GLOBAL WARMING INITIATIVES IN THE WESTERN STATES

GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Update on California Presented by: Seth D. Hilton Stoel Rives LLP 111 Sutter Street, Suite 700 San Francisco, CA 94104 sdhilton@stoel.com October 4, 2007 SB 1368 – Greenhouse Gas Emissions Standard • Emissions Standard – No load serving entity or local publicly owned electric utility may enter into a long-term financial commitment unless any baseload generation supplied under the long-term financial commitment complies with the greenhouse gases emissions performance standard SB 1368 – Greenhouse Gas Emissions Standard • Responsible Agencies – California Public Utilities Commission • By February 1, 2007, shall establish emission performance standard for utilities, ESPs, and CCAs • Adopted emission performance standard on January 25, 2007 in D.07-01-039 SB 1368 – Greenhouse Gas Emissions Standard • Responsible Agencies – California Energy Commission • By June 30, 2007, shall establish emission performance standard for local publicly owned electric utilities • On August 29, 2007, adopted regulations consistent with CPUC standard in Order No. 07-0829-6 AB 32 – The Global Warming Solutions Act • Basics – Requires reduction in greenhouse gas emissions to 1990 levels by 2020 – Sources Covered: Any source or category of source whose emissions are at a level of significance . . . that its participation in the program . . . will enable the state board to effectively reduce greenhouse gas emissions and monitor compliance with the statewide greenhouse gas emissions limit AB 32 – The Global Warming Solutions Act Responsible Agencies California Air Resources Board—charged with implementation of AB 32 California Public Utilities Commission and California Energy Commission—will provide recommendations to CARB for energy sector in joint proceeding (R.06-04-009/07-OIIP-1) AB 32 – The Global Warming Solutions Act • Implementation timelines – Three elements to implementation: • Reporting—deadline January 1, 2008 • 1990 Emissions Level—deadline January 1, 2008 • Reductions – – – – – Early Action Measures—June 30, 2007 Scoping Plan—January 1, 2009 Early Action Measures Adopted—January 1, 2010 Reduction Regulations Adopted—January 1, 2011 Regulations Become Effective—January 1, 2012 AB 32 – The Global Warming Solutions Act • Timelines: Reporting deadline 1/1/08 CARB issued draft reporting regulation for August 15, 2007 workshop. Final proposed regulation to be released October 19, 2007, for consideration at December 6-7, 2007 Board meeting. CPUC/CEC Joint Opinion on Reporting and Verification of Greenhouse Gas Emissions in Electricity Sector (CPUC D.07-09-017) AB 32 – The Global Warming Solutions Act • Timelines: Establish Limit 1/1/08  AB 1803 transferred responsibility for preparing and updating California’s GHG inventory from CEC to CARB beginning 1/1/07  CARB staff will present 2020 Statewide GHG emissions limit for December board meeting AB 32 – The Global Warming Solutions Act • Timelines: Reductions – Market-Based Compliance Mechanisms • AB 32 gave CARB the option to allow marketbased compliance mechanisms • CARB’s January 1, 2009, Scoping Plan will identify and recommend market-based compliance mechanisms that CARB finds are ―necessary or desirable‖ AB 32 – The Global Warming Solutions Act • Market Advisory Committee – Created by Executive Order S-20-06 (Oct. 18, 2006) – Issued recommendations on June 30, 2007 – Recommended ―first seller‖ rather than load-based approach AB 32 – The Global Warming Solutions Act • Next Steps – CARB adopts reporting regulations 12/07 – CPUC/CEC addresses load-based v. ―first seller‖ 2/08 – Draft scoping plan issued by CARB 10/08 Summary of Key Deadlines Due Date February 1, 2007 June 30, 2007 Task Establish emissions performance standard for load serving entities 1. Publish list of early action emission reduction measures Establish emissions performance standard for local publicly owned electric utilities Agency CPUC CARB 2. January 1, 2008 January 1, 2009 January 1, 2010 January 1, 2011 January 1, 2012 CEC CARB CARB CARB CARB CARB 1. 2. Adopt reporting and verification regulations Determine 1990 baseline level Approve scoping plan for maximum reductions by 2020 Adopt regulations for early action measures Adopt regulations on emissions limits and reduction measures Regulations go into effect GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Other Efforts in the West to Control Greenhouse Gas Emissions Presented by: Christopher M. Heaps Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204 503.294.9864 cmheaps@stoel.com October 4, 2007 Western Climate Initiative (WCI) • Collaborative effort to identify, evaluate, and implement ways to reduce GHGs in the region • WCI Partners: Arizona, British Columbia, California, Manitoba, New Mexico, Oregon, Utah & Washington • WCI Observers: Colorado, Kansas, Nevada, Ontario, Quebec, Saskatchewan, Sonora & Wyoming Western Climate Initiative (WCI) • Regional Goal: Aggregate reduction of GHGs 15% below 2005 levels by 2020 – Goal is consistent with, and does not replace, goals of individual WCI Partners – Data updates & entrance of new WCI Partners may incrementally change goal • WCI Partners plan to complete design of marketbased mechanisms to help achieve GHG reduction goal by August 2008 • Establish a regional GHG registry to track emissions and credit reductions Western Climate Initiative (WCI) • WCI Partners encourage participation of new US States, US Tribes, Canadian Provinces, and Mexican States that have or are: – Adopted an economy-wide GHG reduction goal; – Developing comprehensive action plan to achieve goal; – Committed to adopt GHG tailpipe standards for passenger vehicles; and – Participating in Climate Registry WCI Partner Goals 2010-12 2020 2040-50 AZ not est. 2000 levels 33% < 2007 1990 levels 6% < 1990 10% < 2000 10% < 1990 1990 levels 50% < 2000 not est. 80% < 1990 not est. 75% < 2000 76% < 1990 50% < 1990 BC not est. CA 2000 levels MB 6% < 1990 NM 2000 levels OR arrest growth UT WA not est. Will set goals by June 2008 Arizona Climate Action Initiative • Arizona Climate Change Advisory Group established by Executive Order: – Establish baseline GHG inventory – Develop Action Plan • Climate Change Action Plan: – 49 recommendations for GHG reductions in AZ – Reductions in all economic sectors, focusing on agriculture and forestry, transportation and land use, energy supply, and fuel use British Columbia’s Climate Change Plan • 40 identified actions • 50% of new electricity demand met with renewable energy • Emissions considerations incorporated in transportation planning • Incorporation of carbon management principles in Provincial forests and agriculture operations • Adaptation of LEED building standards for BC and use in new government construction Manitoba • Goal is to meet and exceed GHG targets established in Kyoto Protocol • Install 1,000 MW of wind generation over next decade • Manitoba Hydro’s Earth Power Loan Program allows installation of ground source heat pumps in new and existing residences • Revising building code to incorporate advanced energy efficiency standards • Incentives for biofuel and hydro power development New Mexico • New Mexico Climate Change Advisory Group established by Executive Order: – Establish baseline GHG inventory – Develop Action Plan • Climate Change Action Plan: – 69 recommendations for GHG reductions in NM – Reductions in all economic sectors, focusing on agriculture and forestry, transportation and land use, energy supply, and fuel use Oregon Strategy for GHG Reduction • Oregon Global Warming Commission will develop GHG reduction recommendations • Promotion of energy efficiency measures • Increased renewable energy generation: 25% by 2025 – OPUC rulemaking ongoing currently • Considering Pavley GHG emissions standards for vehicles • Farm and forest carbon capture and storage • Aggressive biofuels standard Washington • Imposed emissions performance standard on baseload electricity generation – 1,100 lbs CO2/MWh – Applies to all plants serving load in WA – Effectively bars pulverized coal-fired generation without sequestration or other carbon management strategies – WUTC rulemaking ongoing currently • Increased renewable energy generation: 15% by 2020 for large utilities • Adopted Pavley GHG emissions standards for vehicles GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Impacts on the Location and Marketing of Electric Generation Presented by: Marcus Wood Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204 503.294.9434 mwood@stoel.com October 4, 2007 Risks and Uncertainties in Power Sale Agreements • Commonly-included environmental risk provisions include: – Environmental compliance covenants – Allocation of the cost of new environmental requirements – Allowance for environmentally-driven operating restrictions Risks and Uncertainties in Power Sale Agreements • Allocable risks due to global warming initiatives: – Siting: Unanticipated restrictions on net carbon emission can increase cost of a thermal facility – Governmental Assessments: Carbon emissions may be taxed in the future, and greenhouse gas allowances may be auctioned rather than allocated – Force Majeure: If a load serving purchaser of output cannot obtain sufficient carbon allowances, the purchaser might assert a force majeure claim Risks and Uncertainties in Power Sale Agreements • New contract terms necessitated by global warming laws and regulations include: – Allocation of responsibility for obtaining greenhouse allowances (usually to load supplier) – Allocation of benefits of any carbon allowances, if allowances are granted to the generation owner – Allocation of risk of carbon-based output caps or carbon offset requirements for generation facilities Marketing of the Output of RemotelySited Renewable Generation • Key facts – California has a greater demand than supply of renewable generation – Utility executives acknowledge that global warming legislation will change the mix of resources in their resource plans – California is reaching out for distant U.S. (or even Canadian) renewable resources, while Washington law tends to block such resources – Because of the lack of unconstrained interstate transmission and restrictions on dynamic transmission scheduling, distant renewable generation often must be stored and shaped for delivery to California Washington RPS Definition of “Eligible Renewable Resource” • ―Eligible renewable resource‖ means: ―(a) Electricity from a generation facility powered by a renewable resource other than fresh water that commences operation after March 31, 1999, where: (i) The facility is located in the Pacific Northwest; or (ii) the electricity from the facility is delivered into Washington state on a real-time basis without shaping, storage, or integration services‖ Marketing of the Output of RemotelySited Renewable Generation • What are energy storage and shaping services – Entity with a load ―sink‖ in the location of the generator takes the generation into its system to meet load in real time, often treating the resource as a network resource. This is ―storage‖ – Storage provider redelivers the generation as a future prescheduled firm product to a point of delivery with the energy purchaser. Hourly firm transmission is used for delivery, thus substantially reducing transmission costs for delivery of intermittent generation – The point of delivery may be on the load side of a transmission constraint between the generator and load – Storage and shaping can come in many varieties and is underexploited by renewable resource owners Marketing of the Output of RemotelySited Renewable Generation • Impacts of global warming legislation and rules on the storage and shaping of remote renewable generation – How is the ―storing‖ resource treated under the global warming regimes (i.e., what is the resource ―deemed‖ delivered)? – Impacts of the ―no non-regional storage‖ requirement in the Washington legislation Global Warming and Construction of Western Transmission • Global warming concerns may block transmission – Example: Frontier Line • The Northwest region is wary of building transmission for carbon emitting resources, for export of renewable resources, or for Canada-toCalifornia transactions – Examples: N. California to Canada line and Northern Lights line • On the other hand, global warming may speed transmission construction and initiatives – Examples: BPA transmission open season and BPA wind energy initiatives Conclusion • For thermal generation – You will be needed, but challenged – Negotiate carefully the power sales contract provisions related to global warming • For renewable generation – You will be in demand; a seller’s market is developing – If you can get your product to market GLOBAL WARMING INITIATIVES IN THE WESTERN STATES: Why Energy Efficiency and Green Building Will Play Major Roles in Reducing Greenhouse Gas Emissions and Addressing Global Climate Change Presented by: Stephen C. Hall Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204 503.294.9625 schall@stoel.com October 4, 2007 Why Energy Efficiency Must Play A Role in Addressing Climate Change • New renewable energy capacity will not be enough to meet GHG reduction goals • Energy efficiency offers vast potential for reduction of GHG emissions • Energy efficiency is the low-hanging fruit of CO2 reductions – Many advantages over renewable energy • We already have the technology and knowledge to cost-effectively achieve energy efficiency on a large scale The Importance of Green Building in Addressing Climate Change • Buildings are major users of energy – 40 percent of energy use comes from the building sector – For a variety of reasons, the absolute amount of energy usage is growing • Improved living standards in developing countries • (Relatively) cheap electricity in the U.S. • Air conditioning • Flat screen televisions Understanding Energy Efficiency • Energy efficiency means doing more (and often better) with less energy – Energy efficiency is different from • energy conservation • load management/demand response • High-Efficiency Products – Windows – Motors, Pumps, Drives, Compressors – Insulation and Building Materials – Household Appliances – Heating, Ventilation, Air Conditioning (HVAC) – Sensors and Control Systems – Lighting Equipment – Distribution Transformers – Office Equipment – Control and Metering Equipment – Cogeneration/Combined Heat and Power – Industrial Process Equipment • Energy Efficiency Services – Energy Performance Contracting – Building and System Design Software – Process Improvement Engineering Existing Obstacles to Energy Efficiency • Regulatory flaws – e.g., utility rates that reward utilities for selling more energy – e.g., building codes that specify minimum safety requirements, not maximum energy efficiency value • • • • • • • Organizational failures Lack of information Perverse incentives False or absent price signals Incomplete markets and property rights Risks to manufacturers and distributors Capital misallocation Harnessing the Potential of Energy Efficiency • • • • Regulatory mandates Market-based approaches Improved state and federal policies Access to financing Regulatory Mandates: The California Model • The California Public Utilities Commission issued a Proposed Decision on September 17, 2007 (proceeding number R.06-04-010) that lays the foundation for making energy efficiency an integral part of "business as usual" in California Directs the utilities to prepare a single, comprehensive statewide long-term energy efficiency plan Adopts three programmatic initiatives: – All new residential construction in California will be zero net energy by 2020 – All new commercial construction in California will be zero net energy by 2030 – Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped to ensure optimal equipment performance • • • • • Develops the "next generation" of California utility energy efficiency programs for 2009-2011 Commits in the near term goals to adopting energy efficiency goals through 2020 and reaffirms our previously adopted 2009-2011 goals Establishes new, collaborative processes with key business, consumer groups, and governmental organizations in California, throughout the West, nationally and internationally The California Model: Challenges and Opportunities • Evaluation, measurement & verification of CO2 savings from energy efficiency • Integration of energy efficiency policies into the AB 32 GHG cap structure • Jurisdiction – CPUC lacks jurisdiction over energy efficiency standards for appliances and new buildings • Ownership of energy efficiency gains is unclear Energy Efficiency-Friendly Policy Changes • Treat energy efficiency as a separate resource • Renewable Portfolio Standards • Integration of tradable energy efficiency credits (―EECs‖) into cap-and-trade system • Remove disincentives for utilities • Clear regulatory signals about – How the carbon benefits of energy efficiency will be calculated – Ownership of energy efficiency – Credit for embedded efficiency – Interaction between GHG caps and energy efficiency measures The Challenges of Financing Energy Efficiency • High performance buildings cost more to build but they are also worth more because they deliver operating cost savings by reducing monthly energy bills • However, there is often a mismatch of benefits and costs – e.g., landlord owns the building, but the tenant pays the electric bill • A variety of different standards, methods and values that are continually evolving • Quantifying the many different and unfamiliar types of risk and benefit into standard real estate risk/benefit business models • The many parties involves in developing a green project are often not coordinated or working at cross purposes, undermining the ability to fully deliver on potential benefits Federal Tax Incentives for Energy Efficiency • Tax Deductions for Commercial Buildings – A tax deduction of up to $1.80 per square foot is available to owners or designers of new or existing commercial buildings that save at least 50 percent of the heating and cooling energy of a building that meets ASHRAE Standard 90.1-2001 • Includes building envelope, interior lighting, heating, ventilating and air conditioning (HVAC) and service hot water (SHW) systems – Partial deductions of up to $.60 per square foot can be taken for measures saving at least 16 2/3 percent in energy costs affecting any one of three building systems: the building envelope, lighting, or heating and cooling systems – The credits are available for systems ―placed in service‖ from January 1, 2006 through December 31, 2008 Innovative Models for Financing Energy Efficiency • Green Loans – Loan for energy efficiency upgrades is carried by the condominium Home Owner’s Association – Note: Check with local real estate laws • Clinton Climate Initiative Building Retrofit Program – Five large financial institutions • $5 billion in commitments – Four largest energy service companies (―ESCOs‖) – Retrofitting existing buildings in 16 cities worldwide – Goal is to include smaller buildings and to globalize the market for ESCOs – The program seeks to reduce the cost of implementing building retrofits by streamlining lending approval processes and reducing the cost of energy efficient and clean energy products used in the retrofits – Retrofitting existing buildings in 16 of its partner cities • Carbon offsets On-Site Renewable Energy • On-site Renewable Energy – Solar photovoltaics – Wind microturbines – Building-integrated photovoltaics (BIPV) • Ownership models – Traditional – Third-Party Investment • Power purchase agreements • Lease models To order any of these books or our upcoming Law of the Sun, please contact: Stephen C. Hall * 503.294.9625 * schall@stoel.com * www.stoel.com