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<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
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<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p align="left"><b><u><br>
</u></b><u><b>January 2009</b></u></p>
<p align="center"><font size="6"><b>RPS: Certainty Now</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2009/04/07</em>)<br>
</font></p>
<div>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">
Renewables have been positioned in such a prominent place in the new
Administration’s broadly outlined national recovery <u>and</u>
transformation plan that, unwittingly, they may be setting themselves up
to provide disappointments to their friends, and to become flashpoints
of resistance for their non-friends. The debate over a Federal
Renewable Portfolio Standard (“RPS”) may be the first such point of
ignition. If renewables are to really lead in replacing job loss,
displacing foreign oil, and turning back the ocean of global warming,
the regulatory climate has to be right for them to do so.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">Perhaps
one thing the Federal RPS debate will do is put a spotlight on the
opportunities and the limits of trying to use renewables to effect such
transformational policy. This has been an ongoing debate. One matter
seems clear: a Federal RPS will require an ever-increasing interest and
involvement by the players who provide (through traditional means) the
great bulk of our power today. It will also require a new focus on our
transmission and distribution systems.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">This
institutional fact is, of course, not a new revelation coming from the
new Administration. In proposed legislation last year, Renewable
Portfolio Standards were proposed as utility quotas, and Renewable
Energy Certificates held out as mechanisms to goad that industry to
action. The Senate almost pushed through a Federal RPS,
straightforwardly proposing minimum renewable purchase quotas for all
utilities and empowering the Secretary of Energy to create a program for
certificates for compliance purposes. Provision for use of state RECs
in the Eastern Interconnect was sketched out, but the statute clearly
was preemptive in nature in terms of RECs definitions. Proceeds
collected as penalties for non-compliance were to have been dedicated to
a fund to promote efficiency results. Utility recovery of costs
necessary for RPS compliance were to have been insured ratemaking
treatment, as prudent.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">
Utilities have expressed the concern that the intrusion on
state/formulated RPS by Federal legislation would undo the tailored
progress being made by these “laboratories of democracy.” More
materially, they would intrude on states’ individual determinations of
what local resource development should be favored by local RPS
requirements, and could effectively cause residents of renewable-poor
states to transfer funds to those in renewable-rich ones. Shades of
socialistic wealth redistribution!</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">Shades,
too, of potentially imposing significant transmission construction costs
on utilities not garnering sufficient benefits for the investments made
in renewables, adding to the already foreseeable demands for new grid
transmission costs. This Federal RPS could thus (absent adjustment for
the current ratemaking system) be extremely deleterious to utilities.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">It is
not necessarily a quick fix to shift the mandate for RPS compliance from
the individual utilities to the individual states, with the directive
that the states may exceed but not fall below Federal standards. This
is, of course, the general approach taken in the Clean Air Act context.
But it leaves open the issue of whether the states’ RPS requirements
should only be based on their ability to internally produce renewables
proportionate to their power consumption. The proceedings to establish
each state’s renewable resource production capability certainly would be
a stimulus package for economists and lawyers, but it also might well
prove a retardant to renewables’ economic growth. In addition,, the
states where renewables’ use might be the most beneficial from an
environmental standpoint are certainly not necessarily those where they
are produced. As Lincoln might have put it if her were an energy wonk:
“One union, quite divisible, with winners and losers.” Bottom line:
Federal RPS may have some difficulty even getting passed, let alone
operating efficiently.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">There
looms over the Federal RPS debate a larger issue: it all assumes that
the highest national priority should be creating a mechanism simply to
institutionalize the (once) revolutionary leap of separating the
environmental attributes from the power attributes of electricity (the
so-called “null power”) and allowing the separate sale of each,
principally in the interest of promoting renewables. It does not
address the question of reconciling RPS with the emerging goals of
carbon regulation, <i>e.g</i>., running a cap and trade system where
REC’s environmental attributes can be “disaggregated” and sold as carbon
credits to meet a more embracing Federal climate change program, while
still avoiding double counting the value of the environmental attributes
for RECs purposes. For traders, the possibility for arbitrage between
RECs and carbon credits is, of course, financially very interesting, but
it is hard to see what public policy benefits can be obtained. So
ultimately, the proponents of promoting renewables through RPS may find
themselves vying with those for whom renewables are viewed as one--but
perhaps as one relatively inefficient--way of achieving carbon
neutrality.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color: black">Some
programmatic guidelines rationally should prevail. The goal of the
renewables industry should be to focus governmental decision-makers on
renewables’ compatibility with the exercise of policy options with
respect to, <i>e.g</i>., carbon, so that renewables do not get stalled
in the kind of anticipatable policy controversy outlined above.
Certainty right now, “to help the economy by facilitating renewables’
development,” should be the industry’s byword. “Simple and
implementable” should be its motto. “Provision for future incremental
expansion” should be its accommodating longer-term strategy.
Legislative experts may differ on how to achieve these goals. In any
case, they should avoid taking positions which have a reasonable
probability of working against the increased use of renewables, becoming
either centers of irreconcilable controversy or the subject of patched
together, unduly complicated, administrative mechanics.</span></p>
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text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
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