January 2007

Surge Control

by Roger Feldman  --   Bingham, Dana L.L.P.
(originally published by PMA OnLine Magazine: 2008/01/05)
 

Suddenly it’s 1970.  There’s a war going on that is increasingly unpopular.  Nuclear power is coming back.  Air pollution (in the guise of global warming) is on the tips of everyone’s tongues.  The price of oil is skittering around without real connection to underlying fundamental cause of daily events.  We’re even talking about “energy independence” again.  But now we are in the age of surges. . .

In addition to the Iraq surge, the President also has resolved to end -- by surge -- the threat to our energy security.  Thus, we have a domestic surge to build new power plants, coal and nuclear.  TXU, for example, has announced plans for ten new coal plants.  Texas will need them and the coal is at hand.  Texas may have wind, biomass, and solar in profusion, but these technologies simply are not up to filling the perceived gap.  A comparable issue faces much of the nation;  the nuclear licensing option is picking up speed as a way around GHG problems associated with coal.

In the face of these developments the new Very Green Congress has been talking about the potential of conservation to provide “safe surge,” but the right formula for mobilizing it -- the tool, for example, to reduce power usage nationwide -- does not appear to be self evident.  Nor have renewables, by themselves, nationally offered up a “highly confident” formula for stepping into the gap.

So there are three issues presented which, if not aggressively resolved, could leave the Green proponents in a position similar to the engaged peace supporters:  engaged but without a single plan to cap the upcoming surge.  Proposed legislation in this regard raises three issues:

·                    Should there be Federal standards for utilities’ mandatory use of renewables, and/or mandatory use of efficiency measures, and/or mandatory reduction of hydrocarbons for environmental reasons?

·                    Should more than one of these standards (versions of which are floating around the hill) pass through Congress, could their interaction somehow be coordinated, so as to get the results of Federal standards all pointing in the same direction?

·                    Even if there are no such Federal standards and we are left with multiple state standards, can there be mechanisms for meshing the transfer of legal rights associated with such standards (e.g., RECs, white tags, efficiency credits) through some type of trading regime?

There also remains a pragmatic question:  if none of the types of the foregoing Federal standards are forthcoming from Congress, are the existing incentives (mostly from EPACT) sufficient to drive major private sector activity toward meaningful movement away from hydrocarbons?

Directly affecting the answers to these questions are two substantive issues which have not been explored adequately: 

1.         Do the uses of conservation and renewables (such as solar) fully complement each other, such that their application can be marketed as part of a simultaneous energy reduction and production solution?  Is it reasonable therefore for the convergence of solar and energy efficiency to be promoted through revised governmental incentives?

2.         If solar and energy efficiency are for the most part separable alternatives, not strongly complementary ways to reduce energy consumption and/or reduce hydrocarbon production, does this suggest that a different set of policy incentives should be promoted?

There exist, in the world of energy efficiency, separate trade associations, separate existing and proposed legislative titles, different types of corporate and project sponsors, and different measurements technologies as to performance.  As in the environmental sphere, there necessarily are different protocols as to when displacement of undesirable pollutants can be achieved and credits realized.

All of this being the case, how can the present “surge” to hydrocarbons be offset by incantation of the value of energy efficiency and renewables?  Professional silos for each projected energy/environmental reduction solution are being arrayed against integrated articulation of industrial needs to which traditional utility suppliers are only too glad to respond by conventional means.

In short, there is a need for a force which through the green policy void fuses renewables and conservation.  It is not a role which the FERC has the legal power to play:  it might even cross cut FERC’s rearguard fight for deregulation/open access in some regards.  Perhaps dealing with issues is the best expenditure to which scarce energy and environment R&D funds should be applied.  The line item entry in the Federal budget might make it more acceptable politically to the Legislative Branch: “Surge Control,” or the resulting public relations campaign slogan  might make it more blog marketable:  “Less juice, more filling. . . “

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.