As Democratic moderates stake out ultimatums, party leadership tries to keep the agenda in one piece and the White House attempts to polish the messy optics of legislative sausage-making, staffers continue to plug away at crafting the actual reconciliation package behind the scenes.
That includes the crown jewel of Democrats’ climate plan, the Clean Electricity Performance Program (CEPP). It’s become the object of both intense hope and worry, as it’s slated to be the main driver in decarbonizing the electrical grid and leading the country into a new “electrify everything” era.
The revisions are a fluid and dynamic process, with experts airing concerns and legislative authors responding and tweaking the text in real time. The CEPP is the first program of its kind, and unforeseen loopholes could prove devastating to both the policy and the environment it seeks to protect.
Slippery utilities finding ways to game the system is not the only, or even the biggest, threat to the program though.
Sen. Joe Manchin (D-WV), using head-scratching logic, is starting to fulfill the worry those invested in this policy have felt for months. In a recent media circuit, he questioned the urgency of passing reconciliation quickly and specifically said that the CEPP “makes no sense.” His reasoning seemed to be that the utilities world is trending towards cleaner sourcing already — though of course, the whole point of the program is to expedite that shift with monetary incentives and penalties.
Activists and experts alike have long fretted that Manchin’ chairing the Senate committee charged with crafting the CEPP is akin to a pyromaniac heading the local fire department. He hails from a state proud of its coal legacy, and personally makes millions from coal companies. He’s reportedly already considering shrinking the annual targets and incentives for utilities to up their production from cleaner sources.
That would make the policy smaller and less effective, dragging the country down below President Joe Biden’s goal of 80 percent cleaner electricity by 2030. But no matter how Manchin maims it, the policy still has to work — and experts have spotted outstanding wrinkles.
Wrinkles
The meat of the policy, as sketched out by the House Energy and Commerce Committee, is that utilities must up their percentage of cleanly sourced energy by four percent annually. They get $150 per every megawatt hour above 1.5 percent of the previous year’s clean energy target, and must pay $40 per every megawatt hour they fall below (with some flexibility to defer payments to accommodate intermittent renewables production).
Experts spotted a potential bug born in the gap between the incentives and the penalties. If Congress doesn’t renew the program after 10 years, it could provide unscrupulous utilities with a feeding frenzy.
One utility could trade away clean energy to another, which would net the grant money. The seller would have to pay a penalty for dropping below its threshold, but could theoretically make enough on the sale to still profit. The buyer would get grant money for exceeding its old benchmark with this “new” clean energy.
“It’s not creating new energy, it’s just arbitraging the big gap and it’s a massive amount of money at stake,” Ryan Kellogg, a professor specializing in energy economics at the University of Chicago Harris School of Public Policy, told TPM. “It amounts to the feds effectively spending grants on the same green power twice.”
Another loophole could emerge in states like Texas that have competitive retail utility markets. An enterprising retailer could set up a new shop for a year and sell 100 percent cleanly sourced electricity, netting a boodle from the grant money. The scheme only works for a year — longer than that, the utility would be on the hook to meet that high threshold annually. So they’d close up shop at the end of the year, likely leaving behind happy customers to whom they passed along some of those savings.
It’s not hard to envision a market flooded with these one-year opportunists.
“For the customer who’s about to lose one year of free or cheap power, you click on whatever the next company is that’s offering it and they just switch you over,” Steve Cicala, an assistant economics professor at Tufts, told TPM.
These little fiddly details could translate into tons of money and opportunity for companies more interested in netting free federal money than greening the grid.
“Both of these are legitimate concerns and are on the radar of legislative staff,” said Jesse Jenkins, an assistant professor at Princeton’s Andlinger Center for Energy and the Environment. “The House Energy and Commerce text is the first draft of this proposal which can evolve as it moves through the legislative process to better address these kinds of hypothetical cases.”
Jenkins noted that the Department of Energy will have considerable statutory power to address some of those hypothetical situations as they arise in implementing the program.
As the policy comes together, it has allayed other concerns raised by experts. In one case, they were worried that the four percent annual target would dissuade utilities from exceeding it, since they’d have to then build upon that higher benchmark each year. But the legislation as written, Jenkins said, already addresses the problem.
“If a utility or retail supplier overperforms in one year (e.g. more than four percentage points increase in clean share), they have the option to use that to reduce the growth required in a future year by opting to use the two or three year averaging provision,” he said. In practice, that means that a utility could reach eight percent of new clean production in one year, then hit two percent in each of the next two years — averaging out to four, and making the utility both eligible for grants and safe from penalties.
The policy has attracted so much scrutiny because it’s so important. It’s the bedrock of the country’s entire climate change mitigation strategy, and based on how the political winds are blowing and have blown in the past, it’s probably the only chance to significantly green our economy for years.
“This bill is a really big opportunity to do something on climate,” Cicala said. “The spirit of this is just debugging and making sure that in this industry — that has a long history of working the rules to make money — the money is actually being spent to incentivize clean energy production.”
