Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

A few weeks back I was contacted by the Cleveland Council on World Affairs (CCWA) to meet with a small delegation of representatives from Serbia who were interested in learning about environmental regulations, specifically those that relate to solid waste and/or recycling. While I was to be interviewed by the delegation members, I think I learned much more even though I wasn't asking the questions.  Here is a bit of background on the CCWA from their e-mail invitation:

The Cleveland Council on World Affairs (CCWA) hosts international leaders from all over the world year-round. Each year the CCWA hosts over 400 foreign nationals to meet and confer with their professional counterparts and to experience America firsthand. The visitors, who are selected by American Foreign Service Officers and U.S. Embassies overseas, are current or potential leaders in government, politics, the media, education, the arts, business and other fields. This program is sponsored and funded by the United States Agency for International Development (USAID)

Members of the delegation worked in the following areas:

• Journalist reporting on environmental issues
• Manager of an electronic waste recycler
• Member of a trade association for chemical manufacturers
• Manager for a public utility company
• Members of Environmental Groups
• Local Government
• Green business consultant
• Small business owner with recycling operation

What jumps out at me from the list above is that you have the same cross-section of organizations and individuals involved in environmental policy in the U.S.  Each individual is interested in representing their own constituents, business or advancing their own environmental principles. 

During the exchange I was asked to describe various regulatory challenges faced by businesses.  I was also asked, generally, about general attitudes of citizens toward protecting the environment or environmental issues.  Here are a few interesting observations or conclusions I made from the meeting:

1. Management of Electronic Waste-  The delegation was interested to learn that there were no mandates requiring individuals or businesses to recycle electronic waste in Ohio.  I was pressed on this point several times by members of the delegation.  They thought it was interesting that any citizen could carry his old TV out to the corner to be thrown away in a landfill.   Here is Ohio EPA guidance encouraging recycling of electronic waste. 
2. Used Tires-  While I think elimination of used tire piles is one of the biggest environmental success stories in the State of Ohio, the delegation provided a different perspective.  The laughed and smirked when told that an individual was allowed to accumulate 23 million tires on their property (Kirby Tire Pile).  For a country known for its sophisticated (if not overly complex) environmental regulations, it is somewhat odd this slipped through the cracks.  As a result, Ohio was forced to enact a new tax on tires and it took nine years to clean up the Kirby Tire Pile.
3. Renewable Portfolio Standards-  I was asked to provide some pretty detailed information regarding Ohio's Advanced Energy Portfolio Standard, including use of alternative compliance payments and renewable energy credits (RECs).  I was told that Serbia was working toward a RPS standard.  I thought it was interesting that a small European country was developing a very sophisticated energy program.
4. Jobs and the Environment-  I was asked to comment on general attitude of the public on environmental issues.  Some were interested in understanding how those attitude vary depending on what state you called home.  Overall, there seemed to be general understanding among the delegation of the interplay between the economy and environmental regulation which challenged my perception those debates were less heated in Europe than in the U.S.  Just like in the U.S., I got the feeling there was a wide range of opinions within the room.  Those opinions can change with time as well.  As noted in CNN recent poll on attitudes of Americans towards the root cause of global warming.

Overall, some of my own perceptions or paradigms regarding environmental regulation were challenged.  It usually takes someone or a group of people from the outside to get you to re-examine your own perceptions.  I found it very enlightening even though I didn't get to ask a single question. 

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On April 15, 2009 the Public Utilities Commission of Ohio finally adopted the long awaited rules that will govern Ohio's energy efficiency requirements and its Alternative Energy Portfolio Standard (AEPS).  Ohio was one of the last states to have adopted a Renewable Portfolio Standard (RPS)- more broadly defined as a AEPS in Ohio.  However, as one of the largest energy intensive states in the Country the finalization of the rules will surely spur growth of "green energy" related business in Ohio.

As a former regulator, a frequent mantra in describing the decision making process was- "if both sides are unhappy then you know you did your job well."   Well the Commission appears to have followed that mantra in responding to the vast amount of comments that were filed on the rules.  It sided with the Utilities on many issues and it sided with consumer and green groups on many issues.  It rejected many suggestions and complaints by Utilities and it rejected many suggestions and complaints by consumer and green groups.

The rules cover three major aspects of S.B. 221 passed by the Ohio Legislature in the summer of 2008:

1. Energy Efficiency and Demand Reduction Programs
2. Alternative and Renewable Energy Portfolio Standards
3. Greenhouse Gas Reporting and Carbon Dioxide Control Planning

Here is a brief recap of the changes made in response to comments.

Energy Efficiency and Demand Reduction Programs- The Commission completely restructured the rules governing energy efficiency and peak demand reductions.  The Commission revisions where designed to "reflect a focus on the program planning and review process."

• Cost Effectiveness- added new definitions of "cost effective" and "total resource cost test" that are applied to energy efficiency programs.
• Procedures for Review of Compliance Plans-  New hearing requirements were added on the planned portfolio of programs offered by an electric utility to meet energy efficiency benchmarks.  The hearing requirement was added in response to criticism that the benchmark review process be opened up and follow traditional Commission rate case procedures.
• Independent Auditors- Commission requires use of independent program evaluators (hired by the Utility but work at the direction of Commission Staff) to review and verify claimed energy savings and peak-demand reductions
• Calculating the Baseline for  Measuring Efficiency Improvements- the baseline will be measured by a "rolling average" of the last three years of kilowatt hours purchased instead of a fixed average of 2006 through 2008.  The Commission basically rejected claims by Utilities that using a rolling average keeps raising the bar because it incorporates the energy efficiency improvements each year.  As a result, the Utilities argued the energy saving requirement is closer to 39% than the 22.2% required in S.B. 221
• Banking "Overcompliance"- Commission will allow Utilities to "bank" over compliance with the energy efficiency benchmark and apply the overcompliance to future years
• Adjusting for Economic Growth- Baseline can be adjusted to account for either growth or reductions in economic growth.  The idea is to remove the influence of a changing economy on achieving energy efficiency improvements
• Mandated Efficiency Improvements- Utilities cannot count energy savings that result from customer installed appliances or equipment that are mandated by law including the Energy Independence and Security Act of 2007

Alternative Energy Portfolio Standard- S.B. 221 splits the 25% of electricity energy by 2025 standard into two separate benchmarks- one for "alternative energy" sources and another for "renewable energy sources."  The rules put a lot more teeth into the renewable energy benchmark, including specific interim benchmarks. 

Overall, the Commission did not address significant concern with some of the loose aspects of the Alternative Energy benchmarks.  These include the definition of what constitutes "Clean Coal" as well as what can be counted toward meeting the Alternative Energy Benchmark.  However, as detailed below, the Commission did put teeth into the "cost cap" provisions associated with compliance with either benchmark.

• RFP- Rejected a suggestion that renewable and alternative energy be procured through a Commission sponsored RFP process to ensure transparency
• Biomass- with regard to wood resources, the Commission allows use of wood and paper manufacturing waste, urban wood and tree residues, forestry residues, forest management or other land clearing.  However, forest resources must be from "sustainable forest management operations."
• Clean Coal- the Commission rejected criticism that the current rule would provide credit to technology that is "designed" to reduce CO2 irregardless of whether the reductions are actually achieved.
• Co-firing- will qualify as a renewable energy resource as determined by the proportion of energy input from the renewable energy resource.
• "Delivered into this State"- Commission will still require a power flow study and/or deliverability study to show power in the PJM or MISO transmission systems are deliverable into the state.
• Distributed Generation- renewable energy credits (RECs) generated from distributed energy sources belong to the owner of the equipment
• "Double Counting"- cannot use one project to meet both the energy efficiency benchmarks and the AEPS
• "Unbundling"-  Cannot unbundle other positive environmental attributes associated with creation of a REC and sell those attributes separately.  The classic example is you cannot sell the climate change CO2 reductions as well as RECs from one project.  You will have to choose with credits are more valuable
• Energy Storage- by itself cannot be considered a renewable energy resource
• Cost Cap- rejected utilities argument that the advanced energy and renewable energy cost caps be aggregated as one 3% cap. Also, rejected claim that the 3% increase is measured by isolating cost of generating the renewable or alternative energy.  Rather, the cost cap is triggered only if overall cost of supplying all forms of electricity rises more than 3% in order to meet the alternative energy or renewable energy benchmarks.  This ruling makes it far more difficult for Utilities to trigger the cost cap provisions.
• "Catch-up Provision- Commission effectively drops the requirement that future year benchmark compliance requirements be increased by the amount of undercompliance of the previous year due to the 3% cost cap

Greenhouse Gas Reporting Requirements

The Commission rejected concerns raised by Utilities regarding the mandate in the rules to become participating members in the Climate Registry.  The Commission noted that  S.B. 221 requires reporting and tracking of CO2 emissions must be performed.

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So you are about to deploy the first commercial version of your new technology.  Or you are about to select your site for a new renewable or advanced energy project. In ramping up your cleantech project, everything has looked great in small scale trial tests.  You have had great result and are excited to bring this to market as the "next big thing." 

Deployment of new technologies and choosing sites for your renewable energy project can always present major challenges.  What looks good during small scale tests or on paper may prove to be unworkable or too costly in the field. 

How can you better assess your situation and proceed to a smooth launch of your technology or successfully deploy your project?  Here are some suggestions I have developed either from my years as a regulator or in working with clients.  Hopefully, taking careful consideration of some these issues can better position your company and avoid some "unseen enemies." 

1.  Site Selection-  Study closely the practical aspects of various proposed locations for your new facility.  Often company's select a site based upon expected customer demands or other business considerations.  However, prior to moving forward with the significant investment in terms of lease or purchase agreements, permitting, and zoning/building approvals significant investigation should be performed to evaluate the viability of the proposed site.

• What the local zoning and building requirements?
• Transportation routes should be evaluated
• Any significant history with regards to citizen or environmental groups in the area?- Cleantech companies can naively think they are immune to NIMBY concerns only to find themselves immersed in costly and protracted litigation
• Will your project require significant amounts of water?  If so, is there a readily available source or any issues with tapping into that source?

2.  Environmental Permitting and Regulatory Requirements-  Will your source have air or water emissions?  Will you generate significant solid waste or hazardous waste?  You should have an assessment of how environmental permitting and regulatory requirements could impact either the location or configuration of the facility at the site.  You should also know whether environmental requirements are going to impact the ultimate engineering design of your facility.  I have seen companies forced to completely redesign their process because they did not fully incorporate environmental permitting issues into their designs.

• Will you have air emissions at levels that will require pollution controls?
• Are you co-located at a location with an existing air source where EPA requirements may force you to aggregate emissions with that existing source?
• Will you have a wastewater discharge? If so, can you hook into the wastewater treatment system or need a direct discharge.  If hooking into a pre-existing wastewater treatment system what are the pre-treatment requirements. 
  • What if the local wastewater treatment plant is under investigation or a federal consent decree?  Will that result in stricter standards that could drive up your pre-treatment requirements on-site?

3.  Lease Agreement and Construction Documents-  While you may believe you are headed to a wildly successful deployment or expansion, if anything has been shown in the last six months its that the market place is unpredictable.  You should make sure you understand and negotiate termination provisions in your lease agreements, construction documents or other legal documents governing your relationships with customers or business partners.  While you may be very disappointed you have to cancel the project, you may really be frustrated if you find yourself in a costly legal battle with potential customers, contractors and/or property owners.

4. Feasibility Studies-  Make sure when hiring a consultant to perform a feasibility study that  they have the expertise and knowledge regarding the state and local requirements associated with the project.  Many may be familiar with federal requirements, but you need to take into account local site selection issues as well.

• Local ordinances- many renewable energy projects will be highly impacted by local ordinances that contain siting requirements.  Make sure your consultant takes into account the hurdles involved in deploying your project.
• Include assessment of possible environmental market trading mechanisms-  Will you generate CO2 offsets?  Are you deploying renewable energy that could qualify for renewable energy credits?  Is your consultant or project team considering the current market fluctuations in these markets when evaluating whether carbon credits or RECs add to the viability of your project?

5.  Incentives-  It seems every lawyer and consultant is promoting their knowledge regarding availability of federal stimulus funding.  However, don't forget there are many state and even local programs that can provide grants and tax incentives for green businesses and energy.  Make sure you have someone on your project team that has knowledge of these incentives and understands the process for obtaining funds. 

(Photo:jurvetson/everystockphoto.com)

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On August 20, 2008, the Public Utility Commission of Ohio (PUCO) put forth proposed rules governing alternative and renewable energy sources.  The rules main purpose was to govern implementation of the State's new Advanced Energy Portfolio Standard (AEPS) established in Senate Bill 221.  The AEPS is broader version of a renewable portfolio standard (RPS) adopted by other states which mandates a certain percentage of power come from designated renewable energy sources.

The PUCO set a very aggressive public comment period in an attempt to finalize the rules quickly.    The comment period closed on September 26, 2008.  In the short month long comment period, the PUCO received hundreds of pages of divergent comments on the proposed rules. (See my prior post: Issues with proposed rules governing the AEPS)  Since closure of the comment period, the PUCO has failed to developed a second version of the rules. 

Today, a company filed a new letter on the docket which discusses the real world impacts of the delay in finalizing the rules governing the administration of the AEPS in Ohio.  Until the rules are finalized, no one knows what the renewable energy credit (REC) market will look like in Ohio.   A REC is the certificate issued to generators of renewable energy sources.  The certificate can be sold to the utilities to meet their compliance requirements with the AEPS.  REC are seen as a way to encourage renewable energy development.

The problem is that there are so many questions left regarding the construction of the rules, no one can set a reliable price for RECs. S.B. 221 contained a cap on REC prices of $45 per megawatt which certainly is the ceiling on REC prices in Ohio.  However, that leave a huge range in potential prices that is highly dependent on the construction of the rules.

The compliance period for the AEPS in Ohio begins in 2009.  Without an established market projects will get delayed.  This will make it far more difficult for Utilities to comply with the AEPS mandates.  In 2009, Utilities must develop or purchase .25 % of their total generation capacity from renewable energy sources.  While a quarter of a percent may seem tiny, in an energy market as big as Ohio's there will be a significant need for RECs.

In 2008 Ohio generated 13,000 megawatts of power.  A quarter percent means the REC compliance market in 2009 will be around 32,500 megawatts.  This is certainly enough to drive a significant amount of project develop in the State. 

Until the rules are established, the market for RECs will be uncertain.  Without this needed certainty many will delay moving forward with projects.  Of the states with an RPS, Ohio was one of the last states to establish an RPS.  This has meant Ohio has been late to the game in attracting investment and green jobs related to the renewable energy market.  The rules need to be finalized quickly so that Ohio doesn't lag further behind. 

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On Friday, November 7th, the Ohio Air Quality Development Authority (OAQDA) held a bidders conference to launch the Advanced Energy/Job Stimulus Program.  The Job Stimulus package set aside $150 million (over three years) to increase the development, production and use of advanced energy technologies in the state.

Those interested can begin filing applications for either grants or loans through the web portal on OAQDA's web page.  Unlike other competitive programs decisions will be made on a rolling basis, there is no deadline for filing applications.  However, $150 million is not a lot of funding for the types of projects involved, therefore it is likely available funds will dissipate quickly. 

The program has two separate pots of money:

• $66 million for clean coal technology projects administered through OAQDA’s Ohio Coal Development Office (OCDO).  Grants can be for up to $5 million for each project  The funding set aside for these projects is similar to other funding opportunities that have been provided by the OCDO.  Proposals will be reviewed by staff, outside reviewers and the Technical Advisory Committee and approved by OAQDA;
• $84 million for renewable energy and energy efficiency projects. Grants will be awarded in amounts from $50,000 to $250,000.  Loans will be $1 million to $2 million.  Funding will be in three $28 million annual appropriations administered by OAQDA. Projects will be reviewed by staff and outside reviewers, the Development Finance Advisory Council, approved by OAQDA.  Before funding can be awarded Legislative approval is necessary through the Controlling Board.
   

Some of the tips provided to bidders during the conference include:

1. "Tipping Point"-  Explain why a grant award or loan would be the tipping point in the project.  Would it help get the project through a difficult time?  Would funding allow some type of breakthrough? Would it lead to a possible major expansion in Ohio?
2. Jobs, Jobs, Jobs-  The main point of the funding is to stimulate job growth in the Ohio.  Therefore, you must be prepared to demonstrate that the project will generate jobs immediately.  New jobs will be favored over retained jobs.  Better if the are considered "foundational jobs"- meaning the project will lead to more jobs in the future.  Also, want to see better paying jobs.  
3. Leverage- The State wants to see that a grant award will other funding in the project.  Private funding is favored over other public financing.  The higher the leverage the better the application will be viewed. 

Applications can be made through the web portal.  To start the process applicants must only fill out a "letter of intent" which requires only minimal information.  OAQDA said at the bidders conference it is there goal to weed out unfundable projects early in the process. 

One other note, if you are going to pursue a coal grant, be advised that similiar with other funding through the OCDO, you will be required to sign a royalty/payment agreement.  OCDO is required by statute to seek a recovery for investing in research and development projects.  While I understand it is in the statute,  this requirement discourages businesses looking for funding that will accelerate commercial deployment of a proven technology. 

 (Photo: Great Valley Center Image Bank/everystockphoto.com)

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The initial comment period is now closed on the Public Utilities Commission of Ohio's (PUCO) draft rules for implementation of the Alternative and Renewable Energy Requirements. The PUCO received hundreds of pages of comments from a wide variety of perspectives: Utilities, Renewable Energy Developers, Industrial Customers, Environmental Groups, Clean Coal Technology Providers, and Consumer Groups.

The rules were set in motion by passage of Ohio’s comprehensive Energy Legislation (SB 221) which includes provisions designed to promote alternative and renewable energy development.  The legislation includes both an Advanced Energy Portfolio Standard (AEPS) and a more traditional Renewable Energy Portfolio Standard (RPS). 

While the Legislation was very complex, major policy issues were left to be sort out through rule promulgated by the PUCO.  The comments received on the first draft of the rules for implementation of the AEPS and RPS reveal significant differences of opinion over critical issues.

Here is my critical issue list.  The rules must address squarely these issues to determine the direction of Ohio's energy policy.

1. What are "advanced energy"  resources and projects and how best to promote it?  For example, right now the rules contain no standards for what qualifies as clean coal.  Comments I submitted pointed out that a simple reduction of a few pounds from a 500 mw source that emits a 1,000 tons of pollution could still be considered a "clean coal" source.  Worse yet, the entire generation could qualify toward meeting the AEPS.  Without modification the AEPS could be rendered effectively meaningless.
2. Double counting environmental attributes- It appears from the comments that Ohio doesn't recognize this debate has been going on nationally for some time.  Many of the 26 or so states that have had RPS standards have been sorting this type of issue out.  The standard practice emerging nationally is not to allow CO2 emission reduction credits to be separated from a Renewable Energy Credit (REC).  Allowing otherwise distorts the voluntary CO2 and REC markets.
3. How much teeth does the RPS have?  Many comments were submitted that the rules would grant the PUCO too much discretion to waive compliance with the RPS standard based upon a "act of god" (force majeure).  Also, SB 221 allowed compliance with RPS benchmarks to be waived if electric rates rise as a result of the RPS by more than 3%.  But how you measure the 3% increase is critical to determining whether there truly will be a RPS requirement in Ohio.  It seems the rules have to answer the question-are we serious about having an RPS standard in Ohio?

 (a summary of the major comments on the AEPS and RPS by clicking on "continue reading" below)

(photo: Kevin Dooley/everystockphoto.com)

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On August 20th, the Public Utilities Commission of Ohio (PUCO) proposed administrative rules for the implementation of Ohio's Alternative Energy Portfolio Standard.  Approximately 26 states have enacted renewable portfolio standards (RPS) that mandate a certain percentage of electricity supplied in the state come from renewable sources.  Only one other State, Pennsylvania expanded the mandate to cover additional sources of energy beyond renewables. 

Ohio has now gone beyond Pennsylvania in promoting other "advanced energy sources."  Ohio is the first State in the Country to allow the following resources to be eligible toward meeting the advanced energy mandate:

• Clean Coal Technology
• Technology or improvements that reduce CO2 emissions
• Enhancement of Nuclear Power

Under Senate Bill 221, and as set forth in the proposed rules, 12.5% of power supplied in Ohio must come from these and other advanced energy sources (fuel cells, distributed generation, fuel cells, solid waste to energy and energy efficiency projects) by 2025. 

The proposed rules are pretty standard on the renewable side.  The include provisions used by other states who have already had an RPS.  The rules provide for annual benchmarks, alternative compliance payments, use of renewable energy credits (RECs) and costs caps on meeting the RPS. 

It is significant that Ohio has developed a more complex and interesting portfolio standard for advanced energy sources.  However, where the SB 221 was very prescriptive as to meeting the renewable standard requirements, the legislation was vague on the advanced energy side of the standard.  Unfortunately, the draft rules fail to provide much needed detail.

Here are some issues that should be addressed to better promote advanced energy sources:

1. Benchmarks-  SB 221 did not include them for meeting the advanced energy standard.  The rules should at least require meaningful evaluation as to progress toward meeting the mandate to supply 12.5% from advanced energy sources by 2025.
2. Establish a Currency-  On the renewable side, Ohio is following the well established method of buying and selling renewable energy certificates (RECs).  One megawatt of renewable power equals one REC.  There is no such currency established for the advanced energy portion of the standard.
3. Better define each advanced energy resource-  Most importantly, the definitions of what types of projects qualify are far too vague.

• Example 1: The rules say "a significant improvement to an existing nuclear" facility qualifies.  There is no definition of "significant."  What type of enhancements are we trying to promote?  If one change is made, does the whole plant qualify as an advanced energy resource?
• Example 2:  "Clean Coal Technology"- the rules don't provide anymore specification then SB221.  The bill just says qualifying technology is something that reduces pollutants like arsenic, chlorine, nitrous oxide, mercury, sulfur dioxide.  By how much?  Again, does a small reduction, like one particle of mercury, make the whole 500 megawatt plant an "advanced energy resource?"

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