State Energy Policy: Moving Forward, Not Back

by Tom Plant

This was a year when renewable energy policy was supposed to be on the defensive. But the outcomes to date have been very different.

With many state legislative sessions ended or wrapping up, we can now see the results: The Renewable Portfolio Standard (RPS) is intact, if not expanded, in every state that has one; advanced energy policies in energy efficiency, financing, and offshore wind have gained ground; and new technologies for natural gas and oil extraction—hydraulic fracturing, or “fracking” —are providing important new resources, but are also under scrutiny for their environmental impact.

The 2013 legislative session started out with a bang. Both the Wall Street Journal and the Washington Post ran stories on the impending attack on RPS policies throughout the United States. A recent analysis by the Center for the New Energy Economy at Colorado State University showed that 121 different bills were introduced around the country this session dealing with RPS. Of those, 26 were proposals to roll back the RPS, 29 were proposals to increase the RPS, and 66 bills proposed to modify the RPS in some fashion.

At the end of the day, 15 bills passed relating to the RPS. Twelve bills modified the RPS and four states increased their RPS. None of the efforts to roll back RPS policies was successful.

Part of the media interest in RPS rollback efforts was the intensely partisan nature of the debates. In states that have taken a leadership role on deployment of renewable power, however, policies have moved beyond simple partisan calculus. In two of the states where a rollback of the RPS was attempted—Kansas and North Carolina—it was Republican legislative leadership and Republican governors that rejected the efforts.

The simple reality is this: In states that have created strong renewable markets through state policy, an industry has evolved that is employing thousands of people and contributing significantly to the state’s economy. According to Pike Research (now Navigant), $6.7 billion in state and local tax revenue was generated by the U.S. advanced energy industry in 2011. Although their environmental contribution is certainly significant, advanced energy business segments in renewable energy and energy efficiency are now big business as well, with substantial levels of financial investment and revenue creation. As the U.S. economy pulls itself from the depths of the great recession, states are loath to reject an industry that is investing in economic expansion.

In addition to increasing state RPS requirements (Colorado, Minnesota, and Nevada), statutes to establish carve-outs for specific technologies passed in Minnesota (solar), Colorado (production from coal mine methane and waste tire pyrolysis), and Maryland (offshore wind).

Through passage of its offshore wind carve-out, Maryland now joins New Jersey and Massachusetts in seeking to establish a foothold for the offshore wind production industry in the United States.

Solar policies continue to innovate, moving beyond simple incentive programs to market growth approaches. This year we saw an expansion of “shared solar” legislation that allows individuals to own portions of a solar farm that is located off-site. The generation from the solar farm is virtually net metered for the customer, so it operates as if the solar panels are on the individual’s roof. Shared solar policies open up the solar market to the millions of customers who have an inadequate roof for solar, as well as to renters. It also allows the solar developer to consolidate the “soft costs” of interconnection, permitting, and installation. The approach was called “solar gardens” in Colorado and duplicated in 2013 in Minnesota. Legislation was also introduced in Nebraska, Maryland, Connecticut, California, and other areas around the country. With a focus on reducing costs and increasing access for solar energy, shared solar will continue to expand.

Similarly, third-party solar legislation continues to grow. This legislation allows companies such as Sun Run, Solar City, Sungevity, and others to finance solar systems for homeowners and businesses and sell the power back to their customers without being regulated like a utility. This removes the up-front cost for the customer and allows the third-party owner to monetize tax credits and depreciation that lower the overall cost of the systems.

Net metering laws that provide a consumer with full credit for generation delivered to the utility are coming under increasing scrutiny by regulators as utilities raise concerns about the potential impact on revenues dedicated to transmission and distribution investments. Minnesota was the first state this year to address this issue. In HF 956, the legislation proposes replacing net metering credits with a Value of Solar Tariff (VOST) payment. Solar advocates have long argued that though utilities are bemoaning the costs of crediting solar customers for generation, the utilities are not adequately considering all of the benefits solar delivers to the system and its customers. Austin Energy first proposed to compensate solar customers with a VOST payment rather than net metering, but Minnesota is the first state to adopt this policy as an option statewide. The Minnesota Department of Commerce’s energy office is charged with developing the methodology that will be used for determining the VOST by next January.

Similar to a VOST, a number of states (among them Maine, Iowa, Arkansas, and Iowa) introduced legislation to move toward a standard performance-based payment for solar production and away from selective up-front rebates or tax credits. Although none of these “CLEAN Contract” efforts succeeded, probably the most comprehensive effort was introduced in Oregon through LC 2256.

Energy Efficiency

In energy efficiency, we are seeing some of the standard policies around building codes, state lead-by-example efforts, and energy efficiency resource standards (EERS) being introduced in many states. But we’re also seeing a good deal of innovation. For example, New Mexico’s HB 286 reduced the EERS from 10% to 8% but simultaneously changed the cost/benefit test to use a “utility cost test” instead of the traditional “total resource cost test.” By simply changing this cost-effectiveness mechanism to better reflect the utility benefit of energy efficiency investments (and excluding the customer cost, which is not borne by the utility), the state qualified hundreds of efficiency technologies that were previously excluded from consideration. As a result, efficiency business groups supported the legislation even with the reduction in the EERS. Legislation requiring utilities to disclose consumer energy usage data represents another emerging trend, as more states seek to maximize the benefit of deployed advanced metering technologies. Interestingly, states with strong energy efficiency policies (as defined by the scorecard rankings of the American Council for an Energy-Efficient Economy) appear to be widening the gap over relatively inefficient states, overwhelmingly leading the 2013 session in proposed energy efficiency legislation and building upon their already strong energy records.

Financing programs also received a great deal of attention in legislatures this year. Nearly 600 bills were introduced related to financing of energy efficiency and renewable energy. More than half of those bills used tax credits to drive investments in advanced energy.

One of the most innovative financing proposals was recently passed in Hawaii. SB 1087 sets up the Green Energy Market Securitization (GEMS) financing system with on-bill repayment of securitized funds. The mechanism is simple but transformative in its approach. The state’s Public Utilities Commission is authorized to assess a fee on every bill, and the anticipated revenue from that fee is then securitized to create a fund for lending. When customers borrow against that fund for a clean energy project, they repay their loan with interest on their energy bill. All loan revenues then go back into the loan fund, and net earnings on the loans are credited to all ratepayers, whether they participated in the loan program or not. The Public Utilities Commission is authorized to use the existing public benefits fund for these proceeds as well, thus replacing a portion of the existing subsidy incentives with a revolving loan—an acknowledgement that as costs continue to come down for renewable energy and efficiency technologies, the primary barrier for individuals is the up-front expense. By combining the costs with the savings on the energy bill, individuals can make the investment with little or no net cost to them. In some cases, the investments are expected to yield a net savings to the consumer exceeding the loan payment amount on a participant’s monthly utility bill.

With the advent of new production techniques, vast natural gas fields are opening up to exploration. These production advances are creating economic opportunities, accelerating fuel switching in electricity generation, and stimulating new uses for natural gas, including transportation. Many states are developing a regulatory regime in natural gas extraction for the first time, and others are modifying their rules to accommodate the increased volume of exploration. These rules need to address concerns over water contamination and air emissions as well as potential conflicts between residential and industrial interests. As a result, we have witnessed a flurry of natural-gas-related legislation in 2013.

When not either proposing outright bans or moratoria, hydraulic fracturing (or fracking) legislation has primarily focused on addressing potential local impacts through disclosure requirements associated with the fluids used in the production process, rule-making authority, and the storage, disposal, and transport of fluids used in the process. Other legislation has focused on the establishment of severance taxes to address both the costs of regulatory enforcement as well as local impact mitigation.

This year’s high level of legislative activity suggests there will be more to come. Innovative approaches to promoting advanced energy management and production such as those we’ve seen this year will certainly spread as the United States modernizes its energy portfolio. We can expect to see state legislators and regulators working in the years to come to manage this transition with thoughtful legislation and oversight.

It’s now much easier to figure out what’s happening in states around the country. In April, Advanced Energy Economy and the Center for the New Energy Economy launched the Advanced Energy Legislation Tracker to provide a method for states to learn from each other. The tracker is a free resource that enables the user to see what advanced energy legislation has been introduced and how that legislation is progressing. The database currently contains more than 2,300 bills, which has allowed us to develop several trend analyses.

Tom Plant served for eight years in the Colorado legislature as a State Representative, during which time he served as chairman of both the House Appropriations committee and the Joint Budget Committee. In 2007, Colorado Governor Bill Ritter appointed Tom to his Cabinet as Director of the Governor’s Energy Office. In 2011, Tom joined Governor Ritter at the Center for the New Energy Economy, working with states around the country in evaluation of their energy plans and assisting in the development of new approaches to expand clean energy opportunities. Tom also holds the position of Vice President of State Policy with the Advanced Energy Economy, an industry trade organization working to advance affordable, clean and secure energy for a vibrant U.S. economic sector.