Florida Public Service Commission Renewable Portfolio Standards Workshop Remarks On Behalf Of City of Tampa Solid Waste Authority of Palm Beach County Florida Industrial Cogeneration Association July 26, 2007 Rich Zambo

July 26, Current Policies And Rules u Many of the Commissions current policies and rules affecting renewable energy are largely a product of Federal Law - the Public Utilities Regulatory Policies Act (PURPA) - enacted nearly 3 decades ago, in 1978, as part of the National Energy Act. u Those policies and rules reflect certain assumptions regarding risk, reliability, pricing and performance – some of which history has shown need to be revisited.

July 26, Public Utilities Regulatory Policies Act (PURPA) PURPA was enacted in 1978 as part of the National Energy Act PURPA was enacted in 1978 as part of the National Energy Act PURPAs primary objectives were two-fold: PURPAs primary objectives were two-fold: Reduce National dependence on imported fuels Reduce National dependence on imported fuels Reduce the need for utility investment in new plant Reduce the need for utility investment in new plant PURPA accomplished this by creating for the first time a class of non-utility generators called qualifying facilities or QFs – many of which are also renewable energy producers under Florida law PURPA accomplished this by creating for the first time a class of non-utility generators called qualifying facilities or QFs – many of which are also renewable energy producers under Florida law

July 26, Qualifying Facilities - QFs PURPA created two types of non-utility generators: u Small Power Producers use non-traditional alternative energy resources such as biomass, solar, waste heat, geothermal, wind, municipal solid waste, landfill gas, etc. - what we today would call renewable energy resources u Cogenerators use traditional fuels but in a very efficient manner by sequentially producing both electricity and useful thermal energy from a single fuel source – what we today might call combined heat and power or CHP

July 26, PURPA Eliminated Regulatory and Institutional Barriers To QFs Utilities are required to electrically interconnect with QFs Utilities are required to electrically interconnect with QFs QFs are exempt from utility regulation QFs are exempt from utility regulation Utilities are required to purchase electricity from QFs at the utilitys avoided cost Utilities are required to purchase electricity from QFs at the utilitys avoided cost Utilities are required to sell electricity to QFs at non- discriminatory prices Utilities are required to sell electricity to QFs at non- discriminatory prices

July 26, Floridas PURPA Experience... When the Commission implemented PURPA in the early 1980s, Florida had a serious fuel diversity problem – a heavy dependence on oil for electric production. In response, the Commission established rules and policy that based avoided costs for QFs on a statewide avoided coal unit, as that best fit the operating characteristics of the majority of QFs and provided uniformity across Florida.When the Commission implemented PURPA in the early 1980s, Florida had a serious fuel diversity problem – a heavy dependence on oil for electric production. In response, the Commission established rules and policy that based avoided costs for QFs on a statewide avoided coal unit, as that best fit the operating characteristics of the majority of QFs and provided uniformity across Florida. That policy was very successful during the time it was in effect – from about 1983 through about 1990 – a time period in which the vast majority of the existing QF capacity was developed in FloridaThat policy was very successful during the time it was in effect – from about 1983 through about 1990 – a time period in which the vast majority of the existing QF capacity was developed in Florida

July 26, Floridas PURPA Experience About 1990, the Commission abandoned the statewide avoided coal plant policy, opting for a next planned generating unit for each individual utility approach.About 1990, the Commission abandoned the statewide avoided coal plant policy, opting for a next planned generating unit for each individual utility approach. As a result of the change in policy, the capacity payments available to QFs and – correspondingly – the amount of QF capacity developed in Florida since that time has dropped precipitously.As a result of the change in policy, the capacity payments available to QFs and – correspondingly – the amount of QF capacity developed in Florida since that time has dropped precipitously. The Commission has recently adopted new rules intended to improve the climate for renewable energy. However, there are important issues still to be addressedThe Commission has recently adopted new rules intended to improve the climate for renewable energy. However, there are important issues still to be addressed

July 26, From PURPA to Renewable Energy and Renewable Portfolio Standards The Commission should take note of and apply the experience gained and the lessons learned over the past 25 years in dealing with QF issues. This will expedite the identification and implementation of policies and rules that will realize the benefits associated with the unique attributes of renewable energy facilities and encompass the diverse technologies employed

July 26, What is Renewable Energy? Depends on perspective and objective Depends on perspective and objective u Resources can vary significantly by region u Resource can vary significantly by state u Resources can be indigenous to states/regions Definitions should reflect these variations Definitions should reflect these variations u Should include only Florida indigenous resources u Should include, but not be limited to those resource identified in Sections and , F.S.

July 26, Geography, Geology, Topography u The vast majority of Florida fuel needs are imported from significant distances u Little of Florida electricity needs are imported from bordering states u Florida has unique renewable energy characteristics u Geothermal, hydro and wind resources not significant u Solar, solid waste, landfill gas, waste heat, biomass, agricultural and forest product residues, ocean energy and similar such resources are significant u Other technologies that will develop in a fertile environment

July 26, Florida Renewable Energy Sections , , and , F.S. together define renewable energy to include:Sections , , and , F.S. together define renewable energy to include: urban wood waste, municipal solid waste, landfill gas, waste heat from sulfuric acid manufacturing operations, hydrogen produced from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean energy, waste heat, hydroelectric power, municipal waste treatment operations, combustible residues or gases from forest products manufacturing, agricultural and orchard crops, waste products from livestock and poultry operations and food processingurban wood waste, municipal solid waste, landfill gas, waste heat from sulfuric acid manufacturing operations, hydrogen produced from sources other than fossil fuels, biomass, solar energy, geothermal energy, wind energy, ocean energy, waste heat, hydroelectric power, municipal waste treatment operations, combustible residues or gases from forest products manufacturing, agricultural and orchard crops, waste products from livestock and poultry operations and food processing

July 26, Attributes of Renewable Energy Facilities Many renewable energy facilities are typically: Dissimilar to utility plants in that their design, permitting and construction cycle can be significantly shorterDissimilar to utility plants in that their design, permitting and construction cycle can be significantly shorter Dissimilar to utility plants in that the fuel source is not subject to the types of price fluctuations or supply interruptions typically associated with traditional fuelsDissimilar to utility plants in that the fuel source is not subject to the types of price fluctuations or supply interruptions typically associated with traditional fuels Dissimilar to utility plants in that they are either carbon neutral or produce no significant greenhouse gas emissionsDissimilar to utility plants in that they are either carbon neutral or produce no significant greenhouse gas emissions Similar to utility base load coal plants in that they operate at high capacity factors and can displace natural gas and oil generation thereby reducing average energy costs and reducing emissionsSimilar to utility base load coal plants in that they operate at high capacity factors and can displace natural gas and oil generation thereby reducing average energy costs and reducing emissions

July 26, Establishing a Renewable Portfolio Standard... The Commission should not be too concerned at this point with the potential magnitude of renewable energy that may develop. Rather, the Commission should focus on prices and policies that accurately represent the value of renewable energy and then allow the markets to work.The Commission should not be too concerned at this point with the potential magnitude of renewable energy that may develop. Rather, the Commission should focus on prices and policies that accurately represent the value of renewable energy and then allow the markets to work.

... Establishing a Renewable Portfolio Standard Similarly the Commission should not be too concerned with the risk that prices for renewable energy might exceed avoided cost. The risks are much higher if we fail to encourage renewable energy.Similarly the Commission should not be too concerned with the risk that prices for renewable energy might exceed avoided cost. The risks are much higher if we fail to encourage renewable energy. A case in point concerns two recent utility natural gas fueled power plant additions approved by Commission. In less than four years of operation, actual fuel costs have been some $450 million more than the projected fuel costs used to justify the plants. This increase in costs – over 40% more than projected - is passed on to the customers and not absorbed by the utility.A case in point concerns two recent utility natural gas fueled power plant additions approved by Commission. In less than four years of operation, actual fuel costs have been some $450 million more than the projected fuel costs used to justify the plants. This increase in costs – over 40% more than projected - is passed on to the customers and not absorbed by the utility. July 26,

... Establishing a Renewable Portfolio Standard The Commission should establish an appropriate goal, on a percentage basis, for the amount of renewable energy to be included in Floridas electric generation fuel mixThe Commission should establish an appropriate goal, on a percentage basis, for the amount of renewable energy to be included in Floridas electric generation fuel mix The Governor has indicated 20% which would be the minimumThe Governor has indicated 20% which would be the minimum and would also seem to be a reasonable starting point RPS should be established as a percentage of the electrical energy sold at retail within Florida and measured in kWh or mWh on a twelve month rolling average basisRPS should be established as a percentage of the electrical energy sold at retail within Florida and measured in kWh or mWh on a twelve month rolling average basis RPS should be phased-in requiring for example 10% by 2010, then increasing in 2% increments until 20% of electricity sold at retail in Florida must be produced by renewable energy by 2020RPS should be phased-in requiring for example 10% by 2010, then increasing in 2% increments until 20% of electricity sold at retail in Florida must be produced by renewable energy by 2020 July 26,

July 26, Renewable Energy From Outside of Florida – Tradable Credits Any tradable renewable energy credit system that would allow a utility to meet its RPS should be limited to those renewable energy resources located in Florida, and those out of state resources from which the electricity associated with such credit is actually delivered into Florida Any tradable renewable energy credit system that would allow a utility to meet its RPS should be limited to those renewable energy resources located in Florida, and those out of state resources from which the electricity associated with such credit is actually delivered into Florida Out of state renewable energy resources should only apply toward an RPS if the electricity from such resources is actually delivered into Florida to offset electrical generation, associated fuel use and environmental emissions within Florida Out of state renewable energy resources should only apply toward an RPS if the electricity from such resources is actually delivered into Florida to offset electrical generation, associated fuel use and environmental emissions within Florida

July 26, Avoided Cost Pricing Avoided cost payments for renewable energy facilities should be based on an avoided unit which most closely resembles operational, fuel diversity and price stability characteristics of the types of renewable energy facilities, i.e. a base load solid fueled plant for larger capital intensive base load renewable facilities a peaking gas or liquid fuel plant for smaller, non-base load renewable facilities other depending on technology

July 26, Contract Issues Pricing is a very important element in promoting renewable energy and the Commission should assure that full avoided cost payments include all costs that would otherwise be incurred by the utility and/or its customers. But, it is also important that the contract terms and conditions be fair and reasonable and not serve as a disincentive to renewable energy.

July 26, Some Issues Still To Be Addressed Why are average energy prices often significantly higher than avoided as-available energy prices over the same time period? Why are average energy prices often significantly higher than avoided as-available energy prices over the same time period? Why are buy- through prices often significantly higher than avoided as-available energy prices over the same time period? Why are buy- through prices often significantly higher than avoided as-available energy prices over the same time period? Why are Florida utility non-regulated affiliates making substantial investments in electric generation by renewable energy in other states but not in Florida? Why are Florida utility non-regulated affiliates making substantial investments in electric generation by renewable energy in other states but not in Florida? Why is it acceptable for customers to bear all the risk of utility fuel choices but unacceptable to bear any risk from renewable energy facilities? Why is it acceptable for customers to bear all the risk of utility fuel choices but unacceptable to bear any risk from renewable energy facilities? Why do the terms and conditions of the standard offer contracts differ from one utility to another? Why do the terms and conditions of the standard offer contracts differ from one utility to another?