Retail electric and gas utility efficiency policies

(a)

In general

The Public Utility Regulatory Policies Act of 1978 is amended by adding the following after section 609:

610.

Efficiency resource standards for retail electricity and natural gas distributors

(a)

Definitions

In this section: (1)

Base quantity

The term base quantity, with respect to a retail electricity or natural gas distributor, means the total quantity of electric energy or natural gas delivered by the retail electricity or natural gas distributor to retail customers during the most recent calendar year for which information is available. (2)

Combined heat and power system

The terms combined heat and power system and CHP system mean a system that— (A)uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical power, or both, in combination with the generation of steam or other forms of useful thermal energy (including heating and cooling applications); (B)produces at least 20 percent of its total useful energy in the form of thermal energy, and at least 15 percent of its total useful energy in the form of electrical or mechanical power (or a combination thereof); (C)except for systems designed for operation on cellulosic biomass fuel, has a marginal net heat rate of no more than 7,500 Btu/kWh, calculated on a higher heating value basis; (D)is designed for continuous operation; and (E)if generating electricity provides such electricity primarily for use for a facility or group of facilities located near the point where the electricity is generated, and from which net wholesale sales of electricity are not in excess of 50 percent of total annual generation. (3)

Customer facility

The term customer facility means an end-use consumer of electricity or natural gas served by a retail electricity or natural gas distributor. (4)

Deemed savings

The term deemed savings means an estimate of the average per unit savings from installation of specific common energy efficiency measures. Deemed savings estimates shall be based on field studies or billing analyses of savings at a sample of sites where the specific measure is installed. (5)

Electric and Natural Gas Savings Corporation

The term Electric and Natural Gas Savings Corporation means the corporation certified pursuant to subsection (d)(7)(C). (6)

Electricity

(A)The term electricity savings means any of the following: (i)Reductions in end-use electricity consumption achieved by a customer facility relative to— (I)consumption at the same facility in a base year, as defined in rules issued by the Secretary; (II)in the case of replacement of equipment at the end of its life or of new equipment that does not replace existing equipment, consumption of new equipment of average efficiency, as defined in rules issued by the Secretary; or (III)in the case of a new facility, consumption at a reference facility, as defined in rules issued by the Secretary. (ii)Reductions in distribution system losses of electricity achieved by a retail electricity distributor relative to losses attributable to new or replacement distribution system equipment of average efficiency, as defined in rules issued by the Secretary. (iii)Any combination of the foregoing. (B)The reductions referred to in subparagraph (A) may be due to— (i)energy efficiency measures, including demand response measures that result in improved energy efficiency; (ii)combined heat and power systems as calculated under subparagraph (D); (iii)recycled energy; or (iv)in the case of distribution system losses, upgraded distribution transformers, upgraded electrical connectors, high temperature superconductors, or other measures to reduce such losses as specified in rules issued by the Secretary. (C)The reductions in end-use electricity consumption at a customer facility shall be reduced on a Btu basis by the Btu equivalent of any associated increases in fuel consumption at such facility. The conversion of any such fuel consumption increase to an equivalent amount of electricity on a Btu basis shall be determined by the Secretary based on the average heat rate of central station generation in the region (accounting for average transmission and distribution losses in the region), as determined in rules issued by the Secretary. (D)For a combined heat and power (CHP) system, the electricity savings shall be the electricity and mechanical power generated by the CHP system net of fuel used by the system, where the fuel used is the product of— (i)the electricity and mechanical power generated by the CHP system; (ii)the net-effective heat rate for the CHP system; and (iii)the inverse of the average heat rate of central station generation in the region, taking into consideration avoided transmission and distribution losses resulting from on-site generation as determined under subparagraph (C). (7)

Natural gas savings

(A)The term natural gas savings means— (i)reductions in end-use natural gas consumption achieved by a customer facility relative to— (I)consumption at the same facility in a base year, as defined in rules issued by the Secretary; (II)in the case of replacement of equipment at the end of its life or of new equipment that does not replace existing equipment, consumption of new equipment of average efficiency, as defined in rules issued by the Secretary; or (III)in the case of a new facility, consumption at a reference facility, as defined in rules issued by the Secretary; (ii)reductions in leakage, operational losses, and gas fuel consumption in the operation of a gas distribution system achieved by a retail gas distributor relative to such losses in a base year, as defined in rules issued by the Secretary; or (iii) any combination of the foregoing. (B)The natural gas savings may be due to— (i)energy efficiency measures; (ii)recycled energy; or (iii)in the case of gas distribution system losses, technologies and practices as specified in rules issued by the Secretary including measures recommended for gas distribution systems by the Natural Gas STAR Program administered by the Environmental Protection Agency. (C)The reductions in natural gas consumption shall be reduced on a Btu equivalent basis by any associated increases in the consumption of electricity or other substitute fuels by a customer facility or a natural gas distributor, as determined under rules issued by the Secretary. The conversion of any such increase in the consumption of electricity or other fuels to an equivalent amount of natural gas consumption on a Btu basis shall be determined by the Secretary based on the average heat rate of central station electric generation in the region and average transmission and distribution losses in the region, as determined under rules issued by the Secretary. (8)

Net effective heat rate

The term net effective heat rate means a ratio, the numerator of which is the higher heating value of the increment of fuel required by a CHP system to produce electricity and mechanical power, over and above the fuel that would be required to produce the equivalent thermal output of the CHP system by a system without power generation, expressed in British thermal units, and the denominator of which is the power output of the CHP system, expressed in kilowatt-hours. (9)

Performance standard

The term performance standard means the performance standard for energy savings established under subsection (b). (10)

Recycled energy

The term recycled energy means electrical or mechanical power, or both, or thermal energy produced by modifying an industrial or commercial system that was in place prior to January 1, 2007, such that the modified system— (A)recaptures energy that would otherwise be wasted from sources, including— (i)waste heat from industrial processes, natural gas compressor stations, and other sources; (ii)pressure in a fluid or gas system including but not limited to steam, natural gas, and water; and (iii)blast furnace, coke oven, carbon black, and petrochemical process waste gas, or pollution control projects, including thermal oxidizers and gas flares; and (B)uses equipment and technologies including— (i)back-pressure turbines in parallel with existing pressure-reducing valves in steam, water and gas systems; (ii)organic Rankine, Stirling, or Kalina cycle heat engine systems driven by waste heat; or (iii)heat recovery steam generators with steam turbine generators that recover waste heat. (11)

Retail electricity or natural gas distributor

The term retail electricity or natural gas distributor means a person (including a Federal, State, or local entity) that— (A)distributes electric energy or natural gas to consumers in the United States for a calendar year, including electricity or natural gas supplied by unregulated suppliers, regardless of whether such suppliers are affiliated or unaffiliated with the distributor; and (B)sold not less than 800,000 megawatt-hours of electric energy or 1 billion cubic feet of natural gas to consumers in the United States for purposes other than resale during the preceding calendar year.

For purposes of this paragraph, electricity or natural gas sold at wholesale to large end-use customers shall be included but natural gas sold to wholesale electric generators to generate electric power for resale shall not be not included.

(b)

Performance standard

(1)

In general

Each retail electricity or natural gas distributor shall undertake electricity and natural gas savings measures in each calendar year beginning with 2009 that produce electricity and natural gas savings as a percentage of the distributor’s base quantity at the applicable rate specified in paragraph (5). (2)

Savings

The savings described in paragraph (1) shall represent savings realized in the specified year from measures implemented in that year and all preceding years beginning with 2007. (3)

Limits

Savings from combined heat and power systems, recycled energy, and electricity or natural gas distribution system measures may be used by a distributor to satisfy no more than 50 percent of the applicable savings specified for any year in the table contained in paragraph (5). (4)

Compliance

(A)Each retail electricity or natural gas distributor subject to this subsection may use any electricity or natural gas savings measures available to the distributor to achieve compliance with the performance standard established under this section, on the condition that the electricity and natural gas savings achieved by such measures are calculated and verified pursuant to the rules issued under subsection (c). (B)A retail electricity or natural gas distributor may demonstrate compliance with the performance standard through the accumulation of— (i)electricity or natural gas savings credits achieved by such electricity or natural gas distributor and certified under clause (i) of subsection (d)(2)(A); (ii)electricity or natural gas savings credits obtained by purchase under subsection (d)(6); (iii)electricity or natural gas savings credits borrowed against future years under subsection (d)(7); or (iv)any combination of credits described in clauses (i), (ii), and (iii). (5)

Applicable rates

(A)The applicable rates referred to in paragraph (1) are as follows: YearElectricity savings (%)Natural gas savings (%)2009 0.250.202010 0.750.502011 1.500.802012 2.251.152013 3.001.502014 4.002.002015 5.002.502016 6.003.002017 7.003.502018 8.004.002019 9.004.50202010.005.00.

(B)At least 2 years before the beginning of any year after 2020, the Secretary, after notice and opportunity for comment, shall set the applicable rate, taking into consideration the economic and environmental benefits of the energy savings and the cost of the savings measures. (c)

Determination of compliance rules

Not later than 1 year after the date of enactment of this section, the Secretary shall issue rules that describe the means to be used to calculate and verify compliance with the performance standard that include each of the following: (1)Procedures and standards for defining and measuring electricity savings and natural gas savings from customer facility end-uses and from utility distribution systems that occur in a calendar year (including measures implemented in previous calendar years beginning in 2007). At a minimum, these procedures and standards shall— (A)specify the types and categories of efficiency measures that will be eligible for certification under subsection (d)(2); (B)require that energy consumption estimates for customer facilities or portions thereof in the base and current years be adjusted, when appropriate, to account for changes in weather, level of production, and building area; (C)allow energy consumption estimates from discrete processes and equipment within industrial facilities in the base and current years to be adjusted for factors identified by rule that may be responsible for significant year-to-year changes; (D)allow energy consumption estimates from discrete processes and equipment within industrial facilities in the base and current years to be adjusted for factors identified by rule that may be responsible for significant year-to-year changes; (E)account for the useful life of energy saving measures; (F)include deemed savings values for commonly-used efficiency measures and make provision for such values to be periodically reviewed and revised; (G)minimize the chances that more than one entity will claim credit for the same savings; and (H)exclude savings that— (i)are attributable to measures or systems installed before January 1, 2007, or to modifications of processes or systems undertaken prior to January 1, 2007; (ii)are otherwise required by Federal, State, local, or Indian tribal law or regulation; (iii)are achieved without the intervention of the electricity or natural gas distributor or of any other entity seeking credits under paragraph (2)(A)(ii) of this Act, except as provided under subsection (e); (iv)are attributable to Federal, State, or local tax incentives, grants, loans, or other public financial support for energy efficiency measures; or (v)have already been credited under this section to another entity. (2)Procedures and standards for verification of electricity or natural gas savings reported by retail electricity and natural gas distributors. At a minimum, such procedures and standards shall— (A)provide for periodic spot checks on a sample of sites to verify that measures are in place and functioning; (B)provide that savings estimates are calibrated with billing analysis or end-use metering on a sample of sites where technically feasible and economically justified; and (C)provide for the protection of customers’ proprietary information against unwarranted disclosure. (3)Requirements for the content and format of a biennial report from each retail electricity or natural gas distributor demonstrating the compliance of the distributor with the performance standard, including a detailed description of the calculation of electricity and natural gas savings to enable the appropriate regulatory authority to verify and enforce compliance with the requirements of this section (including regulations issued under this section). (4)Provision for reviewing and revising the electricity and natural gas consumption of reference facilities and of new equipment of average efficiency at intervals of not greater than 4 years. (d)

Credit and trading system

(1)

Establishment

Not later than one year after the date of enactment of this section, and after consultation with the Administrator of the Environmental Protection Agency, the Secretary shall issue rules establishing a nationwide credit and credit trading system for electricity and natural gas savings. (2)

Credits

(A)

In general

In accordance with the rules issued under paragraph (1), the Secretary— (i)shall certify as credits, electricity and natural gas savings achieved by a retail electricity or natural gas distributor in a given calendar year if the savings comply with the rules issued under subsection (c)(1); (ii)shall certify as credits, customer electricity and natural gas savings undertaken by State agencies and other entities if— (I)a retail electricity or natural gas distributor did not help finance measures to achieve these savings; and (II)the savings comply with the rules issued under subsection (c); and (iii)shall not award credits to any retail electricity or natural gas distributor subject to State administration and enforcement under subsection (g) unless the Secretary has determined that the administration and enforcement are at least equivalent to administration and enforcement by the Secretary. (B)

Amount of credits

A credit certified by the Secretary under this subsection— (i)shall equal 1,000 kilowatt-hours, in the case of an electricity savings credit; or (ii)shall equal 10 therms, in the case of a natural gas savings credit. (3)

Treatment of credits

(A)

Use of credits

A credit may be counted toward compliance with the performance standard only once. (B)

Property rights

An electricity or natural gas savings credit certified under this subsection shall not be considered to be a property right. (C)

Reduction and termination of credits

Nothing in this section or any other provision of the law limits the authority of the United States to reduce or terminate a credit certified under this subsection. (4)

Fee

(A)

In general

To receive certification of an electricity or natural gas savings credit under this section, the recipient of the credit shall pay a fee, calculated by the Secretary, in an amount that is equal to the lesser of the following: (i)The administrative costs of issuing, recording, monitoring the sale or exchange, and tracking, of the credit. (ii)For the years 2009 and 2010, 5 percent of the fair market value of the credit, as determined by the Secretary, and for the years 2011 and thereafter, 3 percent of the fair market value of the credit, as determined by the Secretary. (B)

Use of fees by Secretary

Subject to annual appropriation, the Secretary shall use amounts equivalent to the fees paid under this paragraph to pay administrative costs described in subparagraph (A)(i). If receipts exceed the administrative costs incurred by the Secretary in any two consecutive fiscal years, the Secretary shall, not later than January 1 of the first fiscal year thereafter, reduce the fee accordingly. (5)

Credit sale and use

(A)

Sale

A retail electric or natural gas distributor may sell a credit certified under this subsection to any other entity, and other entities may sell such credit to a retail electric or natural gas distributor or any other entity, in accordance with accounting and verification procedures contained in rules issued by the Secretary under paragraph (1). (B)

Use

A credit certified under this subsection and sold under subparagraph (A) may be used by a purchasing retail electricity or natural gas distributor for purposes of complying with the performance standard. (C)

Duration of validity

A credit certified under this subsection may only be used for compliance with this section for 3 years from the date issued. (6)

Credit borrowing

(A)During the first year covered by the performance standard, a retail electricity or natural gas distributor that has reason to believe that the distributor will not have sufficient electricity or natural gas savings credits to comply with the performance standard may— (i)submit a plan to the Secretary demonstrating that the retail electricity or natural gas distributor will earn or acquire sufficient credits within the subsequent 2 calendar years that would enable the retail electricity or natural gas distributor to meet the performance standard for all three calendar years; and (ii)upon the approval of the plan by the Secretary, apply credits expected to be earned or acquired within the subsequent 2 calendar years to meet the performance standard for the applicable calendar year. (B)Any retail electricity or natural gas distributor that has submitted such a plan shall, by March 31 of the fourth calendar year, submit to the Secretary the credits necessary to repay all credits borrowed. (7)

Buyout option

(A)

In general

An electricity or natural gas distributor may elect to comply with this section for any calendar year by paying to the certified Electric and Natural Gas Savings Corporation not later than March 31 of the following year, a fee of 5 cents per kilowatt-hour or 50 cents per therm, for any portion of the electricity or natural gas savings credit the distributor would otherwise be obligated to achieve for the year. (B)

Use of buyout fees

The Electric and Natural Gas Savings Corporation shall— (i)deposit fees received under subparagraph (A) in an escrow account established by the Corporation; and (ii)periodically distribute amounts in the escrow account to States requesting such funds for use in creating electricity or natural gas savings at customer facilities.

States requesting funds from the account established by the Corporation shall submit specific program proposals, including funds requested, estimated savings and measure lifetime(s), and estimated cost per kWh or therm saved. The Corporation shall develop guidelines for these submissions. The Corporation shall distribute funds based on the following criteria: Estimated savings per dollar of funds provided from the escrow account, maximizing consumer opportunities to participate across all States, and, beginning in year 3, past history of each State in meeting energy savings and cost-effectiveness targets.

(C)

Electric and Natural Gas Savings Corporation

(i)

Establishment and certification

Any person may submit an application to the Secretary for the establishment and certification of a not-for-profit corporation, to be known as the Electric and Natural Gas Savings Corporation, to carry out this paragraph. The Secretary shall certify the corporation if the Secretary determines that the corporation has submitted the most qualified application indicating capability to carry out this paragraph. The Secretary may revoke such certification at any time for good cause, and in any such case, the Secretary may accept applications from other persons and certify another person as the Electric and Natural Gas Savings Corporation. (ii)

Authority of corporation

No person may distribute more than 800,000 megawatt-hours of electric energy or more than 1 billion cubic feet of natural gas to consumers in the United States for purposes other than resale in any calendar year, including electricity or natural gas supplied by unregulated suppliers, regardless of whether such suppliers are affiliated or unaffiliated with the distributor unless such person complies with requirements established by the Corporation for the payment of fees under this paragraph. (iii)

Status of corporation

The Corporation shall not be treated as a department, agency, or instrumentality of the United States for any purpose. (iv)

Books and records

The books and records of the Corporation shall be available to the public at reasonable hours and under reasonable conditions, without charge. (v)

Penalty

Any person who violates clause (ii) of this subparagraph shall be subject to a civil penalty to be assessed and collected by the Secretary in the amount equal to three times the total of the fees which are due and payable to the corporation under this paragraph. (e)

Enforcement of compliance

(1)

In general

If a State regulatory authority with jurisdiction over a retail electricity or natural gas distributor notifies the Secretary that the State regulatory authority will enforce compliance by the distributor with the performance standard under this section, the State regulatory authority shall have the authority to administer and enforce the performance standard for the distributor under State law. (2)

Authority of Secretary

The Secretary shall administer and enforce the performance standard for all electricity and natural gas distributors for which a State regulatory authority described in paragraph (1) has not notified the Secretary as described in that paragraph. (3)

Compliance report

Not later that July 1, 2010, and every 2 years thereafter, each retail electricity and natural gas distributor shall submit a compliance report conforming to the provisions of the rule described in subsection (c)(3) to either— (A)the appropriate State regulatory authority, if the authority has notified the Secretary as described in paragraph (1); or (B)the Secretary. (4)

Failure to comply

(A)

In general

In the case of any retail electricity or natural gas distributor for which the Secretary is enforcing compliance with the standards under this section, if the distributor fails to comply with the performance standard for more than one calendar year, the Secretary shall— (i)determine the number of kilowatt-hours of electricity savings, or therms of natural gas savings, by which the distributor has fallen short of meeting the performance standard; and (ii)by order, require the distributor, after notice and opportunity for hearing, to deposit in the escrow account established under paragraph (8)(B) of subsection (e) an amount equal to 6.0 cents per kilowatt-hour for each such kilowatt hour, and 60 cents per therm for each such therm. (B)

Judicial review of orders

(i)

In general

A retail electricity or natural gas distributor ordered to make a payment under subparagraph (A)(ii) may, not later than 60 days after the date of issuance of the order, bring a civil action in the United States Court of Appeals for the District of Columbia for judicial review of the order. (ii)

Remedies

The court specified in clause (i) shall have jurisdiction to enter a judgment affirming, modifying, or setting aside an order that is the subject of a civil action brought under that clause, or remanding the order, in whole or in part, to the Secretary. (f)

Information collection

The Secretary may collect any information necessary to verify and audit each of the following: (1)The annual electric energy sales, natural gas sales, electricity savings, and natural gas savings of any entity applying for electricity or natural gas savings credits under this section. (2)The validity of electricity or natural gas savings credits submitted by a retail electricity or natural gas distributor to the Secretary. (3)The quantity of electricity and natural gas sales of all retail electricity and natural gas distributors. (g)

State law

(1)

In general

Nothing in this section supersedes or otherwise affects any State or local law or regulation requiring or otherwise relating to electricity or natural gas savings to the extent that the State or local law or regulation contains more stringent savings requirements or has different procedures for buyout or penalties than those contained in this section. (2)

Site-specific savings

A State may require the performance standard for electricity or natural gas savings of any distributor within its jurisdiction to be achieved by measures undertaken— (A)within the State; (B)within the service territory of any regional transmission organization serving the State; (C)within any group of States participating in a regional program for the control of green house gas emissions; or (D)within any airshed designated by the State. (3)

Treatment under State law

A retail electricity or natural gas distributor that achieves electricity or natural gas savings under this section in accordance with any State or local savings requirement specifically applicable to such distributor shall be entitled to full credit under this section for the savings to the extent that the savings meet the requirements of this section (including regulations issued under this section), including measurement, verification, and monitoring requirements. (h)

Development of model provisions

Not later than 18 months after the date of enactment of this section, the Federal Energy Regulatory Commission shall, following public notice and comment, develop and publish model provisions for adoption by State utility regulatory commissions regarding each of the following: (1)

Revenue stability and incentives for distributors

Policies for rate-setting and return on investment for State-regulated electricity and natural gas distributors that participate in successful, cost-effective energy efficiency programs. Such model language shall include provisions for decoupling the earnings of such regulated entities from full dependence on the volume of electricity or natural gas distributed by them to customer facilities. Such model language shall also include provisions for policies for cost recovery and other financial incentives, such that electric and gas utility investors are rewarded similarly for similar levels of investment in customer energy efficiency and in conventional utility assets and that regulated utilities are encouraged to include end-use efficiency measures and utility-owned, customer-owned, or third party-owned CHP systems in electric capacity and transmission and distribution plans. (2)

Nondiscriminatory identification of cost-effective savings opportunities

Establishing a public, nondiscriminatory bidding process open to customers and demand side management service providers to identify cost-effective electricity or natural gas savings opportunities within a retail electricity or natural gas distributor’s service area. The model bidding plan shall provide for a distributor to procure all or a portion of its proposed savings measures, including measures proposed by the distributor or its affiliates, in cost-effective rank order. The model plan shall also address the process that will be used by the distributor to identify and obtain further electricity or natural gas savings in the event that insufficient savings are procured through the bid process. (3)

Development of model language on revenue decoupling and shareholder incentives in ratemaking policies

Rate-setting and earnings for State-regulated electricity and natural gas distributors that participate in successful, cost-effective energy efficiency programs. Such model language shall include, but not be limited to, recommendations for decoupling the earnings of such regulated entities from full dependence on the volume of electricity or natural gas distributed by them to customer facilities. Such model language shall also include recommendations for policies for cost recovery and shareholder incentives, such that electric and gas utility investors are rewarded similarly for similar levels of investment in customer energy efficiency and in conventional utility assets. (i)

State adoption of FERC model provisions

Each State utility regulatory authority shall adopt the model provisions referred to in subsection (h) in the same manner and subject to the same rules and review as apply in the case of standards referred to in section 113(b) and 303(b). For purposes of any provision of title I or III of this Act, the model provisions referred to in subsection (h) shall be treated as standards under section 113(b) (in the case of State regulated electricity distributors) or 303(b) (in the case of natural gas distributors), except that in the case of such model provisions, any reference contained in this Act to the date of enactment of this Act shall be deemed to be a reference to the date of enactment of this section. Each such State utility regulatory authority shall shall adopt the model provisions not later than 24 months after the date of enactment of this section in the case of paragraphs (1) and (2) of subsection (h) or 42 months after such date of enactment in the case of paragraph (3) of subsection (h).

(b)

Table of contents

The table of contents for title VI of such Act is amended by adding the following new items at the end thereof:

Sec. 609. Rural and remote communities electrification grants.

Sec. 610. Efficiency resource standard for retail electricity and natural gas distributors.