Wednesday, October 22, 2008

more on prop 7

The prior research and discussion on Prop 7 continues, both on this blog and in the comments here. Here's where things stand now.

1. I've managed to convince myself that Prop 7 will not affect the legal status of distributed power generation (such as rooftop solar) that's operating under a net metering program.

Net metering is a program where you hook your rooftop solar up to the grid. You pay your utility company for the amount of power you use minus the amount you generate. Under net metering, if you generate more than you use, the utility doesn't have to pay you for it unless you have some sort of separate contract with them.

I was concerned that Prop 7's language would interfere with distributed generation. It turns out it still might, but not the part of distributed generation that's part of net metering. The Energy Policy Initiatives Center has a useful article (pdf) on California law governing Renewable Energy Credits. Section 5, along with its footnotes, gets into distributed generation. It points out that distributed generation through net metering is governed by a separate set of laws, not by the part Prop 7 changes. That's what the exclusion from the definition of "Retail Seller" of generation consistent with Section 218(b) is all about in Public Utilities Code section 399.12(i)(4)(A).

Now, if you want a contract where you get paid for generating more than you use, that may well put you in the category of being a photovoltaic producer under 30 megawatts, so Prop 7 may have some implications for you.

2. It's still not clear what effect Prop 7 has on producers under 30 megawatts.

There are basically two arguments that prop 7 locks out producers of less than 30 megawatts. I think I may have cleared one up, but the other's still murky.

2.a. Must an "in-state renewable electricity generation facility" be a "facility"?

The first argument goes something like this: to be an "eligible renewable energy resource," you must be a "solar and clean energy facility" and you must also be an "in-state renewable electricity generation facility" as defined in the public resources code. The public resources code § 25741 defines "in-state renewable electricity generation facility" as "a facility that meets all of the following criteria" and then gives a list of criteria. It also contains a definition of the word "facility" in § 25110, which the text of prop 7 (official pdf, unofficial HTML version) changes to specifically include "solar and clean energy plant", a term that means a plant of 30MW or more. So the question is whether an in-state renewable electricity generation facility must be a "facility" as defined in § 25110, or whether the word "facility" there is just the generic, English word "facility" without the statutory meaning. If it has the statutory meaning, then to qualify for the renewable portfolio standard, your solar or clean energy generator would have to generate at least 30MW.

I haven't been able to find a court case, a California Public Utilities Commission decision, or a California Energy Commission decision that addresses that question. However, the California Energy Commission publishes a set of guides for energy producers interested in the Renewable Portfolio Standard. One guide (pdf), in particular, covers what energy generators are eligible to participate in the Renewable Portfolio Standard. The current definition of "facility" is restricted to transmission lines and thermal power plants (which must have a capacity of at least 50 megawatts), but the eligibility guide says that solar photovoltaic generators are eligible and doesn't give a minimum size. So I can't point to chapter and verse, but it seems likely that the CPUC and CEC are using "facility" in its common meaning in this case, rather than as the defined term.

2.b. Is a "solar and clean energy plant" the same as a "solar and clean energy facility"?

When the "no on prop 7" folks put in their ballot response that prop 7 excludes renewable energy producers of less than 30 megawatts, the "yes on prop 7" folks took them to court. Peter Wall was kind enough to get a copy (pdf) of the ruling, which he posted to his blog. The associated legal whitepaper (pdf), which appears to be a moderately-edited legal brief, goes into more detail about the arguments. Essentially, the argument boils down to the fact that, to be eligible under the renewable portfolio standard, prop 7 requires that you be a "solar and clean energy facility" and an "in-state renewable electricity generation facility." But it doesn't define "solar and clean energy facility." It does define "solar and clean energy plant," however, and that definition sets a 30 megawatt floor on its size. It also defines "facility," but it does it over in the Public Resources Code, not in the Public Utilities Code where it uses "solar and clean energy facility."

In the court case, the folks against Prop 7 argued that Prop 7 made the two terms the same, that a "solar and clean energy facility" is a "solar and clean energy plant", blocking out producers under 30 MW. The folks in favor of Prop 7 argued that they're different. The court found "each of the party's interpretations has some support in the initiative's text." Personally, I'm not convinced either way by the arguments, so this one's still murky.

3. And now, two rants.

3.a. Rant the First: For cryin' out loud, California, fix your defined terms!

When you write a contract, it's common practice to capitalize defined terms. For instance, you might say something like this:
"Facility" means an thermal power plant which produces electricity and has a capacity of at least 30 megawatts.
And then when you use the definition, if you mean the defined term, you capitalize it, and when you don't mean the defined term, you leave it lower case to indicate the word takes on its ordinary meaning in common written English:
The Commission will consider the application of any facility, but it will approve an application only if it is submitted by a Facility.
This is something California does not do. Which means when they pepper the Public Utilities Code and the Public Resources Code with the word "facility," there's no way to know whether they mean the common term or the defined term. I mean, come on, all you'd have to do is distinguish between "Solar and Clean Energy Plant" and "solar and clean energy facility" and that whole issue 2.b. would just go away.

3.b. Rant the Second: Could we please raise the level of information here?

The amount of time it's taking to get hard info on this initiative is really adding up, and a big part of the problem is the "yes" and "no" campaigns. The "no on 7" web site is mostly conclusory statements with nary a link or cite to supporting data. I can't even get on the "yes on 7" site because it's flash-only, and flash is giving my browser indigestion right now. The Union of Concerned Scientists' "no on 7" page is marginally better, but it still doesn't provide the raw info necessary to really assess this complex set of changes. And there are rapidly approaching limits to how much time I can spend analyzing this stuff. It really shouldn't be necessary to spend hours digging for primary sources to cut through the crap.

Tuesday, October 21, 2008

prop 7's giving me fits

During a slow period at work, I decided to research some of the initiatives that will be on the ballot in the November election. Proposition 7 is causing some consternation. That's the one that increases targets for renewable energy, but it also does a number of other things. One of the questions I find most troubling is whether it blocks or tilts the playing field against small energy producers. See, I eventually want to be able to put solar panels on the roof, use what I need, then sell the rest back to the power grid. And even more importantly, I want everyone else in sunny California doing the same thing, because that means fewer transmission lines, fewer fossil fuel and nuclear plants, fewer distribution losses, and eventually a more resilient grid. The Prop 7 opponents say small renewable generators don't count towards the power plants' renewables quota, while the proponents say the proposition doesn't rule them out. The news reports haven't actually quoted the language at issue, and I can't find the Sacramento County Superior Court ruling by Judge Michael Kenny (in which he reportedly refused to take sides). So I decided to dive into the language of the proposition itself.

Let's start at page 121 (page 42 of the PDF), section 399.11(a). It discusses the intent of the law: "to attain the targets of generating 20 percent of total retail sales of electricity in California from eligible renewable energy resources by December 31, 2010" (plus 40% by 12/31/2020 and 50% by 12/31/2025) (emphasis added). That term "eligible renewable energy resources" also shows up in the definitions of "renewables portfolio standard" (section 399.11(g) at page 122) and "renewable energy credit" (section 399.11(h) at page 122). Basically, if it's not from an eligible renewable energy resource, it doesn't count for the renewables portfolio standard and you can't get a renewable energy credit from it. The renewables portfolio standard governs what portion of renewable energy the utility (technically, any "retail seller", defined in section 399.11(i)) has to buy (sections 399.14 and 399.15). I think renewable energy credits are the currency of the carbon trading system. (Section 399.13) As a result, what constitutes an eligible renewable energy resource is crucial to this whole question.

An eligible renewable energy resource is, with a few exceptions related to hydroelectrics and waste incinerators, a "solar and clean energy facility" that meets the defintion of "in-state renewable electricity generation facility". (Section 399.11(c).)

Now we're getting somewhere.

An "in-state renewable electricity generation facility" is a kind of "facility." (Section 25741.) A "facility" includes a regulated "solar and clean energy plant." (Section 25110, as amended, at page 124) And a "solar and clean energy plant" is an "electrical generating facility using wind, solar photovoltaic, [or] solar thermal . . . technologies, with a generating capacity of 30 megawatts or more" (plus small hydro of under 30 MW). (Section 25137, at page 125.)

As a result, it's entirely plausible to me that my rooftop solar of less than 30 MW would not be a "solar and clean energy plant", so it wouldn't be a "facility", so it wouldn't be an "in-state renewable electricity facility", so it wouldn't be an "eligible renewable energy resource", so it wouldn't count for the "renewables portfolio standard" and I couldn't get a "renewable energy credit" for it. Interestingly, when I searched on some of these terms looking for definitions in California law, I came across the California Solar Energy Industries Association's site which has a similar analysis, though they bolster it with some of the intent language.

Now, counter-arguments exist, and I'm sure they came up in the Superior Court case, but since the folks who drafted California's Public Resources Code put all the defined terms in lower case, it's tricky to tell what's a defined term and what's not (and where the boundaries lie), leading to this kind of ambiguity. And frankly, the whole thing cuts too close to the line for my tastes, so as much as it galls me to do it, I think I'll most likely be voting against this proposition. And if some wrong-thinking commentator interprets that vote as a vote against renewable energy in general, well, I guess I'll just have to point him or her to this blog entry.

[Added 10/22: See the comments for more discussion. Also, see the follow-up post here.]

Wednesday, October 01, 2008

AIG and Mark to Market Accounting

There's an interesting article here on the link between AIG and under-capitalization in the European banks. The author points out that AIG's insurance on defaults allowed European banks to operate with much less capital than regulations would normally require, hence the chaos in Europe when AIG was on the skids (and the big federally engineered bailout of AIG).

There's also an interesting collection of quotes here about the proposal to give the SEC the power to suspend mark-to-market accounting. The comments are also a great read. Favorite quotes:
  • "Suspending mark-to-market accounting, in essence, suspends reality." -- Beth Brooke, global vice chair at Ernst & Young LLP;
  • "As a former MBS derivative trader...... all I can say is that not requiring traders to [d]o MTM is essentially a license to print your own say the least, this is not what an already opaque asset class needs at this time!" -- comment by Anonymous;
  • "If the credit markets have seized up because nobody knows who holds the toxic waste on their balance sheets, how is hiding it and pretending it isn't there going to help?" -- comment by IrvineRenter.
OK, that's enough bad news for now. If the federal government's debating suspending accounting rules, the accounting equivalent of pulling the covers over your head, then I can do the literary equivalent. Off to find some good news.