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					    The Renewable Portfolio Standard:
       Key Stakeholder Interviews

                 for the

Massachusetts Division of Energy Resources

                 and its

          RPS Advisory Group

            October 19, 1999

                   by

          Raab Associates, Ltd.
            280 Summer St.
           Boston, MA 02110
             (617) 261-7111
           <raabj@aol.com>
                                                      Table of Contents

Introduction and Overview ............................................................................................................. 1

Executive Summary ........................................................................................................................ 2

Policy, Design, and Implementation Issues

What are the most significant RPS design issues that still must be resolved? ............................... 6
What is your greatest hope regarding the ultimate RPS design and its potential impact? .............. 9
What is your worst fear regarding the ultimate RPS design and its potential impact? ................. 12
Should the RPS apply to standard offer and/or default service? ................................................... 13
Should DOER monitor RPS compliance through "tracking" or "tagging"? ................................. 15
Can the RPS use a different compliance approach than that used for disclosure or GPS? ........... 18
Should RPS compliance be evaluated on a product-by-product basis or on a retailer basis? ....... 20
How should the RPS interface and interact with the State's Renewable Energy Trust Fund? ...... 22
Should the RPS require that suppliers provide minimum levels of existing renewables?............ 25
Should DOER allow compliance flexibility mechnaisms? ........................................................... 27
Should there be a cap on the cost of compliance? ........................................................................ 29
Should there be penalties for companies who do not comply with the RPS requirements? ......... 31
Do you have any concerns or comments regarding the technology eligibility guidelines? .......... 33
Should there be minimum required levels for specific renewable resource types? ...................... 35
Should generation from renewables on the customer side of the meter qualify for the RPS? ...... 36
Do you have any other comments or concerns regarding the RPS? ............................................. 37

Appendix 1: Invitation Letter………………………………………….…………………………39
Appendix 2: The Survey Protocol ................................................................................................. 41




                                                                    -i-
                            Introduction and Overview

The Massachusetts Division of Energy Resources (DOER) is required by the
Commonwealth’s recently enacted electric industry restructuring laws to design and
implement renewable portfolio standards (RPS). DOER retained Raab Associates, Ltd. to
assist it in the development and facilitation of a RPS advisory group process. As part of
that process, Raab Associates interviewed sixteen representatives from a cross-section of
interested stakeholders including: state agencies, consumer groups, environmental
organizations, generators, wholesalers, retailers, renewable energy associations, and
distribution companies.

The interviews lasted about an hour each and covered a wide range of topics related to
RPS policies, design issues, and implementation details. It also covered questions about
the design of the RPS advisory group process. We developed the interview protocol and
the list of interviewees in consultation with DOER staff and its technical consultants, led
by the team of LaCapra Associates and Sustainable Energy Advantage. The interview
invitation letter and the interview protocol are in Appendices 1 and 2, respectively. Prior
to the interviews, interviewees were also forwarded a copy of an article on the RPS
written by DOER staff for the Solar ’99 conference and the parts of the restructuring
legislation pertaining to the RPS.

This report compiles and summarizes the comments we heard during the interviews. It
includes two sections: one on policy, design and implementation issues and another on
the formation of a RPS advisory group. Under each section, we summarize responses by
question. We provide an overall sense of both the range of opinion and the majority
view. We also provide detailed comments made by interviewees to illustrate the various
positions; however, such comments are identified only by stakeholder type (and not by
name or organization).




                                             1
                                Executive Summary

The Massachusetts Division of Energy Resources (DOER) is required by the
Commonwealth’s the recently-enacted electric industry restructuring law to design and
implement a renewable portfolio standards (RPS). DOER retained Raab Associates, Ltd.
to assist it in the development and facilitation of a RPS advisory group process. As part
of that process, we interviewed sixteen representatives from a cross-section of interested
stakeholders including: State agencies, consumers’ groups, environmental organizations,
generators, wholesalers, retailers, renewable energy associations, and distribution
companies. The interviews covered a wide range of topics related to RPS policies, design
issues, and implementation details. They also covered questions about the design of the
RPS advisory group process (which are not included in this final report).

What follows in this Executive Summary is a [paraphrased] reiteration of the survey
protocol questions and the general findings of the 16 stakeholder interviews conducted.


                       Policy, Design and Implementation Issues

Should the RPS apply to standard offer and/or default service?
Nearly two-thirds of the respondents to this question believe that the RPS should apply to
both standard offer and default service; but slightly fewer confirmed that the legislation
clearly requires this. Only one respondent (a retailer) indicated that the RPS should not
apply to either default service or the standard offer. One generator and an additional
retailer agree that the RPS shouldn’t apply to the standard offer. This retailer and a
wholesaler both believe it should apply to default service, though they aren’t sure the
legislation requires it. Also, one State agency and one users’/consumers’ representative
were not certain that the RPS should apply to the standard offer (both cited the existence
of long-term standard offer contracts currently in place and difficulties which this would
cause).

Should DOER monitor RPS compliance through “tracking” or “tagging”?
Three-quarters of those interviewed stated that they could find acceptable either a tagging
or tracking approach if done correctly. Only one respondent (a technology/industry
association) expressed a strong preference for the “tracking” approach, while at least 8
respondents either advocated the “tagging” approach or stated a distinct preference for it
compared to a “tracking” system. Some stated that the two were not mutually exclusive.

Can the RPS use a different compliance approach than disclosure or GPS?
Virtually all the respondents felt that it would be important to have a compliance system
that is consistent with the rules for GPS and disclosure. Primarily, respondents wanted to
see that a system be adopted which would make it easier for industry to comply and easier
for consumers to understand, thus helping everybody to promote the same goals.
Consistency would be important for affected companies as well as for consumers and
ratepayers. One generator noted that regardless of the tradable tags or tracking approach,


                                             2
consistency between the RPS, GPS and disclosure would encourage labeling the source in
a clear and well-understood method. The State agencies commented that the most
important thing was that the underlying data collection system should be consistent.

Should RPS compliance be evaluated on a product-by-product basis or a retailer
basis?
Half of those surveyed believe that compliance with the RPS should be evaluated on a
product-by-product basis (including two retailers, both environmental groups, one
generator, one wholesaler, one technology/trade association, and one State agency). Six
others made strong suggestions that compliance be evaluated on a company-wide or
retailer basis (including two retailers, one wholesaler, one technology/trade association,
one users’/consumers organization, and another users’/consumers’ representative who
indicated a strong predilection to tracking). One State agency indicated they could go
either way and one retailer indicated they had not yet formed a firm opinion on the issue.
Unlike the tagging vs. tracking question where many of the adherents to one system or the
other believed that the system they did not favor at least warranted consideration, the
beliefs on this issue seem to be less flexible.

How should the RPS interface with the State's Renewable Energy Trust Fund?
The overwhelming majority of those interviewed suggested that the RPS and the State’s
Renewable Energy Trust Fund (the Trust Fund) be coordinated in some manner.
However, the range of suggestions for how such coordination might be fashioned
suggests that many possibilities exist. Numerous interviewees mentioned that the Trust
Fund could be used to bring the cost down for RPS-eligible renewables. Others
suggested that the relationship between the two should be limited. Only a few thought
that they were separate vehicles with different missions (e.g., short-run vs. long run) or
that projects using Trust Fund money shouldn’t be completely eligible for the RPS.

Should the RPS require that suppliers provide minimum levels of existing
renewables?
Half of the respondents appear to believe that the Legislation requires suppliers to provide
minimum levels of “existing” renewables. Most of the remaining interviewees appear to
believe the legislation is subject to interpretation, and may not indicate a clear protection
for or maintenance of “existing” renewables. Only two retailers indicated that they
believe the RPS does not require the maintenance of “existing” renewables. [However,
we note that there was substantial confusion among interviewees’ answers about whether
this question referred to maintaining existing renewables or using existing renewables to
satisfy the RPS for new renewables.]

Should DOER allow compliance flexibility mechanisms?
Most of the stakeholders appeared to generally support using a range of flexibility
mechanisms for achieving compliance with the RPS. However, a sizeable cross-section
of those stakeholder groups also expressed fears of too much flexibility and suggested the
need for limitations on their use and stated their support was heavily contingent on their
design. As one consumers’ representative cautioned, “the devil is in the details.”


                                             3
However, the two State agencies were much more skeptical of the need for flexibility
mechanisms.

Should there be a cap on the cost of compliance?
There are fairly clear lines demarking the proponents and opponents of cost caps. Nine
stakeholders in all, including both of the State agencies, as well as the environmental
groups, the GENCOs, one of the users’/consumers’ representatives, and one retailer
believe that there should not be caps on the cost of compliance. The remainder of those
interviewed (seven), with the exception of one wholesaler, all believe that there should be
caps on the cost of compliance. The fence-sitting wholesaler noted: “It [the RPS] may be
a more salable program if there are cost caps on the cost of compliance, but a cost cap is
an artificial mechanism which, while it may help some companies, may end-up distorting
the market more than helping it.”

Should there be penalties for noncompliance with the RPS requirements?
All interviewees believe that there should be penalties for companies who do not comply
with the RPS requirements, and for the most part, stakeholders agreed on the structure
and methods for imposing them. Most also agreed that encouraging compliance, not
automatic penalties should be a goal when considering compliance and enforcement.
Almost everyone felt that penalties should be clearly articulated and provide significant
economic signals to comply, while allowing companies the opportunity to make-up for
their noncompliance before penalties are imposed. Most respondents also suggested that
any financial penalties levied should be used to support renewables development in the
Commonwealth, with the Trust Fund as the likely recipient of such funds. A few
respondents, including a retailer, a GENCO, and a State agency suggested that penalties
go all the way to include loss of license for severe or repeat noncompliance.

Do you have concerns with the technology eligibility guidelines in the legislation?
Most respondents consider the eligibility requirements in the statute to provide about the
correct level of breadth of inclusion under the renewables standard. An environmental
group representative said “They’re great as written,” and noted that “there needs to be
extreme caution as any technologies not currently in the law are looked at.” A
users’/consumers’ representative also suggested to stick to the eligibility requirements
outlined in the statute. A GENCO, who feels it’s just about right, stated: “we like having
some of the nearer-market-viable/cheaper technologies available.” Many respondents
also expressed a need for the DOER to provide good guidelines and definitions for what
qualifies as a renewable. A few interviewees, however, did list certain technologies that
they wanted included (natural gas fuel cells, landfill gas, new hydro), or conversely,
wanted to remain excluded (MSW/garbage burners, large hydro/existing hydro, new
hydro, customer generation).

Should there be minimum required levels for specific renewable resource types?
Most respondents indicated that they do not believe there should be minimum or
maximum levels for technologies required under the RPS. Most feel that the market
should select technologies based on their price with the least-cost renewable resources


                                             4
being the first chosen to meet the RPS requirements. One State agency referred to such
minimums as “just more market meddling.” Only the environmental representatives, the
renewables associations, and a users’/consumers’ representative supported some type of
minimum threshold, and some suggested there might also be a need for maximums too.
Some of the few supporting minimums suggested that it might be worth considering some
low level of minimums for technologies which are close to cost effective to help them
become market viable (such as solar PV), or to support diversity in the renewables mix
which may result in other social benefits. One of the renewables association
representatives noted that this should only be done if there were no Trust Fund to help
“level the playing field.” Additionally, two retailers who indicated that they are not fans
of either minimums or maximums, suggested that the DOER track what is coming on line
within the RPS and in 2-3 years consider imposing specific minimums or maximum
technology bands if they determine that there is insufficient diversity in the mix.

Should generation from renewables on the customer-side of the meter qualify?
All respondents were favorably disposed toward customer generation if the technical
details could be worked-out.




                                            5
                  Policy, Design, and Implementation Issues

From your perspective, what are the most significant RPS design issues that still
must be resolved? [open-ended question to scope out priorities] Which of these RPS
issues are most important to your organization or company? Why?

This open-ended question was the first asked of interviewees. This question provided an
opportunity for individuals to set-out some of their most important issues with regard to
RPS design. Typically, individuals listed anywhere from one overarching principle to a
half-dozen or so issues that they consider to be of primary importance. Mindful that the
interview would provide additional opportunities to comment on specific questions and
issues, interviewees often saved detailed comments for such specific questions (discussed
in the remainder of this report).

The matrix on the next page provides a snapshot of the issues raised by stakeholders. It is
organized from the most common responses to responses provided by only one
interviewer. Along the top of the matrix are listed, by stakeholder type, each of the 16
stakeholders interviewed. Only the responses they provided to this open-ended question
are recorded in the matrix. For instance, there are many issues for which virtually
everyone expressed an opinion or preference during the interview (e.g., product vs.
company compliance), despite not mentioning them in their response to this first
question. The relative absence of a response to any item should not necessarily convey
that they are not important to these stakeholders.




                                            6
Most Significant Issues (by freq. of response)                   S1     S2    E1      E2      C1     C1      W1      W2      G1 G2         A1     A2     R1     R2   R3   R4
Achieve new renewable resources                                  X      X     X                              X                                    X             X         X
Application of RPS to Default Service/Standard                   X                     X                                                                  X          X
    Offer
Consistent w/ GPS & disclosure                                   X                                            X       X
Consistent w/ other states/regions                                                            X               X                                                      X
Maintain Existing renewables                                                   X                                                                   X      X
Product-based vs. company-based                                  X                     X                                                                             X
Allow imports from states/regions/Canada                                                                              X                                   X
Availability of new RE product on market                                                                      X                                                           X
Allow flexible compliance mechanisms                                                                                                                      X      X
Keep down or cap costs of RPS                                                                 X                                                                  X
Recognize/utilize existing renewables in RPS                                                                  X               X
Utilize tagging / tradable credits                                                     X                              X
Accurate & credible accounting                                                 X
Achieve sustainable renewables market                                   X
Assure that RE is environmentally “clean”                                      X
Avoid double-counting                                                          X
Clear definitions / eligibility guidelines                                                            X
Close coordination with the Trust Fund                                         X
Concern w/ siting requirements                                                                                X
Consider renewables’ other “asset values”                                                                                                   X
Consistency w/ ISO rules                                                                                                             X
DOER establish clear start & end dates                                                 X
Encourage customer renewable generation                                                                                                                   X
Encourage diversity of renewable supply                                                                                                     X
Establish firm, meaningful penalties                                                   X
S = State Agency; E = Advocate/Environmental group; C = Users’/Consumers’ Group.; W = Wholesaler; G = Generator; A = Technology Industry Association; R = Retailer




                                                                                      7
Most Significant Issues (by freq. of response)                   S1     S2    E1      E2      C1     C1      W1      W2      G1 G2         A1     A2     R1     R2   R3   R4
Help meet growth in load                                                                                                     X
ISO rules must facilitate renewables                                                                                                               X
Meet societal goals                                                            X
No size limits on plant size (e.g., hydro)                                                                                    X
Not interfere with markets                                              X
Quality baseline data on existing renewables                                                                                                                              X
Recognize enviro. improvements of suppliers                                                                                          X
Result in reduced air emissions                                                                                               X
Sustainable harvesting of biomass                                X
Support or enhance renewable financing                                                                                                                    X          X
S = State Agency; E = Advocate/Environmental group; C = Users’/Consumers’ Group.; W = Wholesaler; G = Generator; A = Technology Industry Association; R = Retailer




                                                                                      8
What is your greatest hope regarding the ultimate RPS design and its potential
impact?

At the end of interviews, after asking many specific questions on a wide range of issues
we concluded by asking interviewees open-ended questions on their greatest hopes and
fears with respect to the RPS’s design and its potential impact. We present them here, as
the responses provide a good context from which to consider the more detailed responses
to the specific questions which are discussed in the remainder of this report.

Many interviewees provided similar responses when asked what their greatest hope(s) for
the RPS were. The over-riding concerns of the diverse constituency interviewed revolved
around the RPS simply working well - to achieve its goals, not interfere too much with
markets, to not be overly burdensome to affected companies, and to not cost
consumers/ratepayers too much money. While all stakeholders do not mention each and
every issue, the degree of unanimity in response to this question was nonetheless striking.

Among the most common responses were that meaningful increases in renewables would
be accomplished which result in a market with more renewable energy available, that
customers purchase products with as great or little renewables content as they desire, and
ultimately that the renewables market is able to operate efficiently, without subsidies or
special programs such as the RPS or the Trust Fund. Some respondents noted that (in
coordination with the Trust Fund) successful development and implementation of the
RPS could set Massachusetts as a leader in restructuring their electricity market and
including renewable generation while not costing companies or ratepayers too much, and
significantly helping the environment.

Following are hopes of each interviewee:

Advocate/Environmental Group1:
 “Puts the imprint of society, through government, onto the industry which will have to
   recognize that substantial aspects of their supply will be met by renewables.”
 Creates a market-pull for new, clean RE.

Advocate/Environmental Group 2:
 Increase the utilization of renewable generation within MA
 Helps to promote a low[er] cost of renewable energy in MA
 Helps to reduce global warming, etc.


Users’/Consumers’ Group 1:
 Goals be met with diversity of resources and in the aggregate that they don’t raise
   bills
 That the legislature decides to increase the percentage of renewables due to early
   success


                                            9
Users’/Consumers Groups 2:
 That the money dedicated to the RPS is efficiently used and helps to promote the cost-
   effective use of renewables and helps get units on the ground efficiently and cheaply
 That the renewables market is able to operate efficiently in the market without
   subsidies or special programs such as the RPS or Trust Fund.
 That the ultimate result is that customers are given the full choice to decide which
   products they want – and the content of renewables they desire and are willing to pay
   for.

Wholesaler 1:
 Use a tagging approach
 Region-wide system
 Compatible with the way the wholesale market works.
 That the RPS truly act as a spur to get renewable development happening.

Wholesaler 2:
 Get renewables happening in the NE.
 That the RPS is applicable and related to other airborne emissions issues in the
  Northeast

GENCO 1:
 RPS requirements be imposed at the DISCO or retailer level and not at the generator
  or supplier level.
 No caps or minimums are placed on technologies, but rather that the market decide
  the technologies to be used.

GENCO 2:
 That hydro be recognized at 100% of its contribution. Also, that no distinction
  between existing hydro and new hydro is made and that all of it is applicable to the
  RPS.

Technology Industry Association 1:
 For MA RPS to work because MA is out front and it has a good opportunity to set an
   example and provide a leadership example for other states.

Technology Industry Association 2:
 RPS can help preserve every existing renewables generator and provide opportunities
   for new renewables to compete.

Retailer 1:
 That it results in a market with more renewable energy and that customers are
   purchasing from green providers without requiring the RPS.




                                           10
Retailer 2:
 Because of reliable, financeable market for renewables, it will become easier and
   cheaper for renewables to be developed in Mass.
 Make it invisible to marketers – make it routine and easy to implement.
 The more flexible compliance is the better: this results in cheaper compliance, which
   encourages compliance as opposed to gaming, and results in generally favorable
   outcomes.

Retailer 3:
 That it encourages the successful development of RE in the State and encourages a
   few of the close-to-market technologies to become market players.
 That it have flexibility to allow companies to meet the goal.

Retailer 4:
 In coordination with the Trust Fund, it could set MA as a leader in the issue and
   significantly help the environment.
 Renewables siting issues are tough, and that they not be addressed within the RPS.

State Agency 1:
 Opposite of my fears

State Agency 2:
 Meaningful increases in renewables are encouraged and consistency across programs
    is achieved.
 That the technologies that make it are the lowest-emitting renewable energy
    technologies.




                                          11
What is your worst fear regarding the ultimate RPS design and its potential impact?

We asked interviewees an open-ended question about what their greatest fears regarding
the ultimate RPS design and its potential impact are. Below is a list of all responses, and
who said them – characterized by stakeholder type. The most frequently mentioned
appear first. (Though some interviewees only provided one over-riding fear, others
mentioned many.)

   RPS compliance becomes too expensive (Users’/Consumers’ Group;
    Technology/Industry Assoc.; 2 Retailers)
   Results in less diverse sources of renewables or focuses on only one technology
    (Environmental Group; Users’/Consumers’ Group; Technology/Industry Assoc.)
   Is company-based instead of product-based (Environmental Group;
    Technology/Industry Assoc.; Retailer)
   Subsidizes renewables on the backs of only a few customers (Users’/Consumers’
    Group; Technology/Industry Assoc.)
   Inadequate enforcement (Users’/Consumers’ Group; State Agency)
   Is too complicated(State Agency; Retailer)
   Does not apply to the standard offer (2 Environmental Groups)
   Is not applied to every retail supplier (2 Retailers)
   Insufficient supply of renewables for retailers to meet goals (2 Retailers)
   Won’t result in new renewables (State Agency)
   That there is too much flexibility (State Agency)
   Has cost caps (State Agency)
   Insufficient penalties (State Agency)
   Is difficult for market entrants (State Agency)
   Increases the price of electricity (State Agency)
   Does not apply to default service (Environmental Group)
   Wrong technologies apply (Environmental Group)
   Stunts development of green power market (Environmental Group)
   Allows “existing” renewables to qualify (Users’/Consumers’ Group)
   Inadequate use and recognition of “existing” renewables (Generator)
   Sets unrealistic goals (Wholesaler)
   Uses a “tracking” system (Wholesaler)
   Uses different compliance approaches than disclosure or GPS (Wholesaler)
   Is significantly different from what is done in neighboring states (Wholesaler)
   Compliance falls to generators (Generator)
   Developers won’t come or be able to site facilities (Retailer)
   Becomes a ceiling and not a floor for new renewables (Retailer)
   Lacks support of all players in the market (Retailer)




                                            12
Should the RPS apply to standard offer and/or default service? Why or why not?
Do you believe that the restructuring Legislation requires it?

Nearly two-thirds of the respondents to this question believe that the RPS should apply to
both standard offer and default service; but slightly fewer confirmed that the legislation
clearly requires this. Only one respondent (a retailer) indicated that the RPS should not
apply to either default service or the standard offer. One generator and an additional
retailer agree that the RPS shouldn’t apply to the standard offer. This retailer and a
wholesaler both believe it should apply to default service, though they aren’t sure the
legislation requires it. Also, one State agency and one users’/consumers’ representative
were not certain that the RPS should apply to the standard offer (both cited the existence
of long-term standard offer contracts currently in place and difficulties which this would
cause).

The proponents of applying the RPS to the standard offer and default service provided a
number of reasons for their beliefs and their interpretation that the Legislation requires
that all electricity suppliers providing service to customers be required to comply with the
RPS. Foremost was that all suppliers of standard offer retail service or default service
should be subject to the same RPS requirements that other providers in the marketplace
are. Additionally important to a number of these interviewees are the large numbers of
customers who are getting the standard offer - approximately 70% of the current market
according to one technology trade association.

Many adherents feel that if the biggest markets are for standard offer and default services,
and if the market for renewable energy is to be grown, then the RPS must apply to these
markets. Otherwise, renewable products end up being higher cost and are disadvantaged
in competition with the other standard offer and default service products. One
environmental group representative noted that the renewable energy proponents believed
that was what they were getting when they advocated the RPS in the first place. Another
environmental group representative cited that the already retarded development of the
renewable market would be further slowed if the RPS does not apply to standard offer
and default service.

It was noted by one State Agency that the standard offer is slated to expire in 2005 and
the RPS doesn’t begin until 2003; so even if the RPS is included, it shouldn’t impose
significant hardship on the providers of such services, especially if even treatment is
afforded all providers.

One generator and two retailers indicated that applying the RPS to the standard offer
could be problematic and ultimately costly to ratepayers. One of these retailers expressed
concern about having to apply the RPS to existing long-term standard offer contracts,
while the generator warned of cost impacts which the DISCOs (and ultimately ratepayers)
would be subjected to if the RPS were to apply to the standard offer. One retailer noted



                                            13
that applying the RPS to default service would create a reversal of the intent to reduce
costs for consumers.

A number of retailers (but not all of them) and a wholesaler, indicated that it would not
likely be a problem to impose RPS requirements on default service (though one of these
same companies had trouble with imposing such requirements on the standard offer).
One retailer pointed-out that they don’t think that the default service providers should be
allowed to “advertise” the fact that they are selling renewables if, in fact, they are simply
meeting the minimum RPS goals for compliance; “green marketing” should be left to
those products exceeding the RPS minimum requirements.

The State agencies surveyed seemed to have different opinions regarding the applicability
of the RPS to the standard offer. One agency stated that it would not want to upend
existing standard offer contracts (like MECo’s) that were part of settlements signed
before the restructuring legislation. Another agency indicated that these companies
should have known better, citing the legislation having been in place for almost 2 years
now. Both agencies, however, believe it should apply to default service.

One retailer indicated that it would like to require suppliers (wholesalers) to meet the
RPS requirement, thus removing some of the burden from the retailers. They are under
the belief that this would ultimately be an issue for the DTE to determine.




                                             14
In your view, should DOER monitor RPS compliance through tracking the source
of power supply, establishing a tradable credit system (i.e., separating the renewable
attribute from the electricity commodity), or some other method? Why? What are
the chief advantages of the approach you propose? Are there any disadvantages?

Three-quarters of those interviewed stated that they could find acceptable either a
tagging1 or tracking approach if done correctly. Only one respondent (a
technology/industry association) expressed a strong preference for the “tracking”
approach, while at least 8 respondents either advocated the “tagging” approach or stated a
distinct preference for it compared to a “tracking” system. Some stated that the two were
not mutually exclusive.

A number of interviewees, including most retailers and a State agency noted that, to the
extent possible, whichever system is least administratively burdensome and inexpensive
to administer would be preferable. They stated that the transaction costs associated with
each method should be considered as they will add to the costs ultimately borne by
customers. Additionally, one technology trade association representative noted that,
regardless of the approach, it should be done regionally and should create a liquid market
for renewables and facilitate opportunities for companies to “get involved” in the market
for meeting the RPS goals.

Among the arguments made by the advocates of a tradable tag are that such a system
should result in a least-cost and effective system because of: 1.) administrative simplicity;
2.) price transparency in a secondary market; 3.) providing a mechanism for including
projects [of a threshold] below the ISO tracking mechanism, and thus works better for
self-generation (i.e., small PV systems getting credit and certification, etc.); and 4.)
avoiding hourly settlement problems with tracking. Most retailers seemed to agree that
the “tagging” or tradable credits approach would promote flexibility in meeting their
compliance goals, and facilitate marketing, and other objectives.

A number of additional points which were generally supporting the use of tags were made
by various interviewees, these included:
 A users’/consumers’ representative noted that a tagging system need not be
    constructed completely in isolation from the existing tracking systems used for the
    power sales settlements at the ISO. However, this representative also expressed
    concern about how the ISO would track renewable transactions implemented through
    a credit trading approach.




1
 One company noted that they prefer to call “tags” “tradable Renewable Energy Credit (REC),” which they
believe is a commonly-used term and may more accurately capture the notion of what a “tag” is.



                                                  15
   A State agency noted that if the tagging approach is ultimately pursued they would
    prefer to not see separate “tags” issued for different attributes (e.g., a renewable tag
    and a separate SO2 tag). Rather, they would like to see one bundled tag for all
    attributes, believing that this would be less administratively complicated and easier
    for the public to understand. The other State agency interviewed suggested that such
    bundling of attributes may not be necessary.]
   A wholesaler noted that a “phase-in” period for the tradable tags could provide a
    period by which further agreement among stakeholders might be developed in order
    to help work through the design issues associated with either the tagging or trading
    approaches.
   A retailer suggested looking at each of the following models:
    1. A recent NESCAUM rule which indicates that there can be trading under a
         developing GPS.
    2. In California, the Automated Power Exchange (APX) has created an attribute
         market separate from the commodity market.

A number of disadvantages and cautions regarding a tagging system were also offered by
respondents. The most often cited caution is that tagging is more abstract than tracking
and that customers might have trouble understanding it and therefore more consumer
education might be required in order for the concept to gain acceptance and credibility.
Also noted as problematic by a few parties were the uncertain mechanics of how such a
trading system would function. For instance, one wholesaler indicated that they believe
integration of credit trading with the tracking mechanisms for GPS and information
disclosure will be a challenging design issue, (though this party felt that this issue would
be one worth struggling with, and urged that the technical team look into this). A
technology/trade association representative indicated their concern with establishing a
credit trading system and companies’ inability to trade such credits with entities outside
of Massachusetts if the only crediting mechanisms are within Massachusetts.
The sole advocate of tracking, a technology trade association (as well as many of those
predisposed to tagging or open to either system) provided a number of reasons why such a
system deserves consideration. Among the most common responses were the perceptions
that tracking the attribute with the commodity would make it easier for the consumer to
understand what they are getting, thus facilitating retailers’ ability to notify customers
what they are actually paying for, and directly benefiting renewables. Additionally, a
State agency noted that tracking the source of power supply for RPS purposes would
support having one integrated tracking system tied to the financial settlements system in
place at the ISO which could also support GPS and disclosure.

With regard to the tracking system, some retailers, and a wholesaler, and a
users’/consumers’ representative noted concern about the ISO’s ability to do the
necessary tracking of RPS-related transactions.

A wholesaler expressed concern about what tracking could do to interfere with the
operation of the wholesale electricity commodity market. These concerns were with
problems that might result from linking the renewable attribute to the financial


                                             16
settlements transactions which tracks the power, as well as concern that tracking would
interfere with the spot market and the liquid behavior of this market. Further, this
respondent suggested that the assignment of the environmental attribute tied to any
renewable-produced commodity would necessarily be arbitrarily assigned. Such criticism
of the tracking approach led many of these commentors to conclude that separating the
attribute, and having a separate tradable tag or REC would be a far better approach. This
wholesaler noted that disagregation of the attribute and trading of such attributes should
be considered separate design features. This respondent noted that trading of the
environmental attributes doesn’t necessarily have to occur - consumers/purchasers could
choose to trade them, or to retire them if they so chose.




                                           17
Can the RPS use a different compliance approach than the compliance approaches
used for information disclosure or the generation portfolio standard (GPS)? Why
or why not?

Virtually all the respondents felt that it would be important to have a compliance system
that is consistent with the rules for GPS and disclosure. Primarily, respondents wanted to
see that a system be adopted which would make it easier for industry to comply and easier
for consumers to understand, thus helping everybody to promote the same goals.
Consistency would be important for affected companies as well as for consumers and
ratepayers. One generator noted that regardless of the tradable tags or tracking approach,
consistency between the RPS, GPS and disclosure would encourage labeling the source in
a clear and well-understood method. The State agencies commented that the most
important thing was that the underlying data collection system should be consistent.

One technology/trade association summed the comments of many by stating that the
public, as well as the market, needs clarity and simplicity. The public can only
understand a small amount of information before confusion sets in (i.e., the dietary
guidelines and food labeling requirements which were adopted a few years ago are
simple, and do not offer great detail). Thus, harmonization of the RPS with GPS and
disclosure regulations would be helpful in this process and may ultimately help marketers
of green power.

One retailer noted that the DOER should try to help reduce the additional regulatory
burden on companies by utilizing the existing disclosure rules as a monitoring and
compliance device for RPS. Citing the requirement to publish a disclosure label
quarterly, this supplier suggested that RPS requirements be made consistent with this and
with information needed to track a supplier’s generation portfolio. However, another
retailer suggested that the GPS tracking system may be incompatible with an RPS which
will also encourage distributed generation and customer-based generation. Further, two
retailers and an environmental group representative indicated that the quarterly disclosure
regulations were difficult, and to some extent, incompatible with renewables generation
which is subject to daily, seasonal, and annual fluctuations. One of these companies
indicated that it would like to push some of these administrative burdens back (off the
retailers and) onto the wholesalers.

A technology/trade association representative felt that different approaches could be used
if they would result in the market’s ability to function smoothly and was aimed to
encourage greater regional consistency. The State agencies felt that as long as the
underlying data tracking system was consistent, you might be able to use tags for the RPS
without having tags for GPS or disclosure. One retailer raised a query regarding if the
legislation requires that similar compliance mechanisms be used?

One technology/trade association representative raised a concern with the manner by
which labeling would be done under disclosure and the RPS. They stated that consumers


                                            18
should be informed that the State has an RPS on their disclosure label, and if the RPS
requires all products to have 3% renewable content, and they purchase a 5% renewable
product – they should know that it is, in fact, only a 2% marginal renewable product.




                                           19
Should RPS compliance be evaluated on a product-by-product basis or on a retailer
basis?

Half of those surveyed believe that compliance with the RPS should be evaluated on a
product-by-product basis (including two retailers, both environmental groups, one
generator, one wholesaler, one technology/trade association, and one State agency). Six
others made strong suggestions that compliance be evaluated on a company-wide or
retailer basis (including two retailers, one wholesaler, one technology/trade association,
one users’/consumers organization, and another users’/consumers’ representative who
indicated a strong predilection to tracking). One State agency indicated they could go
either way and one retailer indicated they had not yet formed a firm opinion on the issue.
Unlike the tagging vs. tracking question, where many of the adherents to one system or
the other believed that the system they did not favor at least warranted consideration, the
beliefs on this issue seem to be less flexible.

The proponents of product-based compliance generally believe that every electricity
product sold to every customer, large and small, should contain the minimum levels of
renewables called for by the RPS. The proponents of evaluating compliance on a
company-wide basis believe that the overall average of generation sold to all customers
should meet these minimum levels, thus allowing for the average to be achieved by
selling some products with renewables content above the minimum prescribed levels,
while some other products are sold with little or no renewables content. The distinction
is critical and could result in very different outcomes for the RPS and the development of
a market for renewables-content electricity products in Massachusetts.

Most adherents to the product-by-product approach believe that this is the only way to
achieve what they perceive as the intended goal of the RPS – to achieve a minimum
threshold level of renewables development (or at least procurement) in Massachusetts.

One environmental group representative stated that the product-by-product methodology
would help preserve existing renewables, and not force premium green products to
shoulder the weight of the RPS. This individual further explained that it is also likely to
be an easy way to achieve consumer understanding that all products and all ratepayers are
supporting renewables based on legislatively agreed societal goals. Another
environmental group representative explained that “customers should get what they think
they’re paying for: green power over and above what would otherwise be provided in the
market [existing renewables].” One retailer noted that companies (especially those
offering different products in different states) should not be allowed to game the RPS by
limiting it to certain customers who would, in effect, subsidize the company’s RPS
requirements, while selling other customers cheaper, RPS-free products. Another retailer
suggested this would subvert the social objectives that the RPS was designed specifically
to address.




                                            20
An environmental group representative cautioned that although a product-by-product
approach is the most direct way to achieve the RPS’s goal of incremental new
renewables, it may be perceived as too difficult to administer and too intrusive to
companies’ marketing efforts. Suggesting there may be other alternatives, this
respondent noted that Maine’s legislation provides a worthy alternate model. In Maine
(where, according to another respondent, there was a “big fight” about this), RPS
compliance is on a company-basis but anything marketed as “new renewables” cannot be
applied to company requirements. A second option, recommended by this respondent
would be for customers marketed green power to get the credits themselves and be
allowed to sell in the market or retire such credits as they see fit.

The advocates of the retailer-wide or company-basis for RPS compliance believe that
doing so is consistent with the legislation, and that it will be easier for suppliers to meet
the requirements than the product-by-product approach which will be more cumbersome
to implement and monitor. Adherents to this position argue that tracking of all products
will be difficult; that the renewable market is too immature to meet the goals of the RPS;
that the ISO market structure is also new and that companies will need to develop more
familiarity with it before being subject to yet another requirement.

One wholesaler pointed-out that problems exist, for instance with wind and the
intermittent nature of the resource and the fact that you are not likely to have the same
mix of wind available on an hour-by-hour basis – this can create difficulties in a product-
by-product standard for a company relying on such windpower to meet its RPS
requirements.

One State agency and one retailer each indicated that they had not yet formulated a firm
stance on this issue, or that they saw advantages and disadvantages to both approaches.
Among the comments made by this group are that the retailer-basis may be more credible
but that the product-basis is better for promoting renewables. One users’/consumers’
representative indicated that they represent diverse constituencies and need to think about
the subsidization issues associated with the company-basis, yet also expressed concern
about applying the RPS to all products and not allowing flexibility for either retailers or
ratepayers to select products which they may want to purchase.

Additional suggestions regarding company compliance made by those interviewed
included:
 One wholesaler suggested that companies utilize programs like the “Green-e” to
    provide company certification of compliance.
 One technology/trade association representative suggested that company-wide
    compliance should be on some form of report card which is made available to the
    public.




                                             21
How, if at all, should the RPS interface and interact with the State's Renewable
Energy Trust Fund?

The overwhelming majority of those interviewed suggested that the RPS and the State’s
Renewable Energy Trust Fund (the Trust Fund) be coordinated in some manner.
However, the range of suggestions for how such coordination might be fashioned
suggests that many possibilities exist. Numerous interviewees mentioned that the Trust
Fund could be used to bring the cost down for RPS-eligible renewables. Others
suggested that the relationship between the two should be limited. Only a few thought
that they were separate vehicles with different missions (e.g., short-run vs. long run) or
that projects using Trust Fund money shouldn’t be completely eligible for the RPS.

One consumers’ representative noted that deliberation over the interaction of the RPS and
the Trust Fund seems more appropriate for the Trust Fund to consider in allocating its
money, whereas the RPS was envisioned as “fairly mechanical,” leaving to individual
market actors how to meet the standard. A GENCO suggested that there should be a lot
of interaction between the RPS and the Trust Fund, noting that there might also be some
reporting requirements and coordination which the two share. A representative for
users/consumers, however, opined that they see the Trust Fund and the RPS as essentially
separate vehicles, with different missions.

A retailer suggested that there is great potential for the Trust Fund to be a stimulus for
renewables development and thus support suppliers in their approaches to bringing
renewables on line. This individual thought that the Trust Fund could help release the
market forces to “do the right thing” regarding renewables which would result in benefits
for both suppliers and end users. This representative and another retailer each also
suggested that The Trust Fund should be utilized by those technology developers hoping
to operate facilities which are utilized to meet RPS requirements and that the two vehicles
can be “married” in some fashion to promote the goal of seamlessness between them.

One State agency indicated its hope that the two should work together in some “additive
fashion,” perhaps where the Trust Fund is available for providing small amounts of
money to aid in commercialization efforts of technologies which are just above market-
viable costs. One industry association suggested that the RPS and Trust Fund should
work together only to the extent that the Trust Fund may help get projects up and
working. This commentor suggested that the Trust Fund should focus on emerging
technologies while leaving to the RPS to close-to market technologies. Another
renewable industry association suggested that the existing renewable technologies which
are lower cost may not need an RPS to be competitive, while others may still not be able
to attain market share even with the RPS (as it turns to only the cheapest & most plentiful
resources). This individual suggested that these technologies should be supported for
further development through the Trust Fund.




                                            22
This viewpoint was shared by an environmental group representative and a wholesaler
who each suggested that RPS-ready technologies and those requiring Trust Fund support
should be determined on the basis of nearness to market viability. The wholesaler
suggested that where market assessments show that good match-ups exist between the
availability of renewables technologies and power needs, that not much interaction with
the Trust Fund would be needed. However, this individual maintained that the Trust
Fund should be used for new R&D to bring new technologies into the
affordable/competitive range where such technologies are not readily available and there
is a market need. Another wholesaler indicated that a wind project they have recently
been developing would not have been done without the support of RD&D funds from a
State agency. They noted that such assistance is important on a transitional basis, though
probably not long term.

Others felt that the relationship between the RPS and the Trust Fund should be more
limited. One environmental group representative suggested that the RPS only reward
credits to projects which are not supported by the Trust Fund; or that projects supported
by the Trust Fund should be required to turn their renewable credits over to the Trust
Fund (assuming a tradable credits system is designed). In this way, this respondent noted,
the Trust Fund would be rewarded for its support of projects.

A number of individuals expressed concern regarding cost allocation and subsidization by
the Trust Fund of RPS-qualifying projects, though this issue cut both ways. One GENCO
who would like to see that the Trust Fund goes for R & D for new technologies also
suggested to limit the applicability of those projects receiving Trust Fund support from
being freely allowed to be applicable for the RPS. This individual suggested that some
methodology for repayment of the Trust Fund should be done for technologies that
become successful in the market and felt that such a system would help to ensure that all
benefits of the RPS set-aside as well as Trust Fund monies are not taken-up by a small
number of technologies and companies. Agreeing with this perspective, a retailer
suggested that interaction between the RPS and the Trust Fund should be done through a
deliberative process and a leveraging of funds (public and private), but should not be a
“give-away.” A technology/trade association suggested, for instance, that if the Trust
Fund is responsible for 50% of the generation from a project, maybe only 50% of the
generation should apply under the RPS.

Contrary points of view were raised by a few stakeholders, including a State agency
which noted that the Trust Fund should work to get the price of renewables down, and
those projects which receive money from the Fund should still be eligible for the RPS.
Concurring with this viewpoint, one retailer noted that incentives for success in the
market must be maintained, so payback of the Fund by successful projects is not a good
idea – as it might discourage project managers from making their projects more
successful, and instead keep the funding from the Trust Fund as their primary source of
income. But, this interviewee noted that if the Trust Fund is tapped by producers to help
meet the RPS, that the MTC will need to have specific rules worked out for how such
funds are allocated.


                                            23
One wholesaler noted that the Trust Fund might help to buy-down the cost of projects,
but suggested that it may distort the market and the price of tradable tags. They suggested
that the difference in the market cost of energy and renewables’ cost should be absorbed
by the price of the tradable tag, and that the Trust Fund should not skew the operation of
the market.

A few respondents noted that there were a number of issues for which the MTC would
play an important role, including questions of how they are, or are not facilitating the RPS
through their management of the Trust Fund. One retailer suggested that the MTC should
adopt policies for the Trust Fund that are consistent with the RPS and with what is being
done in other states. Another retailer suggested that coordination of the role of the DOER
and the oversight of the Trust Fund by the MTC will need to be addressed.




                                            24
Should the RPS require that suppliers provide minimum levels of existing
renewables? Why or why not? Do you believe that the restructuring Legislation
requires it?

Half of the respondents appear to believe that the Legislation requires suppliers to provide
minimum levels of “existing” renewables. Most of the remaining interviewees appear to
believe the legislation is subject to interpretation, and may not indicate a clear protection
for or maintenance of “existing” renewables. Only two retailers indicated that they
believe the RPS does not require the maintenance of “existing” renewables. [However,
we note that there was substantial confusion among interviewees’ answers about whether
this question referred to maintaining existing renewables or using existing renewables to
satisfy the RPS for new renewables.]

[However, in hindsight there appeared to be significant confusion about the meaning of
this question with some focussing on maintaining existing levels of renewables while
most focused more on the issue of using existing renewables to meet the overall RPS
requirements.]

Most of those who believe that new renewable capacity (and generation) would be needed
to meet RPS goals indicated that there is already a plentiful supply of existing renewables
in the market, that they wouldn’t want to see a decrease in this level of “existing”
renewables. These respondents believe that the aim of the RPS is to support the
development of more “new” renewables. A wholesaler noted that in Massachusetts, there
will be “ample opportunity” to bring more “new” on line by 2003. Additionally, one
technology trade association representative warned of experience with the NEPOOL rules
which make it difficult for existing renewables to survive; and the belief that the RPS is
necessary to protect the existing renewables, as well as to promote the development of
new RE. Further, an environmental group representative cautioned that the
environmental profile of many existing renewables is not as favorable as that of most new
renewables, and noted that they are concerned that existing renewables do not “corner”
the [RPS] market.

A significant number of others, including a wholesaler, and the majority of retailers
surveyed indicated that the legislation leaves up to the discretion of the implementing
agencies to see how much “existing” renewables should qualify in the RPS. Some
believe that the availability of existing renewables must be taken advantage of, especially
in the early stages, until new technologies become available and are brought on line at
competitive prices. According to many of these adherents, the utilization of such
“existing” renewable capacity might be necessary to cost-effectively meet the RPS
requirements. Many of these individuals felt that some “existing” facilities should be
allowed to qualify for meeting RPS goals under various circumstances such as if
insufficient supply of cost-effective, qualifying “new” renewables is available.




                                             25
Among those supportive of maintaining existing renewables and potentially allowing the
existing to qualify as new under the RPS were a generator and a technology trade
association representative. From this perspective, generators and providers who are
currently producing “something of value” should not be disadvantaged because of
requirements for “new” renewables, and that shutting-down “existing” plants may not
always be prudent. The technology trade association representative in question suggested
to perhaps allow existing renewables to qualify for the “new” requirements – though
perhaps at some lesser percentage of the “new” – i.e. maybe 50% of the value of other
“new” renewables. A generator indicated that a lot of hydropower is already made
available in Massachusetts, and that this supply should be taken advantage of in order to
maintain the existing supplies as well as potentially meet the “new” requirements under
the RPS.

Regarding requirements for companies to provide renewables, one retailer indicated that
the baseline or threshold for “existing” renewables be set-up differentially for each
company such that a retailer who already has a good amount of renewables in their
portfolio is somehow credited as they try to address their need to bring on new
renewables. However others felt that all potential suppliers should have to meet an equal
baseline or threshold level of renewables content. One wholesaler indicated that it would
be worth having a well-defined standard for new renewables, and that they become
“certified,” suggesting that the “Green-e” program be utilized for granting such
certification.




                                           26
Should DOER seek to increase compliance flexibility through allowance of early
compliance, banking, and/or true-ups from one year to the next? What are the
potential benefits or problems associated with your preference?

Most of the stakeholders appeared to generally support using a range of flexibility
mechanisms for achieving compliance with the RPS. However, a sizable cross-section of
those stakeholder groups also expressed fears of too much flexibility and suggested the
need for limitations on their use and stated their support was heavily contingent on their
design. As one consumers’ representative cautioned, “the devil is in the details.”
However, the two State agencies were much more skeptical of the need for flexibility
mechanisms.

Flexibility was viewed favorably by many as it encourages companies to pursue least-cost
solutions, to accommodate uneven production from renewables to be made-up over time
and to alleviate problems which the market might encounter early-on in meeting RPS
goals. A number of interviewees, representing the spectrum of stakeholder types
suggested that if contracts for renewables should fail early, that companies should be
allowed to make-up for such shortcomings in subsequent years.

The three primary practices advocated were banking, true-ups (from one year or quarter to
another - are basically thought to be a form of banking), and early compliance. Support
for these mechanisms included both short-term banking carry-overs of 3-6 months -
including into the first quarter of the following year, as well as for year-to-year true ups
(which can help to mitigate the annual variability of many RE resources).

Many interviewees indicated that there may be important issues regarding how DOER
designs an early compliance methodology if they choose to do so. One wholesaler
warned that the establishment of an early compliance mechanism for the RPS could result
in a fractious debate. This interviewee noted the contentiousness of the early compliance
issue in the greenhouse gas debates currently ongoing in Washington as potentially
analogous to the establishment of an early compliance mechanism for the RPS and
warned that this could result in delays in implementation of the RPS.

A number of respondents from across the spectrum of stakeholders indicated that there
should be limits to the compliance flexibility allowed in meeting the RPS. Among the
rationale for limiting flexibility would be to hem-in opportunities for gaming, and other
inequities which could result if some companies use very flexible methods of meeting the
RPS while others are more strict in their adherence with the RPS requirements. A
GENCO respondent suggested that there should be some limits to things like banking so
that companies do not gather a lot of credits and then do nothing for a number of years. A
renewables industry association warned that problems arise when you craft rules for
verification of flexibility mechanisms. For instance, this respondent warned that the ISO
would probably not be able to handle all of the necessary tracking or accounting required
by such flexibility mechanisms.


                                            27
Another GENCO noted that flexibility may not necessarily bring about environmentally-
beneficial outcomes. The problems associated with the SO2 allowance banking (which
can result in temporarily very high emissions) should be examined. Additionally, one
environmental group representative noted that flexibility might allow companies to
undermine the ability to verify compliance. This individual suggested that careful checks
and balances be put in place to clarify to companies that there are repercussions for not
meeting the RPS requirements.

The two State agencies interviewed suggested that very little compliance flexibility be
allowed, as it may open up too much potential gaming and may undermine the
Legislation. One agency interviewee asked “if [flexibility results in inadequate
compliance and] they [companies subject to RPS compliance] don’t come up with the
renewables anticipated, then what?” The interviewee from the other agency suggested
that RPS compliance should be consistent with other programs, i.e., quarterly disclosure
regulations do not allow for compliance to be averaged-out over multiple years. This
respondent suggested that a 2-year portfolio review should not be allowed as this would
be inconsistent with GPS, though rolling annual reviews might be consistent with
disclosure, and therefore could possibly be allowed. Further, this State agency does not
like the early compliance option, suggesting that a lot of what happens early might have
happened anyway, and there should be no “free lunch” for these companies.




                                           28
Should there be a cap on the cost of compliance? Why or why not?

There are fairly clear lines demarking the proponents and opponents of cost caps. Nine
stakeholders in all, including both State agencies, as well as the environmental groups,
the GENCOs, one of the users’/consumers’ representatives, and one retailer believe that
there should not be caps on the cost of compliance. The remainder of those interviewed
(seven), with the exception of one wholesaler, all believe that there should be caps on the
cost of compliance. The fence-sitting wholesaler noted: “It [the RPS] may be a more
salable program if there are cost caps on the cost of compliance, but a cost cap is an
artificial mechanism which, while it may help some companies, may end-up distorting the
market more than helping it.”

The proponents of cost caps point to the benefits of such caps to companies as well as
ratepayers. One retailer indicated that there should be a cap on the cost of energy
qualifying for inclusion in the RPS so that customers are not burdened with high cost
resources. For example, this interviewee proposed limiting suppliers of the RPS to
energy prices not more than 2 cents above the wholesale prices as a good benchmark.
Another retailer suggested such a cap should be set high enough that the thrust of
compliance is left up to companies and the market, but low enough that companies not
face extreme financial costs to implement the RPS. A third retailer noted that cost caps
may encourage smart choices to be made by companies, though essentially they shouldn’t
matter if all companies are subject to the same market constraints. This retailer made the
additional point that utilization of the Trust Fund may be coordinated with cost caps in
order to buy-down the costs of renewables that are marginally too-expensive.

The renewables trade associations like cost caps, but advocated adding flexibility to the
imposition of the cost caps applied. For instance, if other “asset values” of a renewable
resource are considered, and if for example, a renewable resource (i.e., biomass) costs an
extra penny per kWh, but it saves 2 pennies-worth of value in other areas (i.e. solid waste
savings) –there should be some way to capture such savings and adhere to the applicable
cost caps. Another suggestion made by one of the technology/trade associations was that
it might be better to have an externality charge placed on the other (i.e. fossil) sources of
electricity – in which case, the RPS wouldn’t even be needed!

The nine opponents of cost caps made a number of key points supporting their belief.
One State agency stated that cost caps are inconsistent with the legislation, which has
already considered this issue, and instead of imposing such caps, placed lower renewable
targets in the legislation in order that companies and ratepayers not face too severe a rise
in costs due to including more expensive renewables. This point was reiterated by the
users’/consumers’ representatives and the environmental groups. The other State agency
interviewed stated that if compliance ends up being too expensive, we need simply to
think about another way of promoting renewables. One of the users’/consumers’ groups
indicated their opposition to cost caps, stating that “the whole idea of the RPS was to



                                             29
spend extra money and promote new renewables, and moreover, it looks like it shouldn’t
cost too much …if it is a problem, and I don’t anticipate it will be, we can address it
later.”

One GENCO made a particularly detailed comment opposing cost caps, stating: “I don’t
think that there should be caps on the cost of compliance, unless the industry is having
extraordinary difficulty in meeting the requirements. As long as the percentage
requirements are addressed industry-wide, the cost issues should be absorbed by the
market. If it is found, over time, that some sort of cost trigger is reached on an industry-
wide basis, and most companies are having significant difficulty in meeting the
requirements and are subject to high costs of compliance, then maybe a cost cap could be
imposed. It is important to note that the technology eligibility guidelines were written
intentionally broadly, in order to provide companies opportunities to comply which
wouldn’t cost too much.”




                                             30
Should there be penalties for companies who do not comply with the RPS
requirements? If so, how should those penalties be structured?

All interviewees believe that there should be penalties for companies who do not comply
with the RPS requirements, and for the most part, stakeholders agreed on the structure
and methods for imposing them. Most also agreed that encouraging compliance, not
automatic penalties should be a goal when considering compliance and enforcement.
Almost everyone felt that penalties be clearly articulated and provide significant
economic signals to comply, while allowing companies the opportunity to make-up for
their noncompliance before penalties are imposed. Most respondents also suggested that
any financial penalties levied should be used to support renewables development in the
Commonwealth, with the Trust Fund as the likely recipient of such funds. A few
respondents, including a retailer, a GENCO, and a State agency suggested that penalties
go all the way to include loss of license for severe or repeat noncompliance.

Most respondents indicated that judgment will need to be exercised (especially early on)
as there may be more difficulty for companies to comply and that a graduated waiver
would make companies more likely to meet their requirements. One retailer noted that
because it will take a while for projects to come on line, it will also take some time to get
penalties right. Many respondents felt that companies should be provided some
opportunity to cure the problem before a fine is levied by making-up for one year’s
shortfall by overcomplying in the subsequent year; especially in the early years of the
program as the market is developing and experience is being gained. In relation to the
uncertain development of the market for renewables supply, one retailer simply stated
“don’t penalize companies for things which are out of their control.”

Numerous respondents mentioned that monetary fines should take into account the size of
the company. Some type of sliding scale based on the size of the participant and the level
of their noncompliance was thought to be appropriate. One retailer suggested that
penalties be assessed on a graduated basis that doesn’t penalize companies who meet
95% of their RPS requirements, while hitting harder those companies who are
significantly under-complying. A number of interviewees suggested that the level of
fines should be some low multiple of the cost of compliance, thus relating the fine to
what customers might have paid for RPS-compliant products (i.e., 1.5 – 2X the cost of
compliance) – but not too much more than that. This would also relate the penalty to that
year’s incremental cost of renewable energy compared to wholesale power prices. One
environmental group recommended that penalties be set at a multiple of the value of the
renewables credits (RECs) in the marketplace. It might be set in a fashion analogous to
that in the SO2 trading program which is set at 3X the value of SO2 credits in the
marketplace. This will encourage companies to comply and is more effective and
efficient than removing their license, which appears to be allowed under the law.

One renewables trade association representative noted that an “honorable escape” might
be provided for companies who either don’t want to, or haven’t figured out how to


                                             31
comply. In this way, companies would accept the fines in lieu of doing anything more
proactive. However, one retailer cautioned that fines be crafted such that we not end-up
with sham-companies who are continual noncompliers, who are put out of business and
then reopen as a newly-named entity, only to fall into noncompliance again.




                                           32
Do you have any concerns or comments regarding the technology eligibility
guidelines provided in the legislation?

Most respondents consider the eligibility requirements in the statute to provide about the
correct level of breadth of inclusion under the renewables standard. An environmental
group representative said “They’re great as written,” and noted that “there needs to be
extreme caution as any technologies not currently in the law are looked at.” A
users’/consumers’ representative also suggested to stick to the eligibility requirements
outlined in the statute. A GENCO, who feels its just about right, stated: “we like having
some of the nearer-market-viable/cheaper technologies available.” Many respondents
also expressed a need for the DOER to provide good guidelines and definitions for what
qualifies as a renewable. A few interviewees, however, did list certain technologies that
they wanted included or conversely, wanted to remain excluded.

A few respondents commented that cross-border consistency would be important to
achieve, so that qualifying renewables are the same for Massachusetts as for neighboring
states. One retailer complained that as you look across the states, the definitions change,
and urged for more consistency across states or regionally, if not on a wider basis. At
least two respondents representing diverse constituencies would seek to expand this range
to include imported power. One GENCO also believes there should not be any
distinction between “existing” and “new” resources, and rather that the bottom line factor
should be the “most kW for lowest environmental impact.”

A number of respondents indicated that they did not want certain technologies to become
eligible. One or more interviewees mentioned the following:
 (existing) MSW/garbage burners
 large hydro/ existing hydro
 new hydro
 customer generation

Some respondents also indicated that they did want a number of other technologies to be
given careful consideration, but not immediately included, nor, necessarily excluded.
One or more interviewees mentioned the following:
 natural gas fuel cells
 landfill gas (State agencies suggested inclusion of this only if they are achieving
    emission savings which would not have occurred otherwise/using the most advanced
    emission controls)
 new hydro (including upgrading turbines and considering as “new”)

A number of respondents, covering a wide range of stakeholder interests were concerned
with the eligibility of biomass (a number of respondents also questioned what is meant by
the term “advanced biomass”). One State agency stated that biomass should be
sustainably harvested; and should comply with other emissions control regulations just as
other burned fuels do. One environmental group representative suggested that the


                                            33
biomass standard should be an evolving standard set by DOER that includes state-of-the-
art commercially-available technologies at any given time. For instance, if large-scale
biomass gasifiers become commercially viable, the standard should include them, but not
until they are commercially viable. This commentor noted that the standard should
support low-emissions and sustainable harvesting standards.

An environmental group representative also noted that natural gas fuel cells should not be
eligible for inclusion in the RPS unless either: A.) it is determined necessary to include to
achieve the RPS at a reasonable cost or B.) it’s use is specifically limited in time or
amount. But the interviewee added that if included, fuel cells shouldn’t have the same
status as other renewables.




                                             34
Should there be minimum required levels for specific renewable resource types?

Most respondents indicated that they do not believe there should be minimum or
maximum levels for technologies required under the RPS. Most feel that the market
should select technologies based on their price with the least-cost renewable resources
being the first chosen to meet the RPS requirements. One State agency referred to such
minimums as “just more market meddling.” Only the environmental representatives, the
renewables associations, and a users’/consumers’ representative supported some type of
minimum threshold, and some suggested there might also be a need for maximums too.
Some of the few supporting minimums suggested that it might be worth considering some
low level of minimums for technologies which are close to cost effective to help them
become market viable (such as solar PV), or to support diversity in the renewables mix
which may result in other social benefits. One of the renewables association
representatives noted that this should only be done if there were no Trust Fund to help
“level the playing field.” Additionally, two retailers who indicated that they are not fans
of either minimums or maximums, suggested that the DOER track what is coming on line
within the RPS and in 2-3 years consider imposing specific minimums or maximum
technology bands if they determine that there is insufficient diversity in the mix.

Several supporters of minimum requirements also noted that it would be worth looking at
maximum technology contributions. One environmental group representative cautioned
that without such maximum technology bands, cheap, viable technologies such as landfill
gas, fuel cells, or wind might be provided an opportunity to corner the market in meeting
the RPS. Another environmental group representative noted that there is a tradeoff
between minimum technology requirements and achieving the standard at a low[er] cost.
Their interview suggested that while it is useful to support a diverse range of
technologies, it may be better to have maximum technology market share for individual
technologies, or for technology groupings (e.g., maximum of not more than 60% of RPS
be met by Technology A, not more than 90% met by Technologies A & B combined,
etc.).

One wholesaler suggested that high price technologies might be better served through
getting money from the Trust Fund, not from having minimum requirements in the RPS.
An environmental representative suggested the Trust Fund could be used to support
diversity in the mix of technologies, noting that a design goal of the Trust Fund ought to
be to minimize project support by the fund for technologies that are likely to come online
within the RPS.

A generator suggested that maximum caps on technologies qualifying under the RPS
should not be imposed, noting “we shouldn’t put a cap on virtue.” A users’/consumers’
advocate also admonished against the imposition of artificial floors or ceilings that could
artificially raise the price of RPS compliance.




                                            35
Under what circumstances should generation from renewables on the customer side
of the meter qualify for the RPS?

All respondents were favorably disposed toward customer generation if the technical
details could be worked-out. However [it appears that] interviewee’s responses were
often focused on different customer side alternatives.2

One retailer indicated that customer-side production should count as part of the supplier’s
RPS requirements, especially if the supplier has had a hand in the development of the
resource. A wholesaler agreed, stating that opportunities should be developed to allow
companies to team with consumers and get credit for such activity. One retailer noted
that this could help less-economic technologies in the market, as residential customers
may be happy with systems paying-off at lower/slower rates than commercial investors
might tolerate.

A few respondents indicated concern with performance standards such as auditing,
testing, maintenance contract requirements, and metering. Most agreed that there should
be requirements for good metering, but this should be made easy for customers to do.
One generator noted that hourly data would not be needed, but rather that simple net
metering is all that would be required. One retailer, however cautioned, that even with
net metering, there’s really no way to tell if a customer’s meter ran slower or backward
due to their [PV] unit, or if they were simply not using equipment like air conditioners. A
retailer also noted that ISO NE doesn’t track generation of less than 1MW, so it might be
hard to aggregate and properly measure.

A few respondents, representing diverse stakeholders also noted that free riders and
double counting of generation would need to be prevented or accounted for, but most felt
that these details could be worked out.




2
  Three potential options for how customer-side generation might qualify were reflected by interviews and
include the following:
1. Customers install their own equipment, and the retailer takes credit (potential free rider?)
2. Retailer cost-shares costs of customer equipment and takes credit
3. Retailer or wholesaler pays for and “owns” the output of customer’s equipment


                                                    36
Do you have any other comments or concerns regarding the RPS that we have not
yet covered?

This final question provided interviewees an opportunity to comment on any other issues
not covered in the interviews. While some felt that they had covered all of their
important points while addressing the specific questions which preceded, some others
indicated that there were remaining issues which they wanted to air. These are listed
here.

Timing / Duration of RPS
One environmental group representative raised the following points regarding the Start &
End dates of the RPS:
 Start Date: The DOER paper states that the RPS begins in 2003, but it need not wait
   until then; it can start when DOER says it should. DOER is authorized to have an
   RPS (for existing renewables) which starts by 2001 and allows credit trading for
   renewables. Nothing would prevent such an early start and implementation of the
   RPS ahead of 2003. Such an early start would help support existing renewables
   which might otherwise fall-off their PURPA contracts or which are slightly over the
   cost-competitive level dictated by the market.

   End Date: DOER should be clearer about the longevity of the RPS, and the vision for
    it to continue indefinitely and not decrease or otherwise be exhausted. This would
    provide developers assurance that the RPS wouldn’t decline after 2009 - which might
    force some renewables out of the market, or lead to stranded renewables investments.

A wholesaler suggested that the RPS should remain in place indefinitely – if it does wind-
down, it should sunset as the costs of renewables go down, but it should not be stopped
quickly at any point, as that would create problematic outcomes and price distortions in
the market.

Attributes of Renewables
A GENCO suggested that there should be a long period for calculating resources’
generation, as, for instance hydro production can vary greatly from one year to another, as
can other renewables sources (though seasonal variability may be a more important
concern of other renewables). Therefore a 1, 3, or even 5-year period for calculating
generation would be warranted. To the extent that renewable energy credits (RECs or
tags) are issued, they should be based on multi-year averages as well as engineering
estimates. True-ups in each subsequent year should be allowed – for overage as well as
under-production.

A GENCO stated that the criteria for applicability under the RPS not be based on
arbitrary distinctions. It should be based on “sound science” and exhibit “value neutral
criteria.” This individual repeatedly stressed that the bottom line must be “the lowest
environmental impact for the greatest kW.”


                                            37
A retailer said to make sure that the RPS is applied only to energy, not to capacity.
Nobody wants a bunch of idle renewables capacity to allow a company to qualify for their
RPS requirements.

A GENCO indicated that arbitrary limits not be imposed on the size of applicable
renewables facilities.

Imports / Regional Issues
A GENCO indicated that there should be no restrictions on international commerce and
the contribution of renewables from beyond New England.

A GENCO desires that generation should be recognized by its source, not by the power
pool generation mix from where it comes. Stating, “a customer has the right to know
what they are buying,” this individual noted that they do not like that they are ascribed the
mix of the NEPOOL when their actual power exports are 96% renewables (hydro).

One technology/trade association would like to examine the possibility that an RPS can
be set-up an which limits imports in order to encourage the development of more regional
renewable resources. This individual thinks it would be worth investigating if such
limitations can be imposed in a fashion consistent with NAFTA and the Commerce
Clause. This individual noted that imports to the region are currently 4.3% - and
suggested that eliminating this would provide a boost to the need to develop regional
renewable resources. This person noted that some other states have limited their RPS to
in-state resources.

Development of the Market
A retailer said a careful look needs to be taken to see about the pace of market
development and its cost impacts to ratepayers. This individual suggested that the DOER
may need to asses the pace of RPS design with the development of the market for
applicable technologies (which may develop slower




                                             38
                           Appendix 1: Invitation Letter

To:   RPS Interviewees
From: Dr. Jonathan Raab and John DiModica, Raab Associates, Ltd.

Re:      Background Information for our Upcoming Interview


Thank you for taking the time out from your busy schedule to discuss RPS issues with us.
As we mentioned over the phone, Raab Associates is conducting stakeholder interviews
on the Massachusetts RPS for the Division of Energy Resources. The purpose of the
interviews is to solicit input from you on a wide range of RPS policy and design issues, as
well as some feedback on the formation of an RPS Advisory Group. Your responses to
our questions will be kept confidential to the extent that our write-up will not include
your name or your organization’s but may ascribe your views to your stakeholder group.
We plan to interview at least two representatives from each of the following stakeholder
groups:

State agencies
Consumer groups
Environmental organizations
Generators
Wholesalers
Retailers
Renewable companies/associations
Distribution companies

Attached please find two documents that you may wish to review prior to our interview –
the RPS language from the restructuring legislation plus an article on the RPS recently
written by several of the staff at DOER.

During the interview, we plan to solicit your organization’s opinion on numerous RPS-
related subjects including the following:

     Your perspective on the most significant RPS design challenges
     The role of existing renewables
     Applying the RPS to standard offer and default service
     How DOER should monitor compliance with the RPS (tracking vs. tagging, product
      vs. retailer)
     The relationship of the RPS to information disclosure, the GPS, and the Renewable
      Trust Fund




                                            39
   The degree of compliance flexibility (early compliance, multi-year true-ups)
   Technology eligibility (customer generation, minimum technology requirements,
    advanced biomass)
   Structuring the Advisory Group process

If you have any questions you can call Dr. Raab or Mr. DiModica at 617.261.7111
(raabj@aol.com), or Nils Bolgen at DOER at 617.727.4732 (nils.bolgen@state.ma.us).




                                          40
                        Appendix 2: The Survey Protocol

[Under the Legislation DOER responsible for implementing the RPS. A multitude of
issues that still need to be worked out. DOER hired Raab Associates, Ltd. to help design
and facilitate an Advisory Group process. DOER also hired technical consultants to write
issue papers and help with RPS design issues. We are interviewing key stakeholders to
help DOER focus the issue paper and design the Advisory Group Process.

A List of all those we interview will appear in back of report. However, in the body of
the report interviewees or their organizations will not be named, although some
comments may be attributed to your stakeholder type. The final document will go to
DOER, and will probably be circulated to Advisory Group members prior to the first
meeting.]

1) From your perspective, what are the most significant RPS design issues that still must
   be resolved? [open ended question to scope out priorities] Which of these RPS
   issues are most important to your organization or company? Why?

2) We would like to solicit your opinions on some specific policy issues:
     A.) Should the RPS apply to standard offer and/or default service? Why or why
         not? Do you believe that the restructuring Legislation requires it?
     B.) In your view, should DOER monitor RPS compliance through tracking the
         source of power supply, establishing a tradable credit system (i.e., separating
         the renewable attribute from the electricity commodity), or some other
         method? Why? What are the chief advantages of the approach you propose?
         Are there any disadvantages?
     C.) Can the RPS use a different compliance approach than the compliance
         approaches used for information disclosure or the generation portfolio
         standard (GPS)? Why or why not?
     D.) Should RPS compliance be evaluated on a product-by-product basis or on a
         retailer basis?
     E.) How, if at all, should the RPS interface and interact with the State's
         Renewable Energy Trust Fund?
     F.) Should the RPS require that suppliers provide minimum levels of “existing”
         renewables? Why or why not? Do you believe that the restructuring
         Legislation requires it?

3) We would like to solicit your opinions on some specific RPS design issues:
     A.) Should DOER seek to increase compliance flexibility through allowance of
         early compliance, banking, and/or true-ups from one year to the next? What
         are the potential benefits or problems associated with your preference?
     B.) Should there be a cap on the cost of compliance? Why or why not?
     C.) Should there be penalties for companies who do not comply with the RPS
         requirements? If so, how should those penalties be structured?



                                           41
       D.) Do you have any concerns or comments regarding the technology eligibility
           guidelines provided in the legislation? [open-ended, first]
       E.) Specifically:
       1) Under what circumstances should generation from renewables on the customer
           side of the meter qualify for the RPS?
       2) Should there be minimum required levels for specific renewable resource
           types?

4) Advisory Group Questions:
   [DOER hopes to form an RPS Advisory Group to act as a sounding board on a wide
   range of RPS design and implementation issues. The Group will likely not be
   structured for formal consensus-seeking, but to get feedback through a structured,
   deliberative process. There will be issues papers and recommendations prepared by
   DOER and its technical consultants prior to each meeting. The Group will meet
   probably meet every 3 weeks on average over 6-9 months. DOER will likely seek an
   Advisory Group that represents all key stakeholders but is still manageable in size.]

   A.) Do you have any suggestions regarding the structure and use of the Advisory
       Group?
   B.) [Looking at the list of stakeholder types in the cover letter] Are there any types
       of stakeholders not on the list that should be included in the Advisory Group?
       Are there groups on the list that need not be there?
   C.) Would your organization/company be interested in participating?
   D.) What other stakeholders do you think share your viewpoints? If membership to
       the Advisory Group is restricted in number, who could you most easily team-up
       with for representation purposes?

Concluding Questions:
   5) What is your worst fear regarding the ultimate RPS design and its potential
      impact? What is your greatest hope regarding the ultimate RPS design and its
      potential impact?
   6) Do you have any other comments or concerns regarding the RPS that we have not
      yet covered?




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