Jump to Navigation

Oregon Enacts Phase-out of “Coal by Wire” and Doubles Renewable Portfolio Standard

March 15, 2016

Although the U.S. Supreme Court on February 9 stayed the implementation of President Obama’s Clean Power Plan,[1] development of climate policy at the state level has not ceased. As Justice Brandeis once noted in dissent, “It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”[2] Courageous or not, Oregon stepped into uncharted territory last week in the transition away from coal.

In a brief session measured in weeks rather than months, the Oregon Legislature passed a first-in-the-nation bill requiring Oregon’s two investor-owned electric utilities to cease using coal-fired resources to serve Oregon retail customers by January 1, 2030. The legislation, SB 1547, also increases Oregon’s renewable portfolio standard (RPS) from 25 percent by 2025 to 50 percent by 2040. Governor Kate Brown signed SB 1547 into law on March 8.

This article reviews how the bill – informally dubbed the “Clean Electricity and Coal Transition Plan,” came before the legislature, explains the major provisions of SB 1547, and discusses the potential impact of the new law on coal-fired generation and Oregon’s future mix of resources for generating electricity.

I. Possible Ballot Initiatives Gives Rise to a Negotiated Bill

In the 2015 Oregon legislative session, a bill was introduced that would have required electric companies “to reduce allocation of electricity from coal-derived generating resources to zero on or before January 1, 2025.”[3] The bill, SB 477, also would have required electric companies to “identify the least-cost method of achieving a mix of energy resources that is at least 90 percent cleaner than the coal-derived generating resources being replaced.” The bill did not make it out of committee.[4]

Advocates for coal generation reduction then pursued a different strategy, taking advantage of Oregon’s citizen initiative process.[5] In early October 2015, Renew Oregon—a coalition of environmental groups, renewable energy advocates, businesses and ratepayer organizations—filed two ballot measures with the goal of collecting enough qualified signatures to place one or both measures on the ballot for the November 2016 general election.[6] Measure 63[7] would have required electric companies to eliminate coal-fired power from their resource mix by January 1, 2030 or by December 31 of the year in which the coal-fired resource is fully depreciated, whichever is earlier. Oregon law defines “electric company” as “an entity engaged in the business of distributing electricity to retail electricity consumers in this state, but does not include a consumer-owned utility.”[8] As a practical matter, this means the measure would apply only to Oregon’s two investor-owned utilities: Pacific Power and Portland General Electric Company (PGE). Measure 63 also would have increased the RPS to 50 percent by 2040. Measure 64[9] was nearly identical to Measure 63 but with an added twist: in any year in which an electric company did not meet the RPS, the compensation package of the chief executive officer and chief financial officer could not exceed “five times the annual Oregon median household income in the preceding year.”

With the potential looming for a public fight over a ballot measure, stakeholders – including environmental groups, renewable energy advocates, and both Pacific Power and PGE, began negotiations. The result, announced in early January, was a legislative proposal that retained the fundamental requirements of the proposed initiative measures – a phase-out of coal-fired power and a doubling of the RPS – but with provisions intended to ensure the ability of the utilities to recover their investment in generation assets and to avoid conflicts with mandatory and enforceable reliability standards of the North American Electricity Reliability Corporation. The parties to the compromise agreed that if the proposal were enacted into law in the 2016 legislative session, the ballot measures would be withdrawn.

Passage of the legislation, which was introduced as HB 4036, was not a foregone conclusion. Among other factors, the Oregon Constitution generally limits the legislative session in even-numbered years to just 35 days.[10] The priority in the 2016 session for Governor Brown, whose Democratic party controls the House and the Senate, was legislation to raise Oregon’s minimum wage.

HB 4036 passed the House at mid-session. In the Senate, however, HB 4036 was blocked from reaching a floor vote as some Republicans sought to run out the clock on the short legislative session. The House responded by inserting the text of HB 4036 into a bill, SB 1547, that had already passed the Senate. SB 1547 originally contained only a technical clarification to the definition of a “public utility” under the regulatory authority of the Oregon Public Utility Commission (PUC).

The legislative sleight-of-hand worked: the amended SB 1547 passed in the House, followed by the Senate concurring in the amendments and repassing the bill, all in the final working days of the session.

II. Phase-out of “Coal by Wire”

SB 1547 does not require the closure of any coal-fired generating facility. In fact, Oregon’s only coal-fired power plant already faces its own deadline. The Boardman Coal Plant, operated by PGE, is scheduled to close – or at a minimum cease burning coal in its boiler – by December 31, 2020 under rules approved by the Oregon Environmental Quality Commission in December 2010.

Although Oregon has only one coal-fired plant and the Pacific Northwest is known for its hydropower resources, coal is a significant source of electricity for Oregon. According to the Oregon Department of Energy, from 2012 to 2014, coal was second only to hydropower as a source of electricity consumed in Oregon, with coal providing 33.65 percent compared to 42.88 percent for hydropower.

Section 1 of SB 1547 requires that an “electric company” – Pacific Power and PGE – must eliminate “coal-fired resources” from its “allocation of electricity” on or before January 1, 2030. The term “allocation of electricity” is expressly tied to the utility’s rate base for Oregon retail customers[11]—although PGE serves retail customers only in Oregon, Pacific Power serves retail customers in Oregon, Washington and California. The definition of “coal-fired resources,” moreover, recognizes that utilities often make short-term wholesale power purchases to meet customer load. SB 1547 defines “coal-fired resources” to expressly exclude “a limited duration wholesale power purchase made by an electric company for immediate delivery to retail electricity consumers that are located in this state for which the source of the power is not known.”[12]

The legislation includes an exception to the 2030 deadline, tailored to allow PGE to continue to sell its customers electricity from Units 3 and 4 of the Colstrip generating facility in Montana until the end of 2035 at the latest.[13] PGE holds a 20 percent ownership interest in the units.[14]

III. Increase in Renewable Portfolio Standard

Oregon’s RPS has had separate requirements for “large utilities” and other utilities. A large utility is “an electric utility that makes sales of electricity to retail electricity customers in an amount that equals three percent of more of all electricity sold to retail electricity customers.”[15] Wholesale power sales and sales to retail customers outside Oregon, in other words, are excluded from the determination of whether a utility is “large.”

Oregon’s RPS statute capped the “large utility” standard at25 percent in 2025.[16] For small utilities, the RPS requires either five percent “qualifying electricity” beginning in 2025, or ten percent, with the former applying to utilities with retail sales equaling less than 1-1/2 percent of all retail sales and the latter applying to those with retail sales of at least 1-1/2 percent but less than three percent of all retail sales.[17]

SB 1547 does not alter the RPS for large utilities that are consumer-owned, or for small utilities (which, in Oregon, are also consumer-owned). Rather, it increases the RPS beginning in 2025 for “electric companies,” i.e. Pacific Power and PGE.

Oregon Renewable Portfolio Standard Applicable to Pacific Power and PGE[18]

Calendar YearsPrior RPS (%)RPS Under SB 1547 (%)
2011 through 201455
2015 through 20191515
2020 through 20242020
2025 through 20292527
2030 through 20342535
2035 through 20392545
2040 and later2550

SB 1547 expands the definition of “qualifying electricity” for the RPS. Oregon law has included as “qualifying electricity” the electricity from Oregon biomass facilities that began operating before January 1, 1995 and are qualifying facilities under the federal Public Utility Regulatory Policies Act, as well as electricity from combustion of municipal solid waste in facilities that began operating prior to January 1, 1995.[19] Renewable energy certificates (RECs) derived from that electricity, however, could only be “banked” for use to meet the RPS on or after January 1, 2026. SB 1547 eliminates that restriction so the RECs from these generating sources can be used immediately.[20]

The legislation also revamps Oregon’s rules for banking RECs to meet the RPS. Oregon law provided that RECs not used in a calendar year “may be banked and carried forward indefinitely for the purpose of complying with a renewable portfolio standard in a subsequent year.”[21] SB retains that banking provision for consumer-owned utilities, and for all RECs issued before the effective date of SB 1547. RECs also may be banked indefinitely if they meet all of the following requirements:

  • The RECs are for qualifying electricity from “a renewable energy source that becomes operational between the effective date of this 2016 Act and December 31, 2022,” or for qualifying electricity purchased from such a renewable energy source “under a contract having a duration of 20 years or more”;
  • The RECs are issued for the qualifying electricity “during the five-year period after the date the renewable energy source becomes operational”; and
  • The RECs are not used for RPS compliance in the calendar year in which they are issued. [22]

All other RECs can be banked for use to comply with the RPS “for up to five compliance years immediately following the compliance year in which the renewable energy certificates are issued.”[23]

These provisions for banking RECs provide an incentive to “frontload” renewable energy development by rewarding the utility for obtaining RECs from projects developed in the early years, including through long-term power purchase agreements. The effect should be to encourage renewable energy development during approximately the same period that project developers can qualify for the extension of production and investment tax credits approved by Congress at the end of 2015.[24]

The Legislature left in place a statutory provision excusing compliance with the RPS in any year during which a utility’s cost of complying with the RPS “exceeds four percent of the utility’s annual revenue requirement for the compliance year.”[25] Recognizing the potential impact of intermittent renewable resources on the reliability of the grid, SB 1547 also adds a new “off ramp” from RPS compliance. The PUC may issue an order temporarily exempting an electric company from one or more requirements of the RPS if the PUC finds that compliance

is likely to result in conflicts with or compromises to an electric company’s obligation to comply with the mandatory and enforceable reliability standards of the North American Electric Reliability Corporation, or compromises to the integrity of the electric company’s electrical system ….[26]

The exemption from RPS compliance is temporary. Although the electric company may request an extension, the PUC’s order is to be “for an amount of time sufficient to allow the electric company to achieve full compliance” with the RPS. The PUC order must require the electric company to file a progress report on achieving RPS compliance.[27]

IV. Additional Provisions: Energy Efficiency, Transportation Electrification and Community Solar Projects

SB 1547 goes beyond the RPS, adding new requirements for energy efficiency, infrastructure for electric vehicles, and community solar projects. With respect to energy efficiency, Section 19 of SB 1547 affirmatively requires each electric company serving Oregon customers to “plan for and pursue all available energy efficiency resources that are cost effective, reliable and feasible.” In addition, the PUC by rule or order may direct electric companies to “plan for and pursue the acquisition of cost-effective demand response resources.” A stated purpose is to require prudent investment in energy efficiency and demand response “before the electric company acquires new generating resources.”

After extensive findings regarding the potential economic, environmental and electric grid benefits from increasing the use of electric vehicles,[28] SB 1547 empowers and requires the PUC to “direct each electric company to file application … for programs to accelerate transportation electrification.” The proposed program “may include prudent investments in or customer rebates for electric vehicle charging and related infrastructure.”[29] An electric “vehicle” is broadly defined as a “vehicle, vessel, train, boat or any other equipment that is mobile.” The electric utility may by tariff receive a return on investment for a period that does not exceed the depreciation schedule of the approved investment; the rates “shall be recovered from all customers of an electric company in a manner that is similar to recovery of distribution system investments.”[30] With the PUC’s authorization, fully depreciated vehicle charging equipment may be donated by the utility to the owner of the property on which it is located.[31] The legislation implicitly acknowledges, however, that the deployment of electric vehicles may experience barriers unrelated to the availability of charging stations. In authorizing PGE and Pacific Power to pursue programs for vehicle charging,

the [PUC] shall review data concerning current and future adoption of electric vehicles and utilization of electric vehicle charging infrastructure. If market barriers unrelated to the investment made by an electric company prevent electric vehicles from adequately utilizing available electric vehicle charging infrastructure, the commission may not permit additional investments in transportation electrification without a reasonable showing that the investments would not result in long-term stranded costs recoverable from the customers of electric companies.[32]

Finally, SB 1547 establishes a new program to allow Oregon customers of Pacific Power and PGE to proportionately own or lease part of a “community solar project.”[33] A “community solar project” is a solar photovoltaic project with a minimum generating capacity of 25 kilowatts; it can be managed by either the utility or an independent third party and can be located in any part of Oregon (i.e., it must be in the state but need not be located in the utility’s Oregon service territory).

The community solar program will allow customers to participate in the costs and benefits of solar photovoltaic projects without having to install solar panels on their own property. Customers can be either “owners” or “subscribers” (lessees for a minimum term of ten years), with proportional interest in the project, proportional responsibility for ongoing project costs, and proportional ownership of RECs resulting from electricity generated by the project. The project manager can offer ownership or subscription interests in any amount, but the interest cannot “exceed a potential owner’s or potential subscriber’s average annual consumption of electricity.”[34] The utility credits the owner’s or subscriber’s electric bill for the PUC-determined value of the electricity generated by that owner’s or subscriber’s proportional share of the project.[35]

Conclusion

By removing coal as a source of electricity for Oregon’s two largest electricity providers, SB 1547 will move Oregon toward compliance with the state’s own greenhouse gas emission reduction goals. Those goals, enacted in 2007, call for the state to “achieve greenhouse gas levels that are 10 percent below 1990 levels” by 2020, and by 2050 to “achieve greenhouse gas levels that are at least 75 percent below 1990 levels.”[36] Whether the reduction in Oregon’s own “carbon footprint” translates into a reduction in greenhouse gas emissions from coal-fired power plants will depend on whether the out-of-state plants currently serving Oregon load simply shift to serving load in other states.

SB 1547’s impact on renewable energy development seems more certain. By doubling the RPS and altering the banking rules for RECs, Oregon is amplifying the effect of federal production and investment tax credits available to projects developed in the near term.

For more information please contact Richard Allan in Marten Law’s Portland office.

[1] “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” 80 Fed. Reg. 64,662 (Oct. 23, 2015).

[2] New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932).

[3] SB 477.

[4] https://olis.leg.state.or.us/liz/2015R1/Measures/Overview/SB477

[5] See Or. Const., Art. IV, § 1(2).

[6] Renew Oregon, “Ballot Measures will Eliminate Coal from Oregon Energy Mix,” Oct. 6, 2015.

[7] Initiative Petition 63, Oct. 5, 2015.

[8] ORS 757.600(11).

[9] Initiative Petition 64, Oct. 5, 2015.

[10] Or. Const., Art. IV, § 10(1)(b).

[11] SB 1547, § 1(1)(a).

[12] Id. § 1(1)(b)(B).

[13] Id. § 1(4).

[14] https://www.portlandgeneral.com/our-company/energy-strategy/how-we-generate-electricity

[15] ORS 469A.052(1) (2015).

[16] ORS 469A.052(1)(d) (2015).

[17] ORS 469A.055(2), (3) (2015).

[18] ORS 469.052(1)(2015); SB 1547, § 5.

[19] ORS 469.020(5), (6) (2015).

[20] SB 1547, § 4.

[21] ORS 469A.140(2) (2015).

[22] SB 1547, § 7.

[23] Id.

[24] See R. Allan, “Congress’s Budget Compromise Lifts Crude Oil Export Ban and Extends Wind and Solar Tax Credits,” Marten Law Environmental News (Jan. 21, 2016).

[25] ORS 469A.100(1).

[26] SB 1547, § 13.

[27] Id.

[28] Id., § 20(2).

[29] Id., § 20(3).

[30] Id., § 20(5).

[31] Id., § 20(5)(b).

[32] Id., § 20(7).

[33] Id., § 22.

[34] Id., § 22(5)(a).

[35] Id., § 22(6).

[36] ORS 468A.205.

This article is not a substitute for legal advice. Please consult with your legal counsel for specific advice and/or information. Read our complete legal disclaimer.