Website:http://www.raponline.org

The Regulatory Assistance Project177 Water St.

Gardiner, Maine USA 04345Tel: 207.582.1135

Fax: 207.582.1176

50 State Street, Suite 3Montpelier, Vermont USA 05602Tel: 802.223.8199Fax: 802.223.8172

Electric Sector Restructuring and Utility GHG Emissions:

Trends and Opportunities in the US

7th Chatham House ConferenceLondon -- November 4, 2003

Richard Cowart

Overview: 3 topicsDoes electric restructuring/liberalization improve or worsen the GHG profile of the electric industry?Actions by US states: (1): Initiatives in the US electric sector during the restructuring decade to promote efficiency and renewablesActions by US states (2): Explicit GHG initiatives now underway in the US, at the state and local levels

US CO2 Emissions

Why electricity matters

US electricity growth trends

Sales up 31% in the past decadeSummer peak up 56,000 MW in 4 yearsNERC predicts: +160,000 MW of demand growth, 1999-2010DOE forecast: we will need to add the equivalent of the current capacity of Japan AND Germany to the US electric grid by 2020.

Why US states matterEven individually, they are significant GHG producers.

Texas (population 21million) exceeds the combined CO2 emissions of 119 developing countries (over 1 Billion people), and its emissions exceed those of Canada. California’s emissions about the same as Australia, exceed those of Brazil 42 US states, individually, exceed combined emissions of 50 or more developing nations.

In the US federal system, states have significant authority to legislate and regulate. Most regulation of the electric sector in the US is at the state level. States really are the “laboratories of democracy.”State initiatives for carbon management contrast with US federalinaction.

Does Restructuring Help?Restructuring Activity in the United States

Source: http://www.eia.doe.gov/cneaf/electricity/chg_str/regmap.html

Does restructuring help? Trends so far

Positive GHG trends : New generation (mostly gas) is cleaner than US mix;Competition pushes up output from nuclear units;

BUT:Competitive advantage to most older coal plants. Coal plant capacity factors rising.Utility efficiency programs cut in half post-1994, reversing earlier growth trend; Persistent load growth pushes the system;Competitive pressure halts new PURPA renewables;Retail markets and green markets developing slowly.

CO2 emissions in franchise states: steadily rising

0

5

10

15

20

25

30

ALFLGAINKYMOWV

Change from 1990 to 1999-2001 (M metric tons/year) Electric sector only -- Sample of non-restructured states

CO2 emissions in restructured states: mostly rising

-10-505

10152025303540

CAILMINYOHPATX

Change from 1990 to 1999-2001, Electric sector emissions (M metric tons Co2 eq./year) Sample of Restructured US StatesData source: http://www.eia.doe.gov/cneaf/electricity/epa/emission_state.xls

New gas does not displace old coal: Both are rising

Generation growth to 2020 –renewables still small

Increased Gas prices--will drive more Coal generation

0123456789

10

Apr

-90

Apr

-91

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Feb-

09

Nat

ural

Gas

Fut

ures

Pric

e ($

/MM

Btu

)

Source: NYMEX

Topic 2: Efficiency and renewablesinitiatives in state utility regulations

Many public purposes -- not focused on GHG reductionsSome as part of restructuring plans, some independentlyLeading initiatives:

Renewable portfolio standardsSystem benefit chargesNet metering for small renewablesEmissions disclosure and green marketing options

12 states

WI: 2.2% by 2011

IA: 2% by 1999

MN: 3.6% by 2002 and 4.8% by 2012

NV: 1% by 2009, half solar

TX: 2.2% by 2009

PA: varies by utilityNJ: 6.5% by 2012CT: 13% by 2009

MA: 11% by 2009

ME: 30% by 2000

NM: 5% of standard offer

AZ: 1.1% by 2007, 60% solar

Renewable energy standards

Cumulative 1998-2012

$127 mil

RI: $10 milMA: $332 mil

CT: $275 milNJ: $271 mil.

$15 mil

$31 mil.

$32 mil

$94 mil

$2,005 mil

$40 mil.

$95 mil.

$10 mil

Renewable energy funds

14 renewables funds = $3.7

billion thru 2012

$234 mil.

Renewables expected from state standards and funds

Other*

California

NevadaArizonaNew Mexico

*Includes Illinois, Montana, New York, Oregon, Pennsylvania and Rhode Island.

TexasIowa

MinnesotaWisconsin

New JerseyConnecticutMassachusettsMaine0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2000 2002 2004 2006 2008 2010 2012

Meg

awat

ts

CO2 reduction equivalent to* 1.2 billion more trees* 3.9 million less cars

8,550 MW new renewables7,800 MW existing renewables

Cumulative 1998-2012

$225 mil

RI: $56 milMA: $624 mil

CT: $1,216 milNJ: $836 mil

$156 mil

$110 mil.

$525 mil

$3,152 mil

$315 mil

$44 mil

Energy efficiency funds

$126 mil.

19 funds = $7.9 billion thru 2012

TBD--10% ofload growthby 2004

DE: $21 mil$150 mil

ME: $254 mil

MD: $65 mil

VT: $64 milNH: TBD

The Vermont “Energy Efficiency Utility” Model

Power Costs vs. Efficiency Vermont Costs for 2002 & 2003NE-ISO Average Monthly Price

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-0

2

Feb-

02

Mar-0

2

Apr-0

2

May-0

2

Jun-0

2

Jul-0

2

Aug-

02

Sep-

02

Oct-02

Nov-02

Dec-02

Jan-0

3

Feb-

03

Mar-0

3

Apr-0

3

Cen

ts p

er K

illow

atth

our

EfficiencySavings:

1 cent/KWh(Jan 2002),more than

6 cents/KWh(Mar 2003).Currently

3.6 cents/KWh

Delivered Cost of Wholesale Pow er * Wholesale Spot Market Price Eff iciency Vermont, Contract Commitment

Impact of California DSM Programs and Standards

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1975 1980 1985 1990 1995 2000

MW

Public Agency ManagedLoad Mgmt Non DispatchableFuel SubstitutionEnergy EfficiencyBuilding Stds.Appliance Stds.

ME: 100 kW

OK: 100 kW and 25,000 kWh

NJ: No limit (100kW limit proposed)

*

*

40 kW

*IN: 1,000 kWh/month

VT: 15 kW, 100 kW for anaerobic digesters

VA: 10 kW (residential);25 kW (commercial)

*

*

*MD: 80 kW

CT: No limitRI: 25 kW

MA: 60 kW

NH: 25 kW

No limit10 kW

10 kW

40kW

20 kW

No limit

10 kW10 kW

50 kW

10 kW100 kW

10 kW

25 kW

25 kW

100 kW

50 kW 100 kW

Net metering

* 30 states

Green Pricing: widespread activity, but penetration is thin

Topic(3): New State Initiatives Focused on GHG

Renewables and Efficiency policies noted so far not focused explicitly on GHGUS federal inaction creating a policy vacuum on GHGStates, local governments, corporations are starting to actExamples of promising initiatives for the utility sector are:

Recent Electric Power Sector GHG Reduction Initiatives

New England Governors/Eastern Canadian Premiers Climate Change Action PlanUS Northeast – Regional Greenhouse Gas Initiative (RGGI)Oregon Power Plant CO2 Offset ProgramNew Jersey GHG Reduction TargetCalifornia Climate Action RegistryMassachusetts Power Plant Emission Standards

Recent state initiatives to limit electric-sector GHGs

10 RGGI states equivalent to the 4th

largest world economy

Explicit GHG initiatives, in addition to historic efficiency and renewables programs

New England Governors/Eastern Canadian Premiers Climate Change

Action Plan (NEG/ECP)

Goal: Reduce regional GHG emissions to 1990 levels by 2010to 10% below 1990 by 2020ultimately eliminate threat to climate

Reduce electric sector emissions Minus 20% per MWH from current levels by 2025 through more efficient or lower- carbon generation.Increase end-use efficiency by 20%

Establish a regional standardized GHG Emissions Inventory.Maine has adopted the goals into law, launching a process to identify needed action steps.

Oregon:Power Plant CO2 Offset Program

Statute requires new plants, including emergency plants, to meet stringent levels of CO2 output per kwhStandard essentially requires offsetsMany choose to pay the Climate Trust, which uses funds to reduce or sequester equivalent emissions.Five initial projects reduced CO2 at about US$1.50 per ton.

Massachusetts: Power Plant Emission Standards

Problem: Older plants not subject to Clean Air Act became more viable after restructuring.State DEP issued new multiple pollutant rule, specific to these facilities, with support of governor and other agencies, including:

cap on CO2 emissionsreduction to combined average of 1800 lbs of CO2/MWh

Mandatory CO2 reductions for the 6 largest, most polluting plants in the state.

2003 Regional Initiative in Northeast US (RGGI)

Regional Greenhouse Gas Initiative (RGGI)10 Northeastern US States, led by NY, have agreed to develop a cap and tradeprogram focusing on power plant CO2 emissions. RGGI States = world’s 4th largest economy Program design agreement by April 2005Would work with, and supplement the NEG/ECP process noted above.

Other GHG Reduction Initiatives Impacting Electric

Power Sector

New Jersey : Covenant with state’s largest utility to reduce emissions 15% below 1990 by 2005, with monetary penalties for non-attainment.Wisconsin: large emitters required to report CO2 emissions since 1993. Has created Emissions Reduction Registry.Portland, Oregon: goal to reduce GHG emissions 10% from 1990 levels by 2010.

Lessons Being LearnedUS national government is unable to resolve GW debate – state action is emergingRestructuring is stalled – the electricity context is going to be a hybrid systemDefault service is the new franchise –GHG policies must be built into itStates can be creative and flexible in designing GHG mitigation programsBoth “no regrets” and explicit GHG programs and goals can be pursued effectively by states Groups of states will be even more effective in developing broad programs and GHG trading systemsInternational groups can help US states do a better job.