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United States

Crumbs for wind out of a cruel hoax

A comprehensive deregulation plan passed in August by the California Senate falls short of the wind industry's ideal but does contain some good news, albeit buried in the mire of the conventional power sector's lobbying techniques which succeeded in gaining economic protection for nuclear throughout the transition fo a free market. The legislation guarantees bridge funding during the transition to a truly competitive electricity market by the year 2001, the fear is that these markets will focus largely on short term prices at the expense of the values that renewables bring to the system. However, the bill finally ends the uncertainty surrounding existing projects and sets the ground rules for future development.

On a unanimous 38-0 vote, the California Senate passed a comprehensive deregulation plan on the last day of August which divided renewable energy advocates but which is nearly certain to govern the largest electricity market in the United States. Governor Pete Wilson, deeply involved in the final bill's negotiations, is expected to sign the 60 page measure before the end of the year.

Some last minute changes to the Assembly Bill, AB 1890, which also passed unanimously out of the Assembly on August 30 on a 71-0 vote, were favourable to clean power sources such as wind. Municipal utilities, which supply over 25% of California's electricity, will now be required to set aside a percentage of their annual revenues to buy renewables, pursue conservation programmes and invest in research and development. The total funds for these so-called "social programmes" must meet the same spending level of the lowest spending California investor-owned utility. How much of these funds are spent on which of these categories, such as renewable energy development, will be decided by the local governing boards of these institutions.

The Independent Energy Producers (IEP), which helped shape the final plan, declared that AB 1890 offered several provisions that will assist the renewables in California. In particular the path was paved for customers to buy green power and for increased payment for wind energy projects facing expiry of their lucrative Standard Offer 4 power purchase contracts. Specifically AB 1890:

¥ sets aside $540 million to pay for the above-market costs of existing and new renewables through the year 2001

¥ requires electric utilities to provide options for customers to contribute to additional new renewables in return for a reduction in stranded cost obligations

¥ provides immediate direct access for customers, other than those served by municipal utilities, that buy at least half of their electricity from certified renewable plant

¥ codifies in statute a proposed reform of short run avoided cost methodologies negotiated between IEP and utilities that will increase payments to existing wind projects above those currently being collected after facilities fall off the infamous "Year 11" standard offer price cliff.

Along with IEP, the final bill gained the support of Zond Systems, Inc, the current leading developer of new wind projects in the US, and the Center for Energy Efficiency and Renewable Technologies as well as the Environmental Defense Fund.

Despite the fact that the legislation guarantees bridge funding during the transition to a truly competitive electricity market by the year 2001, Nancy Rader, consultant to the American Wind Energy Association (AWEA), still finds the final deregulation plan to be short-sighted and "a significant erosion of California's wind, solar, biomass energy resources could occur." She notes that AWEA and other renewable energy advocates were seeking "a long-term policy to ensure the benefits of renewable energy -- clean air, fuel price stability, system reliability and local economic development -- are not lost in deregulated electricity markets. Our fear is that these markets will focus largely on short term prices at the expense of the values that renewables bring to the system."

Rader is not alone in criticising the plan. Even Rich Ferguson, national energy policy director of the Sierra Club and a sceptic of AWEA's proposed and rejected "renewable portfolio standard," blasts the final bill. "This legislation is not at all about deregulation and competition -- it is strictly a move by the utilities to protect themselves from competition," he says. The final plan just "gives the utilities as much money as possible without raising rates and forestalls competition in the coming years."

Organisations such as the US Public Interest Research Group and Californians Against Political Corruption (CAPC), are also highly critical of the plan, noting that the recovery of some $27 billion in utility stranded costs amounts to over $800 per ratepayer. "This is pork bailout at its worst," says Wendy Wendlandt of CAPC, which is sponsoring a state ballot measure in the November election limiting the amounts of special interest campaign money to be given to state lawmakers. Wendlandt claims Wilson collected $450,000 in campaign contributions from large industrial customers and another $120,000 from the state's three investor-owned utilities. She calls the legislation now sitting on Wilson's desk a "monument to the special influence of massive corporations among California lawmakers."

Blessing and a hoa

xxIn the final analysis, the bill opening up California's large market to what has often been referred to as the "brave new world of competition" is both a blessing and a cruel hoax. Yes, the bill finally ends the uncertainty surrounding existing projects and sets the ground rules for future development. Given the long and miserable experience with the Biennial Resource Plan Update (BRPU), a process that is still dragging on after eight years, some wind developers can be heard breathing a sigh of relief that a decision -- any decision -- was made. In fact the bill allows costs associated with BRPU settlements between wind developers and utilities to be recovered through rates through March 31, 2002; though only 80% of the costs remaining after December 31, 2001 will be eligible for recovery. As one insider put it: "Renewables got a half billion dollars at a time when welfare programmes and other programmes designed to help the poor are being slashed." Another was overheard saying, "If the renewable energy industry can't survive on $500 million, then they don't deserve to continue." Harsh words, but they reflect frustration evident after a two-and-half year process in which ongoing support for renewable resources such as wind power has been anything but certain.

A new report issued by the CEC about several different approaches to the standard will now have much greater impact outside of California than in (see following story). Yet even if it had been adopted, the details of the RPS were to be worked out by California's Renewables Working Group. Given the large influence of the state's investor-owned utilities, there was no guarantee it would not have been corrupted and become nothing more than another way for utilities to recoup unwarranted funds from ratepayers for power plants they did not even own.

This debate, however, has become a moot point. The question before the US wind industry now is how to make the best of what California has offered and learn from this political battle when approaching deregulation in other states. The final California bill does contain features that could complement a mandatory renewables standard in other states, such as offering immediate direct access for customers of renewables and exempting them from some of the costs of the nuclear bailout. In the end, those policies pushed by former Kenetech business development director Eric Miller, now a private consultant, won through: wind companies will be able to get directly to new customers, which poll after poll shows want to buy clean power. It is a risky strategy. But at least offers a ray of hope to a US wind industry that has been bombarded with more than its fair share of bad news over the last several years.

The most bitter pill to swallow is not associated with the portions of the law that impact the renewables industry, but in the hoax it plays on the public in hiding from them the true size of the nuclear boondoggle. While utilities can report that their profits will be capped because of a temporary rate freeze for large customers, they can simply stick sunk costs, as well as operating subsidies for nuclear reactors, into the Competition Transition Charge (CTC) that was supposed to be limited to bona fide sunk investments. According to one estimate, the total bailout for nukes authorised in AB 1890 surpasses $21 billion. "There will be no real competition, or no real new investment, until after 2002," comments one observer.

The fact that ratepayers will never realise the extent of the failure of nuclear power is perhaps the most despised aspect of the final deregulation bill. Still, the wind industry did get something. And in the current political climate in America, any bit of good news is welcome.

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