House version of Clean Energy Performance Program Released

Hi Folks,

Some of you might have seen that the House released a fact sheet and draft legislation for what they are now calling the Clean Electricity Performance Program (CEPP), formerly Clean Energy Payment Program, formerly Clean Electricity Standard.

The basic outline of the plan is that it will invest $150 Billion into grants to motivate utilities to sell more clean energy. It also has penalties for utilities that fail to sufficiently increase the percentage of clean energy they sell.

For reasons said to be related to the parliamentarian, they do not specify a specific target of 80% clean energy in 2030. Instead they say that each utility would get a grant if they increase the percent of their electricity sales that come from clean sources by 4 percentage points per year. For example, if a utility sells 50% clean energy in 2025, and then in 2026 they sell at least 54% clean energy they would get a grant. People say this would reach the 80% by 2030 target (difficult to confirm).

If a utility meets the 4% target the program provides a grant of $150/MWh sold, but only for the amount beyond 1.5 percentage points above your last year’s clean energy percentage (I guess they assume everyone should be growing at 1.5% and you only get the grant for the amount beyond that). So if you increase clean energy by 4% you get a grant of $150*2.5%*total MWh sold. If you go up 10% in a year you get $150*8.5%* total MWh sold.

If a utility doesn’t hit the target amount in a year they have to pay a penalty for the amount below 4% and above last year’s clean energy percent. The penalty is $40/MWh. So if you increase by 1% you would pay the penalty of $40*3%* total MWh sold.

There is a provision for smoothing things out over up to 3 years. So if a utility made a 3% increase in Year 1 and a 5% increase in year 2 they could average those out so it is as if they met the target in both years. 

I’d note that there are many who worry that the penalties might not be approved by the parliamentarian so those might get nixed. Also the Senate could have a completely different version of this policy. 

There are of course some confusing details in the bill, some of which may be problematic. 

• If a utility does not meet a target in Year X, then in Year X+1 their target for the grant would be 4% plus whatever they missed the target by the previous year. This does not accumulate so the target is never more than 8% of the previous year’s clean energy sold. 
• The penalty is always based on 4%, even if the grant target goes up to 8%. So the max penalty any utility would pay is $40*4%* total MWh sold. This is likely an amount small enough that some utilities will just pay the penalty. It would be very different if in year 2 it was 8% and year 3 it was 12% etc.
• The program does not start until 2023. For that year the baseline will be the average clean electricity sold in 2019 and 2020. That gives utilities 2-3 years to reach that first increment of 4%. If they choose to average over the first 2 or 3 years they may not have to hit any target until 2025 (though that target would be 12% above their 2019/20 baseline).
• By using the option to defer and average over multiple years utilities could likely emit more than if they were required to meet the targets every year.
• Some people are worried that utilities could ‘game the system’. Perhaps you can make money by increasing your clean energy in year 1, reducing it in year 2, then increasing again in year 3. Or there are special rules for the baseline for any new utility - perhaps each year a utility will spawn a new entity that can take advantage of those rules. Etc. As with any complex legislation there are always the possibility of loopholes and unintended consequences.

All in all it’s a complex policy that probably overall makes good progress towards its goals but has some potential issues. Also, it does not stand alone in the House version of the bill, as there are other expected provisions for renewable tax credits, etc.  

Right now we are not expecting the House version of the reconciliation bill to include a carbon price. We are hopeful that the Senate version will, and the Senate version is likely to be the one that matters most.

A carbon price could do wonders to complement the CEPP. By providing an economic disincentive for all fossil fuels used in producing electricity (and other sectors) it would make it less likely that a utility would just continue to emit carbon and eat the costs. It would also put extra pressure to quickly retire dirty coal plants that have higher emissions per MWh. 

Let’s keep the pressure on Biden and Congress to include a carbon price and dividend in reconciliation!

If you want to know more here are some useful twitter threads. 

Jess Jenkins 

Steve Circla 

Alex Gilbert 

Leah Stokes