This article comes from law firm Foley & Lardner LLP. Readers with an interest in policy and financing will read how one Midwestern state and its utilities are dealing with goals in their Renewable Electricity Standard and influencing issues such as renewable energy credits.
The Illinois Power Agency’s (IPA) plan for purchasing power for Illinois’ two largest electric utilities, ComEd and Ameren, in 2011 is set to be filed for confirmation or modification in the Illinois Commerce Commission (ICC). The IPA, created in 2007, is charged with purchasing electric power for the two utilities in a way that ensures “adequate, reliable, affordable, efficient, and environmentally sustainable electric service at the lowest total cost over time.” The IPA procures power to meet the estimated needs of the utilities’ customers described in a procurement plan in which power producers bid against each other to meet portions of the required power load at the lowest possible price. The IPA is also directed by statute to ensure that a minimum portion of the electric supplied is “generated from cost-effective renewable energy resources” (at least 6% by June 1, 2011, with 75% of that amount coming from wind generation, to the extent available, and a required percentage from solar generation starting in 2012). Many comments on the IPA’s draft 2011 plan came from utilities, government agencies, industry members and associations, and public interest groups, which highlight important issues that the ICC may have to address:
- Financial swaps versus contracts for physical delivery of electricity. Some parties raised concerns that the new Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations to be adopted by the CFTC regarding swap contracts may have consequences for the IPA’s planned reliance on swaps rather than contracts for physical delivery of energy. They want language put into the plan acknowledging that the IPA may need to shift its portfolio away from swaps and more towards contracts for actual delivery of electricity depending upon how the CFTC regulations develop.
- Renewable energy credits (RECs) versus power purchase agreements. The IPA’s plan would meet the renewable energy portfolio requirements through the purchase of one-year RECs rather than by entering into power purchase agreements for actual delivery of electricity generated from wind or other renewable resources. While many stakeholders approve of this approach, members of the renewable-energy industry would prefer to see contracts for actual purchases of renewable energy to help foster development of such resources.
- Short-term versus longer-term RECs. Renewable-energy-industry groups would like the IPA to adopt use of five-year RECs rather than one-year RECs to meet the renewable portfolio requirements. They point to a growing demand for renewable resource capacity throughout the Midwest ISO and PJM states due to similar renewable-energy-portfolio mandates and other factors. This growing demand may outpace the available supply of renewable-energy resources. Five-year RECs, say some, provide more stable cash flow to renewable resource owners, thereby encouraging more development of wind and solar generation, while maintaining more flexibility for the IPA than products with a longer delivery period.
- Purchase of energy efficiency measures as an alternative resource. The IPA draft plan included a proposal that would let it use the purchase of energy-efficiency measures as an alternative resource for utility portfolios. ICC Staff and the utilities raise concerns about whether this option is permissible under the IPA Act or the Public Utilities Act (PUA), or both. ComEd raises the concern that energy-efficiency measures are not “standard wholesale products,” which is how the IPA is directed to meet its portfolio requirements by statute. There also is the question as to how the purchase of such alternatives would interface with the utilities’ energy efficiency programs and targets required by the PUA, and whether there could be double counting, because the utilities’ need estimates submitted to the IPA already factored in reduced energy demand as a result of energy-efficiency plans. Other stakeholders, however, submitted comments in favor of energy efficiency measures being purchased in lieu of supply, and look for the IPA to include energy efficiency measures beyond those included in the utilities’ statutorily required plans.
After a short period for comments, the ICC must confirm or modify the plan no later than December 28, 2010.