&EPA 

United States 

Environmental Protection 

Agency 

Air and 

Radiation 

(6204J) 

Acid Rain Program 

EPA430-R-94-010 

November 1994 

Conservation and Renewable 

Energy Reserve 

UPDATE 
Rocyclod/Recyclable as Newsprint • Printed with Vegetable Oil Based Inks on 100% Recycled Paper (50% Postconsumer) 
OVERVIE'W 

Established under EPA's Acid Rain Program, the Conservation 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 

compliance with the Acid Rain Program or banked for future use. 

These allowances can make it less 

costly for affected utilities to comply with the emissions limitations 

mandated by the Acid Rain Program. 

The Reserve bonus allowances are 

just the beginning of the benefits of 

efficiency and renewable energy. 

Both financial and environmental 

benefits accrue as emissions of a 

variety of pollutants are avoided at 

. the utilities that employ these tech-

. nologies. 

The Reserve is a pool . of 

300,000 sulfur dioxide 

(802) allowances set aside 

'to award utilities that initiate efficiency and renewable energy programs. A 

utility can 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 by the 

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 awarded from the Reserve thus far represent an avoidance of approximately 6,400 tons of 802, 3,900 tons 

of NOx, and 1 million tons of C02• The avoidance of 1 million tons 

of C02 is equivalent to planting 168 million frees a year· or taking 

200,000 cars off the 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 

In the Reserve's first year of operation, utilities from across the 

nation received bonus allowances for measures ranging from efficient lighting and motors to 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 Utility Commissioners Conference (NARUC) meeting in New York City. A total of 

532 allowances were awarded to 5 utilities. The second group of 398 

bonus allowances were awarded to 8 applicants in April 1994. An 

additional 1 ,902 allowances were awarded to 6 applicants on September 30, 1994. 

OPPORTUNITY FOR 

UTILITIES 

The Reserve provides a unique opportunity for 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 1993 and 1994. Based on current estimates of future efficiency and renewable energy initiatives, the NEES companies expect to apply for 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 year for the savings and generation of the previous year. 
BONUS ALLO"WANCE 

RECIPIENTS 

ACID~ RAIN PROGRAM 

No. of 

Allowances 

Name of Recipient Awarded Initiative 

City of Austin 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 

Puget Sound Power and Light 1,002 Commercial, industrial, and residential 

efficiency programs 

Florida Power and 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 Power and 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 

Otter Tail Power Company 42 Purchase of biomass energy 

Rochester Gas and Electric 7 Commercial, industrial, and residential 

efficiency programs 

Total Allowances Awarded 2,832 
ACID~ RAIN PROGRAM ELIGIBILITY 

REQUIREMENTS 

Utilities affected in Phase I {1995-2000) of the Acid Rain Program 

are eligible to earn Reserve allowances for savings or generation 

of renewables from January 1, 1992 up until their compliance 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 of January 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 by the Acid Rain Program in Phase I or Phase II. 

o Applicant must be subject to a least cost plan or planning process that is approved or accepted by the applicant'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) accounting for system operation and risk factors; 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 due to its conservation efforts. Applications for 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 

level the playing field for investments in energy efficiency and renewables. Since enactment of the Clean Air Act Amendments, 

there have been many such initiatives undertaken by state regulators, some of which 

specifically cited opportunities for bonus allowance awards. Here are some 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 . 

-RENZ JENNINGS, CHAIR OF THE NATIONAL 

ASSOCIATION OF REGULATORY UTILITY 

COMMISSIONER 1S SUBCOMMITTEE ON 

RENEWABLES. 

o Minnesota Public Utility Commission 

opened two dockets to consider utility applications for allowances from the Reserve. 

o Public Utility Commission of Texas 

proposed a policy statement encouraging integrated resource 

planning for electric utilities. If adopted, it will establish a procedure whereby the Commission would review utility integrated 

resource plans, facilitating applications to the Reserve. 

o New York Public Service Commission 

undertook a special review of its utilities' ·least-cost plans to 

determine whether or not they met EPA's eligibility requirements 

for the Reserve. 

o Public Utilities Commission of Ohio 

adopted a rate-making mechanism for its utilities that is intended 

to meet the "net income neutrality'' eligibility requirements for 

allowances from the Reserve. 

o Connecticut Department of Public Utility Control 

opened a docket to consider utility applications for allowances 

from the Reserve.