A look behind the Texas renewable portfolio standard: A case study

Natural Resources Journal

Volumn 48, Issue 1, 2008, Pages 129-161

  Hurlbut, David ^a  

^a NATIONAL RENEWABLE ENERGY LABORATORY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ALTERNATIVE ENERGY; ENERGY POLICY; POLICY MAKING; RENEWABLE RESOURCE; RESOURCE DEVELOPMENT; RESOURCE MANAGEMENT; SUSTAINABLE DEVELOPMENT;

NORTH AMERICA; TEXAS; UNITED STATES;

DAUCUS CAROTA;

EID: 56849127135     PISSN: 00280739     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (99)

1. In a few cases, states have set non-binding targets that lack enforcement provisions. This aspirational model is substantially different from the mandatory requirement of an RPS, however. First, a non-binding aspirational goal does not entail economic consequences. Therefore, it does not alter an economic actor's rational decision-making calculus in a consistent and predictable manner. Second, an aspirational goal does not effect any predictable change in future renewable energy demand. A renewable energy developer thus faces similar investment risk regardless of whether the aspirational goal exists. A market-wide enforceable mandate creates both the need and the basis for systematic business planning, whereas an aspirational goal does not.
2. See Karlynn S. Cory & Blair G. Swezey, Renewable Portfolio Standards in the States: Balancing Goals and Rules, ELEC. J., May 2007, at 21.
3. TEX. UTIL. CODE ANN. § 39.904 (Vernon 2007).
4. U.S. Energy Info. Admin., 1990-2006 Existing Nameplate and Net Summer Capacity by Energy Source, Producer Type and State, http:// www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html (last visited Feb. 29, 2008).
5. Elec. Reliability Council of Tex., Existing/New REC Capacity Report, http://www.texasrenewables.com/publicReports/rpt5.asp (last visited Feb. 29, 2008).
6. Am. Wind Energy Ass'n, U.S. Wind Energy Projects, http://www.awea.org/ projects (last visited Feb. 29, 2008).
7. JOANNA I. LEWIS, CTR. FOR RESOURCE SOLUTIONS, A COMPARISON OF WIND POWER INDUSTRY DEVELOPMENT STRATEGIES IN SPAIN, INDIA AND CHINA 3 (2007), available at http://www.resource-solutions.org/lib/ librarypdfs/Lewis.Wind.Industry.Development.India.Spain.China. July.2007.pdf.
8. See Amitai Etzioni, Mixed Scanning Revisited, PUB. ADMIN. REV. Jan.-Feb. 1986, at 8.
9. See BARRY RABE, PEW CTR. ON GLOBAL CLIMATE CHANGE, RACE TO THE TOP: THE EXPANDING ROLE OF U.S. STATE RENEWABLE PORTFOLIO STANDARDS (2006);
10. RYAN WISER & OLE LANGNISS, LAWRENCE BERKELEY NAT'L LAB., THE RENEWABLE PORTFOLIO STANDARD IN TEXAS: AN EARLY ASSESSMENT (2001).
11. See generally BARRY RABE, STATEHOUSE AND GREENHOUSE: THE EMERGING POLITICS OF AMERICAN CLIMATE CHANGE POLICY (2004).
12. L. BIRD ET AL., NAT'L RENEWABLE ENERGY LAB., POLICIES AND MARKET FACTORS DRIVING WIND POWER DEVELOPMENT IN THE UNITED STATES 6 (2003), available at http://eetd.lbl.gov/EA/emp/reports/53554.pdf.
13. In 1999, California's wind energy capacity stood at 1,646 MW, and this increased to only 1,822 MW by 2002, while Texas jumped from 180 MW to 1,096 MW within the same time span. Id. See also Cal. Energy Comm'n, Overview of Wind Energy in California, http://www.energy.ca.gov/ wind/overview.html (last visited Feb. 29, 2008).
14. See, e.g., U.S. DEPT. OF ENERGY, NATIONAL ELECTRIC TRANSMISSION CONGESTION STUDY 54-57 (2006), available at http://www.oe.energy.gov/DocumentsandMedia /Congestion_Study_2006-9MB.pdf;
15. N.Y. STATE ENERGY RESEARCH & DEV. AUTH., THE EFFECTS OF INTEGRATING WIND POWER ON TRANSMISSIONS SYSTEM PLANNING, RELIABILITY, AND OPERATIONS (2005), available at http://www.nyserda.org /publications/wind_integration.report.pdf;
16. MINN. PUB. UTIL. COMM'N, FINAL REPORT - MINNESOTA WIND INTEGRATION STUDY (2006), available at http://www.puc.state.mn.us/docs/ windrpt_vol%201.pdf.
17. See also FERC Interconnection for Wind Energy, 70 Fed. Reg. 34,993 (2005) (establishing technical standards applicable to the interconnection of large wind generating plants).
18. See, e.g., Texas House Passes Bill to Deregulate State's Wholesale Electricity Market, ELEC. UTIL. WEEK, May 29, 1995, at 7.
19. S.B. 7, 1999 Leg., 76th Sess. (Tex. 1999) available at http:// www.legis.state.tx.us/tlodocs/76R/billtext/doc/SB00007F.doc;
20. summary available at http://www.legis.state.tx.us/BillLookup/ BillSummary.aspx?LegSess=76R&Bill=SB7.
21. See TEX. UTIL. CODE ANN. § 39.051 (Vernon 2007).
22. See id. §§ 39.251-.265, 39.301-.313.
23. See id. §§ 39.153-.156.
24. See id. § 39.202.
25. See id. §§ 39.902-.903.
26. See id. § 39.151.
27. The term "rate pancaking" refers to the multiple, separate transmission charges levied by each transmission utility carrying power between a generator and the purchaser. Instead, transmission charges anywhere in ERCOT are assessed on what the statute calls a "postage stamp" basis: one single transmission access charge applies regardless of how many ERCOT transmission utilities are between the seller and the buyer. The PUCT developed and employed the postage stamp method in 1997; the methodology was codified by statute in 1999. TEX. UTIL. CODE ANN, § 35.004(d) (Vernon 2007).
28. S.B. 7, 1999 Leg., 77th Reg. Sess. (Tex. 1999) (filed).
29. See RONALD LEHR ET AL., LISTENING TO CUSTOMERS: HOW DELIBERATIVE POLLING HELPED BUILD 1,000 MW OF NEW RENEWABLE ENERGY PROJECTS IN TEXAS (Nat'l Renewable Energy Lab., 2003), available at http://cdd.stanford.edu/polls/energy/2003/renewable_energy.pdf;
30. see also NEB. PUB. POWER DIST., CUSTOMER MEETING ON ENERGY ALTERNATIVES: SUMMARY OF RESULTS (Aug. 19, 2003), available at http://www.eere.energy.gov/greenpower/resources/pdfs /0803_nppd.pdf.
31. LEHR ET AL., supra note 23.
32. See, e.g., Senate Committee on Electric Utility Restructuring, Witness List for February 22, 1999 hearing on SB 7. Public Citizen, Consumers Union, and Texas Ratepayers' Organization to Save Energy testified against SB7; Texas Public Power Association (on behalf of the state's MOUs) and Texas Electric Cooperatives (on behalf of the state's electric co-ops) testified in favor. At that point, SB 7 would have included an MOU or co-op in restructuring only if the city government or co-op board of directors affirmatively opted for inclusion. Id.
33. See TEX. UTIL. CODE ANN. §§ 39.157(e), 39.203, 39.904 (Vernon 2007).
34. S.B. 533, 2005 Leg., 79th Reg. Sess. (Tex. 2005) (filed).
35. See ERCOT SYS. PLANNING, ANALYSIS OF TRANSMISSION ALTERNATIVES FOR COMPETITIVE RENEWABLE ENERGY ZONES IN TEXAS (2006), http:// www.ercot.com/news/presentations/2006/ATTCH_A_CREZ_Analysis_Report.pdf;
36. see also WIND COALITION, APPROXIMATE WIND ZONE BOUNDARIES AND CREZ SUMMARY TABLE (2006), http://www.windcoalition.org/PDFs/ crez_tableandmap.pdf.
37. See Press Release, Cielo Wind Power, TXU Energy and Cielo Wind Power Announce Wind Project To Total 240 MW (July 24, 2002), available at http://pepei.pennnet.com/display.article/150139/6 /ARCHI/none/none/1/TXU-Energy-and-Cielo-Wind-Power- announce-wind-project-to-total-240-MW/ (describing the 240-MW Noelke Hill Wind Ranch near McCarney, Texas).
38. TEX. UTIL. CODE ANN. § 36.051 (Vernon 2007).
39. See id. § 39.904(g); see also § 36.053(d).
40. TEX. ENERGY PLANNING TASK FORCE, TEXAS ENERGY PLAN 2005: ENERGY SECURITY FOR A BRIGHT TOMORROW 4 (2004), available at http:// www.rrc.state.tx.us/tepc/finalenergyplan.pdf.
41. S.B. 533,2005 Leg., 79th Reg. Sess. (Tex. 2005) (engrossed) (adding new TEX. UTIL. CODE ANN. § 39.904(m)).
42. TEX. UTIL. CODE ANN. § 39.101 (Vernon 2007).
43. Supra note 21.
44. Press Release, U.S. Envtl. Prot. Agency, Important Notice to Partners Purchasing Green Power in Texas, in GREEN POWER PLANET NEWSLETTER, No. 11 (Nov. 11, 2005), available at http://www. epa.gov/grnpower/newsroom/planet11.htm;
45. Press Release, Center for Resource Solutions, Green-E Repeals Its Texas Market Advisory (June 1, 2007), available at http:// www.resource-solutions.org/where/stakeholderadvisories/2007/ Texas_Market_Advisory_Repealed_6.1.07.htm. For a discussion of the economic and legal issues involved, see infra text accompanying notes 42-44.
46. These positions were carried into subsequent rulemaking proceedings at the PUCT dealing with the statutory language added by the rider. See Texas Industrial Energy Consumers' Comments on Proposed Rule at 4, Rulemaking Relating to Renewable Energy Amendments, No. 31852 (P.U.C. OF TEX., Feb. 21, 2006);
47. Response by Reliant Energy Inc. to Commission Questions Regarding the Implementation of S.B. 20 at 8, No. 31852 (P.U.C. of Tex., Feb. 21, 2006).
48. ELEC. RELIABILITY COUNCIL OF TEX., ANALYSIS OF TRANSMISSION ALTERNATIVES FOR COMPETITIVE RENEWABLE ENERGY ZONES IN TEXAS, at ES-5 (2006), available at http://www.ercot.com/news /presentations/2006/ATTCH_A_CREZ_Analysis_Report.pdf. The ERCOT analysis estimated the annual generator revenue reductions that would be due to various amounts of additional wind power on the ERCOT system. On average, ERCOT projected that annual wholesale costs would fall by $253 million per 1,000 MW of new wind power. The author's own analysis, begun while a staff economist with the PUCT, examined the price effect of wind power on the system in 2006, using actual wind power output and system load. The results showed that the 1,855 MW of wind power on the system at the beginning of 2006 and the 1,280 MW added throughout the year reduced wholesale power costs by more than $600 million.
49. David Hurlbut, Let Consumers Harness the Wind, Green Power, SAN ANTONIO EXPRESS NEWS, Mar. 24, 2007 (commentary), available at http://www.mysanantonio.com/opinion/stories/ MYSA032507.5H.hurlbutcomment.26003a8.html
50. S.B. 20, 2005 Leg., 79th Sess., 1st Called Sess. (Tex. 2005).
51. H.J., 79th Leg., 1st Called Sess. 471 (Tex. 2005) (Statement of Legislative Intent).
52. See, e.g., Tex. Renewable Energy Industries Ass'n, 2007 Legislative Objectives, Nov. 9, 2006;
53. On-line News Release, Public Citizen, Don't Mess with Texas Renewables: Repeal Subsection (m), available at http://www.citizen.org/texas/ Dereg/Renewables/articles.cfm?ID=16212.
54. See Press Release, Environmental Defense, Pressure, Buyout Halts TXU Coal Buildout in Texas (Feb. 26,2007), available at http:// www.edf.org/pressrelease.cfm?contentID=5984;
55. Kelley Shannon, Judge Blocks Perry's Coal Plant Order, Urges Delay of Hearing, DALLAS MORNING NEWS, Feb. 20, 2007.
56. Pub. Util. Comm'n of Tex., Notice of Violation by TXU Corp. et al. of PURA § 39.157(a) and P.U.C. SUBST. R. 25.503(g)(7) (PUC Docket No. 34061) (Mar. 28, 2007) (on file with Natural Resources Journal).
57. S.B. 483, 2007 Leg., 80th Sess. (Tex. 2007) (engrossed). Among other things, the bill applied the statute's system-wide market concentration test to any "power region, zone, or functional market recognized by the commission in the power region." In addition, the bill would have required a generation owner to "sell at auction or otherwise divest additional entitlements to the utility's Texas jurisdictional installed generation capacity so that a utility does not control more than... 25 percent of the installed generation capacity inside an ERCOT zonal boundary or a functional market recognized by the commission." Id. at 4, 2.
58. Press Release, supra note 42;
59. David Doerr, About 2,000 Rally at Capitol Against Proposed Coal Plants, WACO HERALD TRIB., Feb. 12, 2007.
60. INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 2007: THE PHYSICAL SCIENCE BASIS (Contribution of Working Group I to the Fourth Assessment Report of the IPCC) (2007), available at http:// www.aaas.org/news/press_room/climate_change/media/4th_spm2feb07.pdf.
61. Texas Senate Video Archives, http://www.senate.state.tx.us/avarchive/ ramav.php?ram=00003580 (May 27, 2007 floor discussion of conference committee report on H.B. 1090, 2007 Leg., 80th Sess. (Tex. 2007)).
62. PUB. UTIL. COMM'N OF TEX., REPORT TO THE 80TH TEXAS LEGISLATURE: SCOPE OF COMPETITION IN ELECTRIC MARKETS IN TEXAS 76 (2007), available at http://www.puc.state.tx.us/electric/reports/scope/ index.cfm.
63. Texas House Video Archives, http://www.house.state.tx.us/fx/av/chamber80/ 043007p.ram (April 20, 2007 floor discussion of third reading, amendment No. 1, S.B. 483, 2007 Leg., 80th Sess. (Tex. 2007)).
64. Press Release, TXU Corp., TXU to Set New Direction as Private Company; Public Benefits Include Price Cuts, Price Protection, Investments in Alternative Energy and Stronger Environmental Policies (Feb. 26, 2007) (on file with Natural Resources Journal).
65. The final Senate vote was 27-3; the final House vote was 139-4. Governor Perry signed the bill into law June 15, 2007. H.B. 1090 2007 Leg. 80th Sess. (Tex. 2007) (engrossed).
66. See generally JOHN W. KINGDON, AGENDAS, ALTERNATIVES AND PUBLIC POLICIES (2d ed. 1997).
67. According to one close observer, the Democratic sponsor of the restructuring legislation in the Texas House told parties early on that "'[w]e're doing it, and Bush will sign it.' It really wasn't very subtle or questionable." E-mail from Pat Wood III, former PUCT chairman and former chairman of FERC, to the author (Aug. 26, 2007, 10:00 PM MST) (on file with Natural Resources Journal).
68. Pub. Util. Comm'n of Tex., Rulemaking Relating to Renewable Energy Mandate Under Section 39.904 of Utilities Code, Order, at 3 (1999).
69. As discussed elsewhere in this article, the addition of section 39.904(m) of the Texas Utilities Code in 2005 contradicted the PUCT's approach until the provision was eliminated in 2007. See infra notes 25-33 and accompanying text.
70. For a comparative analysis of REC markets in the United States, see ED HOLT & LORI BIRD, NAT'L RENEWABLE ENERGY LAB., EMERGING MARKETS FOR RENEWABLE ENERGY CERTIFICATFS: OPPORTUNITIES AND CHALLENGES 7-8 (2005), available at http://www.eere.energy.gov/greenpower/resources/pdfs/37388.pdf.
71. "Exclusive" is used here in the formal economic sense of a private good, in that ownership of an REC prevents the associated amount of renewable energy value from being appropriated by anyone else. "Rivalrous" means that once an increment of the good is used or consumed by one person, the economic usefulness of that increment is exhausted and may no longer be used by anyone else.
72. Elec. Reliability Council of Tex., ERCOT Protocols, Section 14: State of Texas Renewable Energy Credit Trading Program 14-3 (2008).
73. H.B. 1214, 2007 Leg., 80th Sess. (Tex. 2007).
74. To use a simplified example, Producer A may sell to Trader B without recording the exchange with the program administrator, and then in turn B may sell to Retailer C. The exchange may be recorded ultimately with the program administrator as a transfer from A to C, with B's intermediary role legally governed solely by its contractual arrangements with A and C.
75. See 16 TEX. ADMIN. CODE § 25.173(k) (2008).
76. Id.
77. For example, renewable generators powered by biomass may use a small amount of natural gas to start combustion as long as the natural gas accounts for less than two percent of the plant's annual heat input.
78. See TEX. UTIL. CODE ANN. § 35.004(b) (Vernon 2003).
79. The point may be illustrated by way of the Herfindahl-Hirschman Index, which is a common measure of market competitiveness used in antitrust law to assess the implications of major mergers. See U.S. DEP'T OF JUSTICE, HORIZONTAL MERGER GUIDELINES, passim, http://www.usdoj.gov/atr/public/guidelines/horiz_book/hmg1.html (revised Apr. 8, 1997). To take a simple example, two markets, each with a sole supplier, would each have an HHI score of 10,000, which indicates a perfect monopoly. If the markets were combined into a single market with two suppliers, the HHI score for the new market would be 5,000 - still concentrated, but no longer a perfect monopoly. Any combining of separate markets into a single market reduces the HHI as long as there is no corresponding loss or combining of individual competitors.
80. For more on the distinction between monopoly behavior and competitive behavior, see generally WILLIAM J. BAUMOL ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE (1982).
81. See NAT'L ASS'N OF ATT'YS GEN., ENVIRONMENTAL MARKETING GUIDELINES FOR ELECTRICITY (1999), available at http:// www.eere.energy.gov/greenpower/buying/pdfs/naag_0100.pdf;
82. CTR. FOR RESOURCE SOLUTIONS, NORTH AMERICAN ASSOCIATION OF ISSUING BODIES: DOUBLE COUNTING BEST PRACTICES (May 5, 2006) (working group decision document), http://www.resource-solutions.org/policy/naaib/docs/ FinalWGDecisionDraft-NAAIB_Double_Counting_best_practices9.pdf.
83. In economic terms, "rivalrous" means that a given unit of a commodity may be used only once. Public goods such as police security are nonrivalrous in that protection for one person does not prevent protection of any other. Private goods such as real estate and automobiles are rivalrous in that ownership and use by one person or partnership precludes concurrent ownership and use by another.
84. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W. 3d 573, 577 (Tex. 2001).
85. A dilemma is created when double counting is the result of circumstances beyond the control of the seller, as was the case when the legislature amended the RPS statute in 2005. See supra note 14. Double counting that is a consequence of state law instead of the retailer's intent could still fail the four-pronged test used by the Texas Supreme Court in Ernst & Young if the retailer marketed green power knowing that state law created a double-counting regime.
86. 16 TEX. ADMIN. CODE § 25.476(f)(4) (2008).
87. Id. § 25.476(f)(7).
88. Id. § 25.173(i).
89. See INITIAL COMMENTS OF THE ALLIANCE FOR RETAIL MARKETERS, PUC RULEMAKING TO AMEND SUBSTANTIVE RULE § 25.173 (Goal for Renewable Energy No. 26848, P.U.C. of Tex., Dec. 23, 2002).
90. Pub. Util. Comm'n of Tex., supra note 54, at 91.
91. Id. § 25.173(j)(1) (emphasis added).
92. The court ordered the PUCT to set the CCF as required by the plain language of the rule. Reliant Energy Inc. v. Pub. Util. Comm'n of Tex., No. GN403661 (Tex. Dist. 126th May 4, 2005).
93. See RABE, supra note 10, at 21-29.
94. Id. at 23.
95. Id.
96. For a detailed discussion of RPS requirements, REC supply, and voluntary green power, see BLAIR SWEZEY ET AL., PRELIMINARY EXAMINATION OF THE SUPPLY AND DEMAND BALANCE FOR RENEWABLE ELECTRICITY (NREL Technical Report NREL/TP-670-42266, 2007), available at http://www.nrel.gov/ docs/fy08osti/42266.pdf.
97. See supra text accompanying note 64.
98. This would be the case if the oligopoly supplier's markup on a small sales volume were significantly larger than the markup it would realize on a larger volume in a competitive market. Markups tend to be larger for oligopolies and monopolies than for suppliers in a competitive market.
99. ELEC. RELIABILITY COUNCIL OF TEX., ANNUAL REPORT ON THE TEXAS RENEWABLE ENERGY CREDIT TRADING PROGRAM (2001-2006) (compiled from annual reports for each of these years).