Renewable Portfolio and Energy Efficiency Standards: What Will 2015 Bring?

During the past 10 years, 29 states, the District of Columbia, and two territories passed renewable portfolio (RPS) and/or energy efficiency standards (EE). Each jurisdiction had its own goal and reasons for setting those goals. Collectively, however, the impact to the generation mix, reductions to peak energy consumption, the total amount of energy consumed, and encouraging adoption of renewable generation sources were significant. In light of that, or perhaps in spite of it, legislators and regulators are reviewing those impacts, goals and future feasibility.

What are the standards today?

The RPS/EE standards have been adopted on a state by state basis. Presently, there is no federal RPS/EE standard. What is interesting is that today the discussion around renewables and efficiency has shifted from development to lessons learned. Several approaches are now being considered by states in response to each state’s experience. A sampling of state approaches demonstrate the wide variety of perspectives on these issues.

Some states, like Maryland and Pennsylvania are discussing the possibility of expanding their RPS. For example, Pennsylvania House Bill 100 proposes to increase the alternative energy portfolio from 8 percent to 15 percent by 2021. Additionally, House Bill 129 would require natural gas companies to reduce demand 1 percent by 2018, and 3 percent by 2020; electric companies in Pennsylvania already have those requirements.

With a different set of issues, California regulators recently stated their concerns about complications from too much power coming online simultaneously from renewable resources. Because California has taken an aggressive posture on development of renewable resources, the volume of resources is substantial. For example, solar development is significant and thousands of additional megawatts are expected to be added to the grid in the near future. All of the solar generates electricity at essentially the same time, and it all goes offline at the same time. Balancing the grid and ensuring reliable delivery of power with this kind of challenge creates a new and different kind of issue.

Energy efficiency is a similar, but separate issue for states. In Indiana, Gov. Pence did not sign legislation repealing the energy efficiency standard. He stated that it was a good program, but had potential to negatively impact the state’s industrial customers. The Governor allowed it to become law without his signature, while asking the Indiana regulators to develop a different approach to energy efficiency programs.

In Kentucky, regulators recently approved modification to one utility’s efficiency plan based on the experience of customers. Some portions of the plan were jettisoned as no longer cost effective, other programs were continued, and new programs added to help customers reduce and monitor their energy usage.

In Ohio, pursuant to Senate Bill 310, the state’s RPS and EE standards were suspended for two years. During the suspension, a legislative study committee is created and required to issue a report in September 2015. The report is to make recommendations on how the standard should be modified going forward looking at the cost impacts to consumers for RPS and EE resources. In the event the legislature fails to pass legislation, the previous standards will resume. Other states, including Oklahoma and Kansas, are also considering revising their RPS standards down.

Finally, in West Virginia the legislature acted to repeal its RPS.  The Governor signed the bill in January. West Virginia is the only state to repeal its RPS outright.

Why the push to modify standards?

Opponents of RPS and EE standards have pushed for the repeal or reduction of the standards for several reasons. The main reason cited by opponents is cost – both the cost of renewable resources and the cost of implementation of energy efficiency programs. There are also practical questions about the feasibility of the original goals. Some states have looked at the costs and implementation experience of the standards to date and appear to have determined that the original goals may have been too aggressive, and that reducing the targets is appropriate. Finally, some opponents are distinguishing state goals based on resource mix and what makes practical sense (e.g. solar in Arizona or Florida versus solar in Ohio; wind in Texas v. West Virginia).

Supporters of the standards, on the other hand, point to the rapid deployment of renewable generation assets, the peak shaving impacts and peak price savings of demand response, and the amount of “nega-watts.” Nega-watts are described as the cheapest form of energy because it reduces the amount of energy generated or consumed because they are never needed.

The opposing views are in very sharp contrast. State legislatures and regulatory agencies charged with implementation are being forced to evaluate the policies and make decisions on how to proceed. The disparity of views reflects the depth of disagreement. Adding to the mix of opposing views and strong opinions is the uncertainty of federal environmental rules that are directly tied to the RPS/EE discussion.

The unknown variable – US EPA Rule 111(d)

The U.S. EPA proposed carbon rules under the Clean Air Act Rule 111(d) in June 2014 that will impact existing generation resources. The building blocks proposed by the EPA under the proposed rule favor zero carbon emitting resources and environmental dispatch (as opposed to economic dispatch). The fourth building blocks in the EPA’s Clean Power Plan is energy efficiency.

The EPA has received more than two million comments on the proposed rule and has indicated the final rule will be released in mid-Summer 2015. Questions about how state RPS and EE standards will be applied to the EPA’s counting regimen could have a profound impact on the state implementation plans. Further, state implementation plans, consideration of a regional approach to compliance, or decisions by states to simply wait for the final rule to be fully litigated, also impact how states may approach their review of RPS/EE standards.

Until the final 111(d) rule is published later this year and states can better understand how to proceed with compliance efforts, the conversation in state legislatures and regulatory agencies is sure to continue. The critical interplay of state RPS/EE standards and the final 111(d) CO2 rule is yet to play out. In the coming months, a great amount of attention will be focused on these issues and warrant continued monitoring.