Restructuring a green grid: legal challenges to accommodate new renewable energy infrastructure.

• Author: Ferrey, Steven
• Position: Greening the Grid Building a Legal Framework for Carbon Neutrality

1. INTRODUCTION A. Overview of the New Grid B. Stimulus and Response II. NEW GRID, OLD GRID: DO THE Two CONNECT? A. What Really Is the Grid? B. What and Where: Ensuring that the Power Resource Mix Supports Greater Reliance on Renewable Power C. Transmission Infrastructure Extension Supporting a More Sustainable Power System D. Regulatory Mechanics for a More Renewable, Decentralized Grid III. CONSTRUCTING THE LEGAL ARCHITECTURE FOR A MORE RENEWABLE NEW GRID A. Constitutional Issues Confronting State Renewable and Carbon Regulation B. Feed-In Tariffs to Promote Grid-Connected Renewable Power C. Renewable Portfolio Standards for the New Renewable Grid IV. CONCLUSION: THE FUTURE GRID I. INTRODUCTION

   1. Overview of the New Grid

      Let me roll back the clock for a decade. The energy situation is both quite distinct from and very similar to how it was five years ago. The economy, obviously, is in quite different shape. Energy is very different than it was five years ago. In 2004, global warming was not much in the nomenclature of energy policy--the European Union Emission Trading System (ETS) of carbon control, the first carbon control in the world, had not yet started; (1) the Kyoto Protocol had not been ratified by the necessary percentage of countries to make it effective; (2) and no one had won a Nobel Peace Prize for highlighting carbon imperatives. (3) In another sense, things are similar. The long-term solution to global warming has not changed (4)--and it is actually a good thing that there is some certainty in the solutions for global warming. There needs to be a sound solution for a political, legal, and technological response--and there is. (5) In fact, the technological response of renewable energy infrastructure to limit carbon emissions has been available for three decades; it is the legal and policy response that has proved more elusive and has not been realized. (6)

      This Article focuses on how the new power grid must be modified and the legal and policy challenges this poses. This is a two-headed question. In a straightforward regard, the grid is a strand of copper and aluminum wires that connects the places where power is produced to society. (7) It is a transportation network. But in a more interactive sense, the power grid is the network of thousands of generators and hundreds of millions of consumers interlinked by legal and regulatory protocols and procedures that interconnect a virtual electronic web that powers and energizes modern society. (8) This system must remain perfectly balanced second by second, or the system collapses, as it did in the northeastern United States in 2003. (9)

      In this regard, to adapt to renewable power use in the grid there are issues of changing the backup power resources and reliability of the grid, as well as more intelligent demand for power resources, when accommodating the new, intermittent character of renewable resources. It has implications on both ends of the grid--in the mix of supply resources and in the use of power by consumers of power. These legal and regulatory issues are the more challenging aspects of the new grid, which this Article explores.

      Let me roll back in time those five years with a specific frame of reference. I spoke at an energy symposium at Duke Law School about five years ago on the great topic of the Power Future. (10) I was allowed to be a futurologist, which is a great assignment. In that presentation and the article that followed, I took license to identify twelve trends that would change the future of electric power production and use in the United States as set forth in Table 1. (11) They were: 1) increasing vulnerability to the supply of fossil fuels, including natural gas; 2) depletion of supplies of economically recoverable fossil fuels; 3) relative inefficiency of U.S. energy use on a global scale; 4) mounting concern about environmental degradation; 5) increasing concern about terrorist threats to energy security; 6) vulnerability of the centralized transmission and distribution system; 7) choices about whether we transport natural gas fuel or produce electricity; 8) the need for greater reliability of the system; 9) differentiation of the needs for higher digital quality electricity for some uses; 10) inconsistent state-level incentives for renewable energy; 11) deregulation and restructuring in eighteen of the fifty states; and 12) globalization of energy markets and environmental impacts. (12)

      Of note, deregulation and restructuring have been frozen at the retail level over the past five years as a result of the debacle in California's electric deregulation in 2001. (13) Electricity restructuring is not the same as electricity deregulation. Utilities, even in states where retail power sale is deregulated, are still regulated by independent system operators (ISOs), regional transmission organizations (RTOs), state public utility commissions (PUCs), the North American Electric Reliability Corporation (NERC), and the Federal Energy Regulatory Commission (FERC). (14) ISOs and RTOs serve two-thirds of electricity consumers in the United States. (15) There has been dramatic change and even failures in sectional power markets. In 2000 to 2001, the California power market imploded, resulting in billions of dollars of additional public debt and the bankruptcy of major utilities--and halting all further retail deregulation across the country. (16) The largest power trader in the country, Euron Corporation, collapsed in 2001, and there was a massive blackout in the Northeast United States in 2003. (17)

      All these trends from five years ago are still in play and the points remain valid. We are just as dependent on natural gas and we have continued to deplete fossil fuels without achieving its "pivot point" to deploy more renewable power resources, as set forth in points one and two in Table 1. Renewable energy and greater efficiency have become primary elements of the new Obama energy plan, set forth in points three and four in Table 1. I will address these elements, as well as the odd facets of state incentives (point 11 in Table 1) in Part III of this article. Points six and eight in Table 1, which were first set forth five years ago at the Duke symposium, concern demands on the transmission system to adapt a more reliable grid amid this new transition in dispersed supply resources. The Article addresses points six and eight in Part II.

      The impact of these dozen forces on society, summarized in Table 1 as set forth five years ago, create energy "pivot points" for policymakers to respond to these forces. (19) Many of the "pivot points" create more vulnerability for the energy system and decentralization of supply resources, and indicate more opportunity for renewable energy, dispersed power, and cogeneration supply. (20) We are now implementing policy, both at the state and federal levels, to transition to more dispersed sources of power supply and more intermittent resources, which will have decentralizing societal impacts to which the grid must adapt. (21) This is the brink upon which the electric system is today. There is a significant push for a sustainable energy future with renewable energy and energy efficiency options, both at the state and, now, federal levels. (22) They are even more pronounced now with the emphasis on immediate reduction of global warming emissions from the power sector, and a new administration in Washington. (23) This poses new challenges for what we have come to call the "grid."

   2. Stimulus ,and Response

      The Obama stimulus package included a significant incentive package for the electric sector, (24) pouring $80 billion in spending and $20 billion in tax incentives into renewable energy and efficiency, as part of the $787 billion stimulus plan. (25) This includes $12.35 billion for energy efficiency improvements through low-income weatherization, state block grants, public and Section 8 housing efficiency, and Department of Defense efficiency. (26) Prior expenditure for energy efficiency programs peaked at $1.7 billion in 1993 to 1994 and began a steep decline after the California Public Utilities Commission in April 1994 remarked that it intended to restructure California's electric industry; eighteen other states followed suit. (27) By 1998, demand-side management (DSM) expenditures had been halved. (28) In some cases, the stimulus package increases funding by one thousand percent. (29)

      There is $6 billion for a loan guarantee program for renewable energy projects under construction by September 2011, which should support about $60 billion of renewable loans for renewable power and transmission projects. (30) There is a 30% investment tax credit for advanced energy manufacturing, a 30% advanced energy facilities tax credit that applies to transmission and grid-related new equipment, and $1.6 billion of tax credits for renewable energy bonds (CREBs), first created by the Energy Policy Act of 2005. (31) Section 45 of the renewable energy production tax credit was extended through 2012 or 2013 for either different renewable technologies or the option to take a grant from the Treasury that mirrors the tax credit. (32)

      There is $4.5 billion for a better and more reliable delivery system, with most of the money expected to be spent within eighteen months-principally in the West and Great Plains where there are more ongoing renewable power resource developments. (33) A 30% advanced energy facilities tax credit applies to transmission and grid-related new equipment. There is a National Transmission Study to assist constrained renewable resources to reach the market through better transmission and to analyze legal challenges for a better grid. (34) Certain transmission upgrades and extensions qualify for loan guarantees. (35) It includes $3.25 billion of new borrowing authority for each of the Western Area Power Administration and the Bonneville Power Administration, which operate 15,000 miles of...