Clean Energy Act of 2009 Discussion Draft

Developed by Sen. Lindsey Graham (R-SC)
Alliance to Save Energy Overview with Emphasis on Energy Efficiency Provisions

Full text of the discussion draft

Brief Summary

Sen. Lindsey Graham (R-SC) has developed a discussion draft bill, the Clean Energy Act of 2009.  The bill would amend Title VI of the Public Utility Regulatory Policies Act of 1978 by creating a federal Clean Energy Standard that electric utilities (with certain exemptions) could meet through renewable power generation, new nuclear energy, advanced coal fueled generation incorporating carbon capture and storage (CCS), and certain other sources (including coal-mine methane and certain waste-to-energy), as well as energy efficiency.  Energy efficiency could be used to meet up to 25 percent of the standard upon petition of the governor of a state.  The standard would rise from 13 percent of electricity sales to consumers in 2012 to 50 percent in 2050.  The bill includes provisions to credit the retirement of certain high carbon dioxide emitting fossil fuel generators. It also provides extra credits for qualifying small distributed clean energy generation and such generation on Indian land. 

The bill would allow utilities and other entities to earn Clean Energy Credits and Energy Efficiency Credits and establish market trading programs for both. It would also protect the ability of states to administer their own clean energy, renewable energy, and energy efficiency standards.  Alternate compliance payments and non-compliance penalty provisions would be established. Additionally, the bill would authorize the Department of Energy to make loans to help utilities comply. There are also blank sections reserved for nuclear loan guarantees and CCS research, demonstration, and deployment.

With respect to energy efficiency, eligible forms of energy savings would include end-use electricity savings, reduction in electric distribution loss, and increased production at existing nuclear and fossil units.  The bill would recognize and credit the higher efficiency of combined heat and power (CHP) units.  Also the triple crediting for qualified small, distributed clean power generation may be relevant to energy efficiency due to decreased transmission and distribution losses.  There are provisions directing the Secretary of Energy (Secretary) to establish regulations concerning the measurement and verification of energy savings. Credits are disallowed for energy savings achieved in order to comply with national, state, or local building codes and appliance and equipment standards.

Section 3. Federal Clean Energy Standard.

The bill would amend Title VI of the Public Utility Regulatory Policies Act of 1978 by adding a Sec. 610. Federal clean energy standard.

Definitions
Clean energy is defined to include solar, wind, geothermal, and ocean energy; biomass; landfill gas; qualified hydropower; marine and hydrokinetic renewable energy; incremental geothermal production; coal-mined methane; qualified waste-to-energy; qualified nuclear energy; advanced coal generation (that captures and permanently sequesters at least 65 percent of greenhouse gases produced); eligible retired fossil fuel generation (from plants averaging at least 2,500 lbs. per megawatt hour of generation in the three years preceding retirement); and other clean energy sources based on innovative technology, as determined by the Secretary of Energy through rulemaking.

The definitions subsection describes what is meant by “incremental” and “qualified” for certain of the energy sources, “base quantity of electricity,” and other terms.

Clean Energy and Energy Efficiency Requirements
Electric utilities would be required to source an increasing proportion of their base quantity of electricity from clean energy sources or from energy efficiency improvements.  The utilities would submit federal clean energy credits and federal energy efficiency credits to satisfy the standard; energy efficiency may be used to meet up to 25 percent of the standard.  An alternative compliance payment option would allow utilities to pay 5 cents per kilowatt hour (to be adjusted for inflation) to meet the standard.

Federal Clean Energy and Energy Efficiency Credit Trading Programs
The Secretary would be directed to establish trading programs for federal clean energy and federal energy efficiency credits.  Electric utilities would be required to submit such credits to certify compliance with the Clean Energy Standard. 

Double credits would be issued for qualifying generation on Indian land and triple credits would be issued for smaller (no larger than 1 megawatt) distributed generation (but these cannot be added together, so small distributed generators on Indian land would not receive more than triple credits).  Eligible retired fossil fuel generation would receive 0.25 credits per kilowatt hour for five years from the date of retirement based on average annual generation of the last three years of the facilities’ operation. Advanced coal generation would receive credits in proportion to the proportion of carbon dioxide captured and sequestered from the facility. Biomass facilities with both electrical and useful thermal output (CHP facilities) could receive additional credits for additional efficiency.

Credits could be traded, borrowed, carried forward, and banked.  The Secretary may delegate administration of the credit markets to “an appropriate market-making entity” and may delegate to regional entities the tracking of clean energy generation dispatch.

Enforcement
Civil penalties of 200 percent of the alternative compliance payment would be assessed for failure to meet the standard.  The Secretary could mitigate or waive penalties if the electric utility cannot meet the requirements “due to a reason outside of [its] reasonable control” such as natural disasters. 

The Secretary may also waive compliance with the standard to limit rate increases due to the incremental cost of compliance to no greater than four percent per retail customer in any year.  The utility must petition the Secretary for such a waiver and demonstrate that it has exhausted all opportunities to comply with the standard.  Also, an electric utility or state utility commission may apply to the Secretary for a variance (suspension or reduction in requirements) for one or more years on the basis of transmission constraints to the delivery of clean energy.

Alternative Compliance Payments
An electric utility may meet part or all of its requirements by means of an alternative compliance payment (as noted above, 5 cents per kilowatt hour initially, to be adjusted for inflation).  Such payments would be made to the state in which the utility is located.  The Governor may spend funds generated by such payments for expanding clean energy generation; developing, promoting and deploying electric drive vehicles; and offsetting compliance costs through grants to electric consumers and energy efficiency investments.  The Secretary may require a Governor to keep pertinent accounts and records and provide information and reports.

Exemptions
Electric utilities selling less than 4 million megawatt hours of utilities to customers (not including affiliates, lessees, and tenants) are exempt. Electric utilities in Hawaii are exempt.  Exempted utilities may voluntarily opt to be covered by the legislation. Utilities not covered by the legislation and not opting to be voluntarily covered may not sell clean energy or energy efficiency credits.

Inflation Adjustment
The Secretary would make adjustments for inflation of alternative compliance payment rates each calendar year.

State Programs
The bill would preserve the authority of states and their subdivisions to adopt and enforce their own clean energy, renewable, energy, and energy efficiency laws and regulations, and the regulation of electric utilities.  The bill instructs the Secretary to coordinate with the states so that electric utilities receiving clean energy or renewable energy credits under state programs would receive applicable credits under the federal program.  Regulations promulgated under the paragraph would prohibit double counting of credits for federal compliance.

Energy Efficiency Credits
Governors and the Tennessee Valley Authority (TVA) Board of Directors (for TVA service territory) may petition the Secretary to allow up to 25 percent of the clean energy standard to be met through energy efficiency credits.

Energy efficiency credits would be issued by the Secretary for qualified electricity savings achieved by electric utilities and other entities (including states).  Qualified electricity savings include savings at customers’ facilities (but accounting for consumption reductions due to economic downturn, reduced customer base, favorable weather, and other such causes); reductions in distribution systems losses; and the output of new CHP systems (when compared to comparable separate heat and power).  Also incremental increases in nuclear and fossil fuel generation at existing facilities (for fossil fuel, with no increase in greenhouse gas emissions) would be considered electricity savings, but they may not account for more than 10 percent of a utility’s obligations under the standard.

The Secretary would also promulgate regulations for measurement and verification of electricity savings.  Credits would not be issued for electricity savings achieved as a result of complying with national, state, or local building codes or equipment or appliance efficiency standards.

Biomass Harvesting and Sustainability
Provisions pertaining to biomass would be administered in accordance with the Energy Policy Act of 2005, section 203(e) (42 USC 15852(e)).

Loans for Projects to Comply With Federal Clean Energy Standards
The Secretary would be authorized to make loans to electric utilities for building clean energy generation facilities, installing energy efficiency and electricity demand reduction technologies, and for other projects that the Secretary determines are consistent with the subsection. Loans may be for terms not exceeding 30 years and would be at a rate of 50 basis points higher than the federal funds rate.

Reconsideration
The Secretary is to review the program every five years and provide an analysis of whether the program has provided net economic benefits to the United States, if it has contributed to economically harmful electricity rate increases, and if new technologies and clean energy sources will advance the purpose of the program.  The Secretary would also have to make recommendations to Congress on whether the percentage of energy efficiency credits should be increased or decreased, whether the percentage of clean energy electricity should be increased or decreased, and if the definition of clean energy should be expanded.

Section 4. Nuclear Loan Guarantee Language Sufficient to Build 60 Additional Nuclear Reactors.

[To be supplied]

Section 5. Federal CCS Research, Demonstration and Deployment Program.

[To be supplied]