Vol. 7: Issue 1 | January 2019
The California legislature has been busy working on a variety of policies to address the state’s mounting wildfire problem—not least of which concerns utility liability for damages. The state’s largest utility, Pacific Gas & Electric (PG&E), has said its exposure to wildfire liabilities could force it into bankruptcy. Like all the state’s utilities, PG&E is liable for property damage caused by its equipment under the state’s “inverse condemnation” rule, even if it has followed all safety rules. PG&E is already facing $10 billion in damages after having been found at fault for several deadly fires in 2017, and damages from the recent Camp Fire—which killed 79 people and destroyed nearly 12,000 homes and 500 commercial buildings—could add another $20 billion to its liability. State officials have worked to address the mounting liability crisis facing PG&E. In late August, Governor Jerry Brown signed Senate Bill 901, which established a new reasonableness standard for state regulators when determining whether utilities can pass those costs along to ratepayers, while also requiring regulators to consider a utility’s financial status in determining the amount owed for damages caused during the 2017 wildfire season. The bill also contained several wildfire mitigation requirements, including plans to de-energize electrical lines during extreme wind events to avoid starting fires. In October, PG&E de-energized lines for the first time, though it decided not to do so prior to the Camp Fire. The issue seems far from settled as the legislature is now considering an amendment that would extend Senate Bill 901’s utility liability protections to include the 2018 wildfire season—all without touching the inverse condemnation rule.
The policy landscape for energy storage shifted dramatically over the past year in no small part due to the work of state legislatures, nine of which passed 17 measures aimed at supporting the emerging technologies. In all, 17 state legislatures considered more than 80 measures on energy storage—up from around a dozen such bills just three years ago. There are now four states—California, Massachusetts, New York and Oregon—that have established energy storage targets, while Connecticut, Nevada and New Jersey have directed state regulators to do so. In addition, states have passed bills to provide tax credits for energy storage projects, commissioned studies, funded demonstration projects and required utilities to consider storage in resource planning. On the national level, the storage industry has called on Congress to clarify whether storage systems are eligible for the Investment Tax Credit (ITC), and the Federal Energy Regulatory Commission (FERC) required grid operators to open up markets to energy storage systems and the first plans to do so were filed in December, although it will be a year before many go into effect. It appears that the conditions are right for energy storage to finally emerge as a game-changing technology over the coming decade.
Hawaii became the first state to create a legislative mandate to separate utility revenues from capital expenditures in 2018. Governor David Ige signed Senate Bill 2939 that directs the Hawaii Public Utilities Commission (PUC) to implement performance-based regulation by 2020 and create a new utility business model. The bill breaks the link between allowed revenues and capital investment levels and requires the PUC to evaluate existing ratemaking structures and design incentives and penalties around several outcomes, including customer affordability, electric reliability, and rapid interconnection or renewable energy and distributed resources. The bill passed both chambers of the legislature unanimously and is supported by consumer advocates and clean energy groups. Hawaiian Electric (HECO), the state’s only investor-owned utility, also supports the new legislation, however utility officials stressed the need for flexibility in applying new metrics. Hawaii’s renewable portfolio standard (RPS) requires utilities to reach 100 percent renewable energy by 2045 and the state boasts the highest level of per-capita rooftop solar penetration of any state. Senate Bill 2939 is designed to help HECO comply with Hawaii’s RPS and to reduce grid defection by ensuring the utility is a sustainable business model that will be able to survive disruption and defection in the future. Pennsylvania also enacted legislation (House Bill 1782) last year to reform its utility business model. The bill allows utilities to propose and the PUC to approve alternative ratemaking mechanisms based on decoupling mechanisms, performance-based rates, formula rates, and/or multiyear rate plans.
States introduced more than 100 RPS-related bills, ultimately enacting at least 12 bills in 2018. During the second half of last year, California, Massachusetts and Washington, D.C. enacted legislation making major revisions to their RPS policies. California enacted Senate Bill 100 establishing a 100 percent clean energy mandate, requiring utilities to procure all their electricity from clean energy source by 2045. The bill also increases the state’s RPS to 60 percent by 2030. Massachusetts legislation (House Bill 4857) increases the RPS’s required growth rate from 1 percent to 2 percent of sales annually. House Bill 4857 also establishes the country’s first clean peak standard, which requires utilities to procure a certain amount of electricity during peak demand hours from clean energy resources, including renewable energy, energy storage and demand response. The bill directs the Massachusetts Department of Energy Resources to set the initial standard, which will increase by 0.25 percent annually. Washington, D.C. legislation (Bill 904) enacted in December 2018 increases the district’s renewable energy requirements to 100 percent by 2032. In enacting this legislation, the district’s RPS gains the title of most ambitious, replacing Hawaii’s mandate which requires 100 percent renewable energy by 2045. Additionally, New York Governor Andrew Cuomo pledged 100 percent clean energy by 2040, while Washington Governor Jay Inslee released a new clean energy proposal that would require 100 percent clean energy by 2045.
Two bills introduced in South Carolina seek to make significant changes to the state’s regulatory utility model and encourage renewable energy growth. Senate Bill 137 would transform the state’s traditional utility business model and encourage a shift away from centralized power sources. Senate Bill 137 would transform the state's traditional utility business model and encourage a shift away from centralized power sources. The bill would establish performance incentives to encourage South Carolina’s investor-owned utilities to cut electricity costs, increase use of renewable energy sources and to take steps to modernize the power grid. The bill would also ensure that utilities that close their coal plants ahead of schedule can recoup their “stranded” costs from customers. Senate Bill 332 includes a number of clean energy provisions, such as removing the state’s cap on net metering; authorizing community solar to expand access to solar energy to more customers, specifically low-income residents and renters; launching a voluntary renewable energy program for large energy users; and creating a customer “bill of rights” that would allow customers to manage their energy use through the use of solar panels. The bill would also require the South Carolina Public Service Commission to establish a framework for the Public Utility Regulatory Policy Act (PURPA), a federal rule that requires utilities to purchase energy from “qualified facilities” that produce energy at the avoided cost—a cost equal or below what a utility would have to pay for a traditional power plant.
In the November 2018 elections, voters in at least five states—Arizona, Colorado, Florida, Nevada and Washington—weighed in on energy-related ballot initiatives. These initiatives addressed a broad array of energy topics, ranging from renewable energy mandates to offshore drilling, to carbon fees.
California’s landmark policy to equip new homes with solar panels beginning in 2020 passed its final hurdle in December after receiving unanimous approval from the state’s Building Standards Commission. The 2019 Building Code requires all new residential homes in the state have access to renewable energy resources in 2020, sets advanced energy efficiency standards, and provides incentives for distributed energy storage. One provision requires that all new homes be built with rooftop solar panels or, where solar is unsuitable, have access to community solar projects. The 2019 Building Code was also unanimously approved by California Energy Commission and has received broad stakeholder support, including from two of the state’s large investor-owned utilities, Southern California Edison and Pacific Gas & Electric. The Commission predicts the move will save California residents $1.7 billion on electricity bills as the state moves towards fulfilling renewable energy mandates. The high cost of installing residential solar relative to other actions that could reduce emissions, such as increased home and vehicle efficiency standards or centralized solar fields, has drawn criticism, particularly as housing prices are predicted to increase amid California’s current housing crisis. Increased solar power generation may challenge California’s electric grid since the state currently faces overgeneration at midday, which pushes wholesale energy prices to or below zero. Supporters contend that the planned transition to time-of-use electric rates combined with energy storage incentives included in the Building Code will address the oversupply issue. The new solar requirements will drive significant investment in residential rooftop solar energy and energy efficiency as California pursues its recently established mandate of providing 100 percent of its electricity from carbon-free resources by 2045 and 60 percent renewable energy by 2030.
The past couple of years have proven just how fragile the electric grid is when confronted by a new generation of extreme weather events. Hurricanes and wildfires have amassed record levels of destruction, and state legislatures are working with the electric power industry and other policymakers to figure out ways to “future-proof” the grid. Two recent reports highlight one step in this process. Texas and Puerto Rico—both states that suffered the impact of powerful hurricanes—each released report detailing efforts to harden the grid. Texas’ report spans the breadth of a disaster, from preparation to recovery, and outlines over 4,000 potential projects. A similar plan out of Puerto Rico details how it plans to use the next tranche of $8 billion in federal disaster recovery funds, including millions in funding for solar-plus-storage resilient water installations and community resilience centers to provide critical functions and emergency services. A new report highlights how effective all of this proposed up-front investment can be. The National Institute of Building Sciences updated research that underscores how utility and transportation agencies can save big by investing in mitigation—with several projects reaping $10 to $30 in avoided costs for every dollar spent.
Nine states in the Northeast, along with the District of Columbia committed in December to form a cap-and-trade system for the transportation sector, in an effort to limit greenhouse gas emissions. These states—Connecticut, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Rhode Island, Vermont, Virginia—and D.C. pledged to develop a detailed plan in 2019 to cap emissions and direct more resources toward low-carbon transportation, including bike lanes, public transit and zero-emission vehicles. This project will be modeled, at least in part, on the existing Regional Greenhouse Gas Initiative (RGGI), which helped—along with other state policies and market factors—to reduce power sector emissions in nine northeastern states by approximately 40 percent since its implementation in 2009.
Massachusetts and Rhode Island—announced new offshore wind projects, which will add 1.4 gigawatts (GW) of renewable capacity to the region. Connecticut and Rhode Island both selected developer Deepwater Wind to build offshore wind projects of 200 megawatts (MW) and 400 MW, respectively. Massachusetts selected developers Avangrid and Copenhagen Infrastructure Partners to build an 800-MW wind farm that will be sited 15 miles off the coast of Martha’s Vineyard. In August, the developers published the pricing for the project at $74 per megawatt-hour, a record low. Additionally, several New England states announced solicitations for offshore wind, including New York, which issued an 800 MW solicitation and New Jersey, which issued a solicitation of 1.1 GW, the largest to date. In December, the New Jersey Board of Public Utilities unanimously voted to adopt a funding mechanism for the state’s offshore wind program, the Offshore Wind Renewable Energy Certificate, which determines the process by which all offshore wind projects will be funded and how revenues will be returned to ratepayers. Furthermore, the first U.S. offshore wind project in freshwater was approved by the U.S. Department of Energy in October. The Icebreaker Wind project will be a 20.7 MW project in Lake Erie, off the coast of Cleveland, Ohio. Finally, in the closing weeks of last year, the U.S. Bureau of Ocean Management auctioned off three offshore wind lease areas near Massachusetts. The auctions attracted record-breaking bids totaling over $405 million.
It was a banner year for oil and gas production in the U.S., as the country became a net exporter of petroleum products for the first time in nearly seven decades, while also hitting growth and output records for natural gas in 2018. In December, record shipments of crude oil to foreign markets—an average of 3.2 million barrels per day—were double the level recorded a year prior and helped tip the scales in favor of the U.S. exporting more petroleum than it imported for the first time since 1949. Development in the Permian Basin in Texas and New Mexico has driven much of that growth. At the same time, new pipelines added capacity to the natural gas system, enabling the industry to realize significant growth and output records. Year over year, gas production grew over 10 percent, averaging 83.3 billion cubic feet per day. The U.S. Energy Information Administration (EIA) has forecast continued growth into 2019, though at a slower rate. The trend has been hailed as a major achievement in establishing American energy security and independence, and a long-term deal to deliver liquefied natural gas (LNG) to Poland could further advance American interests. The 24-year-deal with American supplier Cheniere would reduce Poland’s dependence on Russia, which has long been the lone supplier of natural gas to the region.
Energy Secretary Rick Perry came out in support of a petrochemical storage hub in Appalachia on the heels of a U.S. Department of Energy (DOE) report focusing on the potential for siting a storage hub in close proximity to natural gas drilling nearby. The proposed $3.3 billion project, called the Appalachian Storage and Trading Hub, is going through the second phase of a loan guarantee review and could be up for a $1.9 billion DOE loan guarantee. The infrastructure project would centralize the natural gas liquids industry among the region’s many shale formations. The DOE report says production is expected to increase over the coming decade, providing enough supply to justify the project.
The federal government has approved new cybersecurity rules to address one of the most vulnerable access points to grid operations: the supply chain. For some time, there has been concern among officials that third-party suppliers of equipment and software could provide a kind of Trojan Horse infiltration for hackers taking aim at the U.S. power grid. A compromised third-party software update could let hackers right through the front door and into secure utility and grid operator systems, leaving them vulnerable. FERC commissioners unanimously approved the new rules developed by the North American Electric Reliability Corp. (NERC), which require large utilities to review their supply chains for weaknesses. In addition, FERC gave NERC two years to develop standards for protecting electronic access and monitoring tools. In the event of a catastrophic grid collapse, the White House’s National Infrastructure Advisory Council has recently published a new report on how to survive. The report calls on the Trump administration to establish incentives for state and local governments to build the resources that would allow them to go for weeks or months without electricity—and to enable populations to stay in place for the duration of an event.
President Donald Trump signed the 2018 Farm Bill into law in December, which included several provisions for rural energy. The bill approved and updated two programs that advance and support energy efficiency and renewable energy in rural communities. The first, the Rural Energy Savings Program (RESP), offers low-interest loans to borrowers to make energy efficiency improvements to their homes and small businesses. The program lends money to rural electric cooperatives and other rural electric utilities, which then re-lend the funds to customers and provide financing for needed upgrades. The Renewable Energy for America Program (REAP) helps agricultural and rural businesses, such as farms and ranches, install renewable energy and energy-efficient technologies—such as heating, ventilation and air conditioning systems; electric or solar pumps for sprinkler pivots; and efficient lighting—by providing loan guarantees and grants. This program is so successful that it is continuously oversubscribed. The Farm Bill also continues support for the Community Wood Energy Program and the National Oilheat Research Alliance, which each address the efficiency of these two, largely rural fuels. Finally, the bill also includes $10 million to help rural communities invest in carbon capture projects and clears the way for the U.S. Department of Agriculture to fund energy storage technologies.
The amount of potential wind power available in U.S. waters is nearly twice the capacity of current U.S. electric power plants and enough energy to power roughly 1.6 billion homes. With offshore wind costs falling significantly in recent years, more states are looking to harness the clean energy and economic development opportunities presented by offshore wind. Join us on Thursday, February 21 at 3 p.m. ET to learn more about state action around offshore wind and explore state policies, incentives and financing structures to encourage and support the development of the U.S. offshore wind industry. Register for the webinar here.
The NCSL Capitol Forum took place Dec. 5-7 in Washington, DC. The meeting brought together top national experts to discuss several important policy topics of interest to state legislators. The Smart Communities Foundation Partnership met on Tuesday, Dec. 4 to explore aspects of smart communities policies, such as governance, financing, needs in rural communities, and more. Also, the Task Force on Energy Supply met Dec. 7 to discuss a variety of energy-related issues such as how new technologies may offer opportunities in Indian Country, the impacts of rapidly evolving electricity markets, whether 100 percent renewables are a feasible goal for states, and more.
Industry and policymakers are working to address the emerging issue of cross-bores—when a new pipeline is accidentally installed through existing underground infrastructure using trenchless drilling. This new web brief outlines why cross-bores are a concern and what’s being done to promote safe digging and public awareness.
Read this updated web document, that provides an overview of state oil and gas severance tax laws. Some states have imposed taxes and fees on the extraction, production and sale of natural gas and oil. These “severance” taxes apply to materials severed from the ground and include the extraction or production of oil, gas and other natural resources.
NCSL and the National Association of State Energy Officials released a new online Solar Policy Toolkit that provides state legislators, energy officials, governors and commissioners, as well as other interested parties the tools to understand the distributed solar market in their states and to craft policies to achieve their state solar energy goals. This online resource covers the many options and innovative approaches that states have implemented or considered when it comes to rating design, incentives, integration, financing, regulation and workforce development.
This web brief, published in November, highlights the growing trend from states to impose special registration fees on certain hybrid and electric vehicles. Electric vehicles do not require gasoline to operate, so they don't contribute to the upkeep of highways through a gas tax. Read the web brief to learn more about states who are adopting fees and the motivations behind these new fees.
The American Public Power Association released a white paper this month, Creating a Smart City Roadmap for Public Power Utilities. The paper serves as a guide for municipalities and utilities considering a smart city program. APPA provides a roadmap that covers topics such as the role of public power utilities in a smart city, engaging with public and private stakeholders, how to navigate which technologies to consider for the smart grid, cyber and physical security and how to choose employees to lead the smart city effort.
Public Utilities Fortnightly (PUF) is the forum through which state policymakers, utility regulators and industry executives can examine regulatory policies and issues impacting the energy industry. Founded in 1928, PUF was created to provide a neutral platform for key stakeholders to contribute to the conversation surrounding regulatory and policy issues without outside agenda or bias. If you’re a state legislator or legislative staff and you’re interested in receiving a free subscription to PUF’s monthly magazine, please send an email to email@example.com.
The Lawrence Berkeley National Laboratory released an annual report on renewable portfolio standards that provides an overview of the key trends associated with RPS policies. The 2018 U.S. Renewables Portfolio Standards Annual Status Report describes recent legislative revisions, key policy design features, compliance with interim targets, past and projected impacts on renewables development and compliance costs.
American Council for an Energy-Efficient Economy (ACEEE) published two new reports discussing performance incentives for electric utilities and summarizing state progress and action around energy efficiency. ACEEE’s Snapshot of Energy Efficiency Performance Incentives for Electric Utilities summaries state approaches to performance incentive mechanisms, which are designed to help make energy efficiency competitive with traditional utility infrastructure investments, and updates previous research on this topic. The report explores leading trends in performance incentives from states such as Hawaii, Massachusetts and Michigan. In the 2018 State Energy Efficiency Scorecard, ACEEE provides a progress report on state energy efficiency policies and programs and ranks states based on their performance in six categories—utility programs, transportation, building energy codes, combined heat and power, state initiatives, and appliance programs. Massachusetts, California, Rhode Island, Vermont and Connecticut took the top spots in this year’s scorecard.
A new report from Rocky Mountain Institute, America's Power Plan and advanced Energy Economy Institute explores new and innovative utility business models. The Navigating Utility Business Model Reform report offers a menu of regulatory options for policymakers, utilities and electric customers to support a modernized grid. The organizations also released a set of case studies providing a deeper look into state efforts to transform their utility business models.