partnership that supports state efforts to increase the use of clean energy States work across their relevant agencies to develop and implement a comprehensive strategy for using existing and new energy policies and programs to promote clean energy sources. State Partners: CA, CO, CT, GA, MA, MN, NJ, NM, NY, NC, OH, PA, TX and UT.

EPA-State Energy Efficiency and Renewable Energy (EERE) Projects Joint initiative between the EPA, NARUC, and individual state utility commissions designed to explore approaches that deliver significant energy cost savings and other benefits through greater use of EE and DG/RE/CHP. The Projects explore a range of approaches, for encouraging EE and clean energy resources within state utility commission processes based on specific state interests. Efforts include: Efficiency workshops Rate design Interconnection Resource planning Transmission & distribution planning. State Partners: AR, CT, DC HI, MN, NJ and NM.

National Action Plan for Energy Efficiency The Action Plan presents policy recommendations for creating a sustainable, aggressive national commitment to energy efficiency through gas and electric utilities and partner organizations. The Action Plan was being developed by a Leadership Group of more than 50 leading organizations representing key stakeholder perspectives in setting policy for our electricity and natural gas services, including senior utility officials, state utility regulators, consumer advocates, environmental groups, and large end-users. Florida PSC recently endorsed the Action Plan! Facilitated by EPA and DOE.

Summary www.epa.gov/cleanenergy Numerous opportunities for Florida to increase use of clean energy! Two key barriers that the PSC can address: interconnection standards and standby rates. Successful states have found the importance of leadership at the PSC. EPA can provide assistance to the PSC. www.epa.gov/cleanenergy

For More Information Ted Bronson Katrina Pielli (630) 248-8778 Power Equipment Associates President (630) 248-8778 TLBronsonPEA@aol.com www.peaonline.com Katrina Pielli US Environmental Protection Agency Clean Energy Program Manager (202) 343-9610 Pielli.Katrina@epa.gov www.epa.gov/cleanenergy