# &EPA United States Environmental Protection Agency Air and Radiation (6204J) 

# Acid Rain Program EPA430-R-94-010 November 1994



# Conservation and Renewable Energy Reserve



# UPDATERocyclod/Recyclableas Newsprint• Printedwith Vegetable Oil Based Inks on 100% Recycled Paper (50% Postconsumer)

# OVERVIE'W

Established under EPA'sAcid Rain Program,theConservation and Renewable Energy Reserve (The Reserve) promotes pollution prevention.

ENERGY EFFICIENCY

SOURCE: OSRAM SYL.VANIA, INC.



### Allowances awarded to utilities from the Reserve can be used for compliancewiththeAcid Rain Program or banked for future use. Theseallowancescan make it less costly for affected utilities to comply with the emissions limitations mandated by the Acid Rain Program. The Reserve bonus allowancesare justthe beginning ofthe benefits of efficiency and renewable energy. Both financial and environmental benefits accrue as emissions of a variety of pollutants are avoided at

.the utilitiesthat employthesetech-

. nologies. The Reserve is a pool

.of 300,000 sulfur dioxide 

### (802) 

### allowancessetaside 'to award utilities that initiate efficiency and renewable energy programs. A utilitycan earn one 

### 802 

### allowance for every 500 megawatt hours of energy saved through demand side efficiency or renewable energy generation.

RENEWABLE ENERGY

SOUR_CE: AMERICAN WIND ENERGY ASSOCIATION 

# l.\

**ACID~**RAIN PROGRAM

"THESE [CONSERVATION AND RENEWABLE ENERGY] MEASURES NOT ONLY REDUCE S02 EMISSIONS- THUS FREEING UP ALLOWANCES- THEY ALSO REDUCE EMISSIONS OF OTHER POLLUTANTS, SUCH AS NITROGEN OXIDES, CARBON .MONOXIDE, CARBON DIOXIDE, PARTICULATES AND HAZARDOUS AIR POLLUTANTS." -l.fTILITY. ENVIRONMENT REPORT, MAY 13, 1994

# ACID~RAIN l'ftOOftAAI

ENVIRONMENTAL 

# ENVIRONMENTAL IMPAC,T 

# OF THE RESE,RVE

The 300,000 bonus allowances contained in the Reserve repreBENEFITS """""'ft!l'lll!:'l sent a conversion of 150 billion kilowatt hours to efficiency or reSOURCE: DEPARTMENT OF THE INTERIOR newable energy. The net air pollution that will be avoided bythe full implementation of the Reserve program is

**estima~ed** as follows: ,

I I I I I I I I I I I I I I I I

**~** I> I I a· I I I I I I I I I

**~ ~** 

0
The bonus allowances awardedfrom the Reserve thus far represent an avoidance of approximately 6,400tons of 

### 802, 3,900 tons of NOx, and 1 million tons ofC02• The avoidance of 1 million tons of C02 is equivalent to planting 168 million frees a year·or taking 200,000 cars offthe road each year.

FOR FURTHER INFORMATION ABOUT THE ACID RAIN PROGRAM WRITE OR CALL:

, US EPA ACID RAIN DIVISION (6204J) ATTN: ENERGY EFFICIENCY SECTION 40 1 M STREET SW WASHINGTON, DC 20460 ACID RAIN HOTLINE

(202.) 233-9620

# ACID~RAIN PROGRAM

"THIS PROGRAM IS CREATING A CULTURE CHANGE WHERE UTILITIES ARE ,LOOKING FOR OPPORTUNITIES EVERYWHERE."

- JAMES MAHONEYJ NEW ENGLAND ELECTRIC SYSTEM 

# BONUS ALLOVVANCES AVVARDED FROM THE RESERVE

Inthe Reserve's first year of operation, utilities from across the nation received bonus allowances formeasures ranging from efficient lighting and motorsto landfill gas renewable energy projects. As of September 30, 1994 a total of 2,832 allowances had been. awarded to 15 utilities

.

..The recipients of the first bonus allowances from the Reserve were

announced at the National Association of Regulatory UtilityCommissioners Conference (NARUC) meeting in New York City. A total of 532allowanceswere awardedto5 utilities. The second groupof398 bonus allowances were awarded to 8 applicants in April 1994. An additional 1,902 allowances were awarded to 6 applicants on September30, 1994. 

# OPPORTUNITY FOR UTILITIES

The Reserve provides a unique opportunityfor utilities to earn bonus S02 allowances through the implementation of efficiency or renewable energy generation measures, thus making compliance with the Acid Rain Program less costly. As utilities add new energy efficiency or renewable energy measures each year, allowances earned from the Reserve can accumulate rapidly. For example, the New England Electric System (NEES) companies were awarded 130 allowances from the Reserve in 1993and 1994. Based on current estimates offuture efficiency and renewable energy initiatives, the NEES companies expect to applyfor a total of 14,000 allowances from the Reserve by 1999. Utilities owning Phase I and/or Phase II plants began applying to the Reserve on July 1, 1993. EPA accepts applications beginning. on July 1 of each yearforthe savings and generation ofthe previous year.

# BONUS ALLO"WANCE RECIPIENTS 

# ACID~RAIN PROGRAM

No. of Allowances Name of Recipient Awarded Initiative City ofAustin 

### 18 Commercial, residential, and municipal efficiency programs New England Electric System 

### 130 Commercial, industrial, residential efficiency (Naragansett Electric, programs and landfill gas renewable energy Massachusetts Electric, project Granite State Electric) Portland General Electric 

### 277 Commercial, industrial, and residential efficiency programs PugetSound Powerand Light 

### 1,002 Commercial, industrial, and residential efficiency programs Florida Powerand Light 

### 109 Geothermal energy (ESI Energy) Centerior Energy (Cleveland 6 Commercial efficiency programs Electric Illuminating Company, Toledo Edison) Connecticut Light and Power 

### 173 Commercial, industrial, and residential efficiency programs Dayton Powerand Light 

### 4 Commercial and government efficiency programs Minnesota Power 

### 8 Commercial, industrial, and residential efficiency programs Niagara Mohawk 

### 177 Commercial, industrial, and residential efficiency programs Wisconsin Public Power Inc. 

### 3 Commercial, industrial, agricultural efficiency programs and purchase of geothermal energy Sierra Pacific 

### 835 Purchase of geothermal energy
PSI Energy 

### 41 Commercial, industrial, and residential efficiency programs OtterTail PowerCompany 

### 42 Purchase of biomass energy
RochesterGas and Electric 

### 7 Commercial, industrial, and residential efficiency programs Total AllowancesAwarded 2,832

# ACID~RAIN PROGRAM 

# ELIGIBILITY REQUIREMENTS

Utilities affected in Phase I {1995-2000) ofthe Acid Rain Program are eligible to earn Reserve allowances for savings or generation of renewables from January 1, 1992 up untiltheircompliance date. of January 1, 1995. Utilities affected in Phase II (2000 on) of the Acid Rain Program are eligible from January 1, 1992 up until their compliance date ofJanuary 1, 2000. To participate in the Reserve program a utility must meet the following requirements:


## o Applicant must sell electricity (utility or independent power producer).


### o Applicant or the applicant's holding company must own or operate, in whole or in part, a unit affected bythe Acid Rain Program in Phase I or Phase II.


## o Applicant must be subject to a least cost plan or planning processthat is approved oraccepted bytheapplicant's ratemaking entity. The least cost plan or planning process must meet the following requirements: (1) public participation; {2) evaluation of a full range of resource options; {3) treatment of supply-side and demand-side resources on a consistent and integrated basis; (4) accountingforsystem operation and riskfactors; and {5) implementation of least-cost resources.


## o Investor-owned utilities applying for credit from efficiency programs must be subject to a ratemaking process that provides for "net income neutrality," whereby the utility's earnings are not reduced dueto its conservation efforts. Applicationsfor net income neutrality must be certified by the Department of Energy.

# REGULATORY IMPACT 

# OF THE RESERVE

# ACID~RAIN P R 0 Q R A M

Because eligibility for allowances from the Reserve is conditioned upon the implementation of least cost planning, Congress clearly intended to encourage regulators to levelthe playing field for investments in energy efficiency and renewables. Since enactment ofthe Clean Air Act Amendments, there have been many such initiatives undertaken bystate regulators, some ofwhich specifically cited opportunities for bonus allowance awards. Here aresome examples: 11THE AVAILABILITY OF THESE ALLOWANCES HAS ENCOURAGED PUBLIC UTILITY COMMISSIONS TO ESTABLISH INTEGRATED RESOURCE PLANNING PROGRAMS AND HAS LED TO A MORE COLLEGIAL RELATIONSHIP BETWEEN UTILITIES AND. PUCS. 11

. -RENZJENNINGS, CHAIR OF THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONER 1 S SUBCOMMITTEE ON RENEWABLES.



## o Minnesota Public UtilityCommission opened two dockets to consider utility applications for allowancesfrom the Reserve. 

## o Public UtilityCommission ofTexas proposed a policy statement encouraging integrated resource planning for electric utilities. If adopted, it will establish a procedurewherebythe Commissionwould review utility integrated resource plans, facilitating applications to the Reserve.


## o New YorkPublic Service Commission undertook a special review of its utilities' ·least-cost plans to determinewhetherornottheymet EPA's eligibilityrequirements forthe Reserve.


### o Public Utilities Commission ofOhio adopteda rate-making mechanism for its utilitiesthat is intended to meet the "net income neutrality'' eligibility requirements for allowances from the Reserve. 

## o ConnecticutDepartmentofPublic UtilityControl opened a docketto consider utility applications for allowances from the Reserve.