Once again, as Legal Brief is written, Congress has yet to pass the long-awaited comprehensive energy legislation, notwithstanding predictions to the contrary earlier this year. Passage of an energy bill in 2004 is less and less likely. However, in September, Congress renewed the expired production tax credit that is critical for developers of wind generation. The renewal was retroactive and is effective through 2005. This tax credit also benefits closed-loop biomass and chicken waste, but does not broaden the provisions of the credit to include other renewable technologies.

This tax credit extension comes at a fortuitous time for the wind industry. The interest in renewable energy continues to grow, fueled by high natural gas prices and concerns about the country's dependence on imported oil, as well as by concerns about global warming and other environmental issues. A number of utilities are showing a strong interest in wind generation as a means of meeting obligations to include renewable power in their portfolios. Further, the cost of installing wind generation has decreased and the technology continues to improve. The Federal Energy Regulatory Commission (FERC) is considering interconnection issues unique to large windfarms in response to a petition filed by the American Wind Energy Association.

The current interest in renewables goes beyond windpower. An increasing number of states have adopted policies that encourage or require retail electric suppliers to include a minimum percentage of renewable generation in their portfolios. Most recently, the New York Public Service Commission issued an order requiring an increase in the state's renewable generation by 2014 from the current level of just over 19% to 25%. The relatively high percentage of renewable generation in New York has been attributed to a significant amount of hydroelectric power. Illinois appears likely to adopt a renewable requirement to replace the state's existing goals as part of further restructuring of the state's electric industry beginning in 2007. Wisconsin, too, is expected to increase its emphasis on renewable power. Tradable renewable energy credits created as part of the renewable energy portfolio programs of Massachusetts and New Jersey have created an additional revenue stream for renewable generators in addition to the more traditional sale of energy and capacity. In response to the strong interest in trading renewable energy credits, PJM Interconnection is developing a Generator Attribute Tracking System (GATS) to facilitate trading of renewable energy credits throughout PJM's system, which extends from Illinois to New Jersey and includes eight states and the District of Columbia. GATS is expected to begin operation in early 2005.

GATS is just one example of the opportunities that are becoming available to distributed generators of all sizes through participation in one of the regional transmission operators (RTOs). These opportunities are a strong contrast to the days of the Public Utitlity Regulatory Policy Act of 1978, when qualifying facilities, the first distributed generation, were limited to selling generation at avoided cost to the local utility. RTOs offer markets of broad geographic scope the opportunity to market multiple products, including energy, capacity, ancillary services, and renewable energy credits. To ensure the ability to participate in these markets, developers and owners of distributed generation who would normally interconnect at distribution voltage with the local distribution utility should explore interconnection to the transmission grid. Surprisingly, this choice, even if more expensive, may be more cost-effective than a distribution-level interconnection because the generation owner will be reimbursed by the transmission owner for all or a portion of the amount paid in connection with interconnection facilities located on the transmission system. Reimbursement may take the form of credits that can be applied to the future use of the transmission grid, or simply a check from the transmission owner, once the generator has met certain criteria and commenced operation. The transmission additions then become part of the transmission system rate base with the cost included in transmission rates. This result is in contrast to distribution-level interconnections in which the generator typically is responsible for the full cost of the interconnection without reimbursement.

FERC has yet to issue its interconnection rule for small generators. Regardless, transmission system operators such as PJM and the Midwest Independent System Operator provide expedited interconnection procedures for small generators that generally appear to save time and money. These procedures will continue to develop, as evidenced by the PJM working group on small-generator interconnection. The recommendations of this group of stakeholders, and of other similar groups, should be available in the form of comments filed with FERC on October 1 in response to a supplemental request for comments on the pending FERC rule on small-generator interconnection.

The electric marketplace continues to evolve. With renewable energy credits, the new regional markets provide new opportunities for even the smallest generators. Stay tuned to Legal Brief for more on interconnection issues and other aspects of doing business in the evolving US electric markets.

Freddi L. Greenberg is principal at Freddi L. Greenberg Attorney at Law in Evanston, IL

DE - November/December 2004