FLORIDA PUBLIC SERVICE COMMISSON WORKSHOP ON RENEWABLE PORTFOLIO STANDARDS JULY 26, 2007 BY E. LEON JACOBS, JR. WILLIAM

1. FLORIDA PUBLIC SERVICE COMMISSON WORKSHOP ON RENEWABLE PORTFOLIO STANDARDS JULY 26, 2007 BY E. LEON JACOBS, JR. WILLIAMS & JACOBS

2. Renewable Portfolio Standards (RPS) • market driven strategies to produce meaningful increase in contribution of renewable energy resources in state’s energy mix • must also produce an open, competitive renewables market; integral to providing resources at least-cost

3. Renewable Portfolio Standards (RPS) Cost-reducing Elements • Stable RPS policy which fosters long-term RPS contracts • Flexible timelines and provisions for compliance, to enhance “build vs buy” options • Proliferation of an open, competitive renewables market, motivating retail sellers to bid down costs

4. Renewable Portfolio Standards (RPS) • RPS best practices are emerging (most states with less than 5 years of experience) • Evidence shows that poorly designed or poorly enforced RPS do little to increase availability of renewable energy resources • Substantial risk that compliance costs can outstrip economic benefits of added renewable energy

5. Renewable Portfolio Standards (RPS) • Essential measure of success – expanded development and contribution of renewables (preference on instate resources) at low-cost; achieved through full (or at least substantial) compliance with RPS

6. RPS Design Affects Enforcement and Compliance Objective: Translate renewable goals into real market obligations Design Elements: - Structure, size and application of RPS - Resource eligibility - Administration - Impacts on and from ancillary policies

7. RPS Design Affects Enforcement and Compliance Particular Concerns over Policy Implementation • Uncertainty in objectives and design of policy • Inappropriate weighting of technologies • Unclear/inadequate enforcement • Inadequate compliance flexibility • Overly lenient compliance flexibility • Inadequate impetus for long-term renewable contracts • Inadequate planning for reliability and transmission

8. Principal Enforcement Methods ■ Monetary penalties automatic if obligations not met within reporting period ■ “Make-up” or Regulatory penalties less preferred

9. Principal Enforcement Methods Penalties: - established at levels which substantially exceed cost of full compliance ( suggested 3-5 x REC price) - must be automatic, clear and specific - should be applied to nonconforming generators and to nonconforming retail sellers - harshest for fraud regarding eligibility or production

10. Principal Compliance Methods for Retail Sellers • Tradable Renewable Energy Credits accountableattributes, purchased by obligated entities through open market unbundled from underlying power • Contract Path Verification tracking chain of custody in power purchase agreements, along with attributes of the power

11. Principal Compliance Methods Tradable Renewable Energy Credits - require active, open and competitive trading market - must utilize verifiable tracking system - allow greatest flexibility and easiest administration - introduce a host of new policy and compliance issues - most economic with regional scope

12. Principal Compliance Methods Contract Path Verification - higher verification potential - allows focus on strategic needs of state - central administrator required; more complex - minimizes market power and manipulation concerns - preferred when competitive market for RECs is not possible

13. Compliance Flexibility with clear market conduct to meet goals • Cap on REC Prices • Compliance True-up Period • Credit Banking • Force Majeure Penalty Exceptions • Credit Borrowing

14. Role for Energy Efficiency ■ Frees up precious state resources by managing load growth through demand side resources ■ ACEEE report indicates significant, sustainable potential ■ Balancing required against newly developed renewables ( EE gets lower percentage of purchase obligation or lower REC price/allocation) ■ Softens cost impacts of RPS ■ Addresses diversity concerns