DOD Purchase of Renewable Energy Credits Under the National Defense Authorization Act of 2012

Congressional research reportNov 27, 2012

Ask Donna

What actually matters in this document.

Text

DOD Purchase of Renewable Energy Credits

Under the National Defense Authorization

Act of 2012

-name redactedSpecialist in Energy and Defense Policy

November 27, 2012

Congressional Research Service

7-....

www.crs.gov

R42840

CRS Report for Congress

Prepared for Members and Committees of Congress

DOD Purchase of Renewable Energy Credits

Summary

The Energy Policy Act (EPAct) of 2005 established renewable energy goals for federal

government agencies. The National Defense Authorization Act for Fiscal Year 2012 directs the

Secretary of Defense “to establish a policy to maximize savings for the bulk purchase of

replacement renewable energy certificates in connection with the development of facility energy

projects using renewable energy sources.” This requires that each service purchase replacement

renewable energy certificates (RECs) through either a centralized purchasing authority within the

respective department, or the Defense Logistics Agency (DLA). A REC certifies that a renewable

power generator has produced a certain amount of power according to set requirements and

standards. In meeting past goals for using renewable-generated electricity, federal agencies

purchased RECs without purchasing the associated power. In 2008, GAO reported that federal

agencies continued to rely on RECs rather than site-generated renewable energy to meet EPAct

goals.

Though no statute has specifically authorized federal agencies to purchase RECs, they have

become an attractive option for some federal facilities in meeting renewable energy mandates,

particularly where renewable power was not readily available. Early on, federal agencies

purchased RECs without purchasing the associated electricity in order to meet the building

energy-intensity reduction goals of the National Energy Conservation Policy Act.

The Department of Energy’s Federal Energy Management Program (FEMP) has advised,

“Because it defines renewable energy broadly, many different REC types can count towards an

agency’s renewable energy consumption requirement under EPAct 2005.” Section 203 of EPAct

2005 specifies that renewable energy must be consumed to be credited toward the renewable

energy goal (42 U.S.C. 15852(a)). However, Congress has not provided federal agencies explicit

statutory authority to purchase RECs for meeting EPAct goals.

Presently, 29 states and the District of Columbia have adopted Renewable Portfolio Standards

(RPS), while nine states and three power authorities have adopted nonbinding (voluntary)

standards. There are two markets for RECs: voluntary and compliance. The voluntary market

consists of businesses and individuals (and federal agencies) purchasing renewable energy

beyond the amounts present in standard utility service contracts. Compliance markets are those

where state renewable portfolio standards or other legal mandates require utilities and electricity

providers to provide or purchase renewable energy as part of the portfolio offered to their regular

customers. Renewable energy generators can sell RECs by advertising on a tracking system

bulletin board, using a broker to assist in finding a buyer, or using an auction or exchange

platform to sell RECs.

The REC marketplace that continues to evolve reflects a balkanized approach that states have

individually taken in creating their own RPS. Ten regional REC tracking systems now operate

across the United States and Canada. Purchasing RECs is not the same as purchasing energy,

however. In states with an RPS, purchased power already includes a percentage of renewablegenerated power that is included in the consumer’s utility bill. Purchasing RECs in those states

would represent additional costs without the associated power. DOD views such REC purchases

as an expenditure that does not contribute to its energy security posture.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Contents

Introduction...................................................................................................................................... 1

Background ...................................................................................................................................... 1

DOD Electricity Use ........................................................................................................................ 3

Restructured Power Markets and Retail Choice .............................................................................. 5

State Renewable Portfolio Standards......................................................................................... 6

The REC Market........................................................................................................................ 9

REC Prices............................................................................................................................... 10

DOD Electricity Demand vs. State RPS ........................................................................................ 12

DLA Energy Purchasing .......................................................................................................... 15

Current DLA-E REC Purchasing ............................................................................................ 15

Policy Discussion........................................................................................................................... 16

Figures

Figure 1. DOD Site-Delivered Energy by Type in FY2010............................................................. 4

Figure 2. State Restructured Power Markets ................................................................................... 6

Figure 3. State Renewable Portfolio Standards and Goals .............................................................. 8

Figure 4. Renewable Energy Tracking Systems ............................................................................ 10

Figure 5. DOD Power Demand vs. State RPS ............................................................................... 13

Figure 6. Summary of DLA-E REC Purchases ............................................................................. 16

Figure B-1. DLA Electricity Customer Segmentation ................................................................... 21

Figure B-2. DLA Electricity Contract Awards ............................................................................... 21

Figure B-3. Installation Energy Contract Awards .......................................................................... 22

Tables

Table 1. DOD Site Delivered Energy and Estimated Power Demand ............................................. 4

Table 2. Renewable Energy Certificate Markets (July 12, 2012) .................................................. 11

Table 4. State RPS Goals, Retail Power Sales, and Projected RPS Sales vs. DOD Demand

Estimate (2010)........................................................................................................................... 14

Appendixes

Appendix A. Deregulation and Restructuring of the Electric Power Market ................................ 19

Appendix B. DLA-E Electricity Contract Awards ......................................................................... 21

Appendix C. Laws Affecting DLA-E Procurement ....................................................................... 23

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Contacts

Author Contact Information........................................................................................................... 25

Acknowledgments ......................................................................................................................... 25

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Introduction

The National Defense Authorization Act for Fiscal Year 2012 (NDAA; P.L. 112-81, §2824)

directs the Secretary of Defense “to establish a policy to maximize savings for the bulk purchase

of replacement renewable energy certificates (RECs) in connection with the development of

facility energy projects using renewable energy sources.”1 The provision requires that each

service acquire replacement RECs through either a centralized purchasing authority within the

respective department, or the Defense Logistics Agency (DLA). It presumes that either agency

brings the commensurate expertise in the RECs to purchase them and obtain the best value for the

military department. Central purchasing could offer inherent advantages in efficiency and

economy. DOD’s executive agent for purchasing energy in bulk is the Defense Logistics AgencyEnergy (DLA-E), which operates through a working capital fund to purchase fuel and power for

its clients—the armed services and some non-defense federal agencies. Purchasing RECs would

logically extend DLA-E’s mission (which DLA-E already does to a limited extent).

Background

The federal renewable energy policies that serve as the backdrop for the NDAA-REC provision

evolved from several decades of effort directed toward reducing federal building energy-intensity;

an era marked by increasing energy costs and expectations for increased energy demand

throughout the commercial and domestic sectors. The 1978 National Energy Conservation Policy

Act (NECPA, P.L. 95-619) initiated a program of retrofitting federal buildings to improve energy

efficiency. It also required federal agencies, including DOD, to report annually on their progress

in meeting energy consumption goals for facilities.

The Consolidated Omnibus Budget Reconciliation Act of 1985 (also called the Deficit Reduction

Act, P.L. 99-272) amended NECPA by authorizing energy savings contracts of up to 25 years.

The 1992 Energy Policy Act (P.L. 102-486) further amended NECPA by authorizing Energy

Savings Performance Contracts (ESPCs) that offered federal agencies a novel means of making

energy efficiency improvements to aging buildings and facilities.

The Energy Policy Act of 2005 (P.L. 109-58, EPAct), in Section 203, established renewable

energy goals for federal government agencies. For total energy consumed by the federal

government, EPAct required increasing minimum amounts of energy to come from renewable

sources to the extent “economically and technically feasible”:

•

Not less than 3% in fiscal years 2007 through 2009;

•

Not less than 5% in fiscal years 2010 through 2012; and

•

Not less than 7.5% in fiscal year 2013 and each fiscal year thereafter.

Executive Order 13423 (Strengthening Federal Environmental, Energy, and Transportation

Management, 2007) required that at least half the required renewable energy that a federal agency

consumed in a fiscal year should come from “new renewable energy sources, and … to the extent

§2824, Use of Centralized Purchasing Agents for Renewable Energy Certificates to Reduce Cost of Facility Energy

Projects Using Renewable Energy Sources and Improve Efficiencies.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

feasible, the agency implements renewable energy generation projects on agency property for

agency use.” While federal agencies can choose to purchase renewable electricity or obtain

renewable energy by other means, the executive order also directed them to build their own

renewable energy projects on federal property (when feasible) so that they can consume the

renewable power produced on-site.

The Department of Energy’s Federal Energy Management Program (FEMP) has advised,

“Because it defines renewable energy broadly, many different REC types can count towards an

agency’s renewable energy consumption requirement under EPAct 2005.”2 Section 203 of EPAct

2005 specifies that renewable energy must be consumed to be credited toward the renewable

energy goal (42 U.S.C. 15852(a)).3 However, Congress has not provided federal agencies explicit

statutory authority to purchase RECs for meeting EPAct goals.

Both U.S. total energy demand and U.S. energy generation have declined in the last decade. The

last two decades, in particular, mark a rapid change in the deregulation and re-regulation of the

electric power industry that has created opportunities for renewable energy generators, created

niche markets and incentives for renewable energy, and created a market for issuing and tracking

renewable energy credits.

RECs became an attractive option for some federal facilities intent on meeting renewable energy

mandates, particularly where renewable power was not readily available. Early on, federal

agencies purchased RECs without purchasing the associated electricity in order to meet the

building energy-intensity reduction goals of NECPA.

Renewable Energy Certificate

A REC is a tradable, non-tangible energy commodity in the United States that represents proof that one megawatthour (MWh) of electricity was generated from an eligible renewable energy (solar, wind, biomass, ocean, geothermal,

municipal solid waste, “new” hydroelectric generation) resource. Its purchase conveys the right to claim the

environmental benefit associated with renewable generated electricity. A REC identifies the characteristics of the

particular generator such as location, the emissions output of the generator, the fuel the generator used to produce

the electricity, and the date the generator went into service (also known as its pedigree). The marketplace may sell

RECs separately from the megawatt-hours of generated electricity with which they are associated.

State renewable portfolio standards (RPS) have created a market for trading RECs. Every

megawatt-hour of power generated from eligible renewable sources creates a certain amount of

RECs, usually in a one-to-one ratio. In some markets, RECs can trade separately from the power

they represent, while in others they must remain “bundled” together.

The market for purchasing RECs is complex and evolving. Some states already require that

electric utilities obtain certain amounts of the electricity they deliver to end-use customers from

renewable-generated electricity. Electricity markets already offer three main products: capacity

(megawatts); power (traded in megawatt-hours); and ancillary services (services that ensure

reliability and support transmission of electricity from generators to customer loads).4 Power and

U.S. DOE Office of Energy Efficiency and Renewable Energy, Federal Energy Management Program, Quick Guide

to Renewable Energy Certificates (RECs), July 2011, http://www1.eere.energy.gov/femp/pdfs/rec_guide.pdf.

U.S. DOE Office of Energy Efficiency and Renewable Energy, Federal Energy Management Program, Renewable

Energy Requirement Guidance for EPACT 2005 and Executive Order 13423. p. 6, http://www1.eere.energy.gov/femp/

pdfs/epact05_fedrenewenergyguid.pdf.

Ancillary services may include load regulation, spinning reserve, non-spinning reserve, replacement reserve, and

voltage support. See http://www.eia.gov/tools/glossary/index.cfm.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

capacity sold in bundled form represents “firm power”—power or producing capacity intended to

be available during the period covered by a guaranteed commitment to deliver, even under

adverse conditions.5 This is the pricing plan for renewable and non-renewable energy purchases

used widely by commercial and industrial customers (including DOD).

DOD Electricity Use

Federal spending on electricity represents only from 17% to 18% of total federal energy use, and

roughly one-third-of-1% of the federal discretionary budget. When FEMP last reported on federal

energy consumption in 2007, spending on electricity amounted to $4.4 billion for 56,497

gigawatt-hours at an average cost of roughly $78 per MWh.6 At the time, electricity rates ranged

from $82/MWh for industrial users to $120/MWh for commercial users. DOD as late as FY2012

reports spending $4.10 billion on energy for its facilities worldwide.

DOD activities occupy more than 316,000 buildings and an additional 182,000 structures on 536

military installations worldwide. In FY2010 DOD reported that it consumed approximately

211,000 billion British thermal units (Btu) of energy in its facilities.7 DOD’s U.S. facilities

consumed closer to 187,759 billion Btu. Approximately 45% of the energy DOD facilities

consumed came from electricity; 34% from natural gas; and the remaining percentages were fuel

oil (9%), coal (7%), purchased steam (3%), and liquefied petroleum gas/propane/other fuels

(2%).8 (See Figure 1.) CRS estimated that DOD consumed 24,765 thousand MWh of electric

power at its U.S. facilities by applying a factor of 45% to total site-delivered energy (in Btu) and

then converting Btu to electric power.9

To mark their progress towards reducing energy intensity in buildings under NECPA and later

EPAct, DOD and other federal agencies aggregate overall energy use in Btu per square foot of

building space for reporting purposes.10 Neither policy requires DOD or other federal agencies to

report their electricity consumption on a state-by-state basis. In order to gauge the best

opportunities for DOD to purchase RECs in the current REC market, CRS needed some measure

of state-by-state electricity use, and made an “across the board” assumption on electricity use

based on Figure 1.

http://www.eia.gov/tools/glossary/index.cfm.

Federal Energy Management Program, Annual Report to Congress, Table A-4 and A-5, January 27, 2010,

http://www1.eere.energy.gov/femp/regulations/facility_reports.html.

A gigawatt is the equivalent of 1,000 megawatts.

Office of the Deputy Under Secretary of Defense (Installations and Environment), Department of Defense Annual

Energy Management Report Fiscal Year 2010, July 2011, http://www.acq.osd.mil/ie/energy/energymgmt_report/

main.shtml.

Department of Defense Annual Energy Management Report Fiscal Year 2010, p. B-3.

1 Btu = 0.00000029307107 MWh.

DOD reports its energy use annually to the Federal Energy Management Program, as required of all federal agencies

by the National Energy Conservation Policy Act of 1992 (as amended by the Energy Policy Act of 2005). 10 USC §

2911. See Department of Defense Annual Energy Management Report Fiscal Year 2010 for floor space.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Figure 1. DOD Site-Delivered Energy by Type in FY2010

Source: Department of Defense Annual Energy Management Report Fiscal Year 2010, Figure 2.3, p. 16.

Notes: DOD consumed about 187.8 billion British thermal units (BBTU) of energy during FY2010 in U.S.

facilities subject to energy-intensity reduction goals; electricity amounted to roughly 24.7 thousand MWh.

By aggregating site-delivered energy data (Btu) that DOD reported by facility, CRS was able to

estimate DOD power demand (MWh) by state (Table 1).11 The Table 1 estimates are intended for

comparative purposes only, as factors such as regional climate variations, geography, and the

availability of natural gas are likely to skew overall energy preference for, or use of, electricity.

Table 1. DOD Site Delivered Energy and Estimated Power Demand

State

Site

Delivered

Energy Billion

Btu

Estimated

Power

Thousand

MWh

Virginia

15,678

2,068

Kansas

2,279

301

Maryland

12,442

1,641

New Mexico

2,102

277

California

Texas

11,819

11,754

1,559

1,550

Louisiana

Arizona

1,871

1,801

247

238

North Dakota

9,977

1,315

Mississippi

1,765

233

Alaska

8,906

1,175

Wisconsin

1,723

227

North Carolina

8,124

1,071

Arkansas

1,627

215

Georgia

7,988

1,053

Indiana

1,441

190

Florida

6,899

910

Connecticut

1,412

186

Washington

6,258

825

Massachusetts

1,167

154

State

Site

Delivered

Energy

Billion Btu

Estimated

Power

Thousand

MWh

Oklahoma

5,499

725

Nevada

1,164

153

Alabama

4,667

615

New Hampshire

1,158

153

Colorado

4,524

597

Nebraska

1,046

138

Department of Defense, Annual Energy Management Report Fiscal Year 2001, Appendix I-Energy Consumption and

Intensity by Installation.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

State

Site

Delivered

Energy Billion

Btu

Estimated

Power

Thousand

MWh

State

Site

Delivered

Energy

Billion Btu

Estimated

Power

Thousand

MWh

South Dakota

4,440

586

Michigan

976

129

Ohio

4,120

543

Iowa

911

120

Illinois

3,857

509

West Virginia

906

120

Pennsylvania

3,809

502

Rhode Island

875

115

Tennessee

3,775

498

Idaho

681

Utah

3,744

494

Montana

663

New Jersey

3,737

492

Wyoming

550

South Carolina

3,646

481

Delaware

543

District of Columbia

3,346

441

Minnesota

361

New York

3,200

422

Maine

255

Kentucky

3,080

406

Oregon

205

Missouri

2,544

336

Vermont

Hawaii

2,377

313

Total

187,759

24,762

Source: Department of Defense Annual Energy Management Report Fiscal Year 2010, Appendix I-Energy Consumption

and Intensity by Installation.

Notes: Estimated Power applies a factor of 45% in converting Btu to MWh. Factors such as regional climate

variations, geography, and the availability of natural gas are likely to skew overall energy preference for, or use

of, electricity.

As Table 1 shows, DOD consumed over half of its estimated power demand (some 13,167

thousand MWh) in 10 states: Virginia, Maryland, California, Texas, North Dakota, Alaska, North

Carolina, Georgia, Florida, and Washington. As this report discuss further below, these states’

policies promoting renewable energy use vary considerably. In states with restructured power

markets, for example, DOD may take advantage of retail choice programs and buy power directly

from merchant generators through a local utility.

Restructured Power Markets and Retail Choice

The Public Utility Regulatory Policies Act of 1978 (PURPA) and the Energy Policy Act of 1992

(EPAct ‘92) had obligated retail utilities to buy capacity and energy from certain types of

“qualifying facilities.” In 1996, the Federal Energy Regulatory Commission (FERC) issued Order

888 to encourage wholesale competition through non-discriminatory open access to public utility

transmission lines.12 The order offered customers the opportunity to contract power separately

from distribution through their local utility (i.e., unbundled service), and various states have since

moved toward restructuring their power markets. Ideally, restructuring promised electricity

consumers the opportunity to contract with the lowest cost supplier of electric power independent

of local utility service.

Federal Energy Regulatory Commission, Order No. 888, http://www.ferc.gov/legal/maj-ord-reg/land-docs/

order888.asp.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Today, only 16 states have fully restructured to allow their utility customers retail choice in

purchasing power (Figure 2). These states presumably should offer DOD the opportunity to

purchase RECs and the associated power (if available). In states that remain regulated, DOD may

be restricted to purchasing bundled electric service from local utilities.

Figure 2. State Restructured Power Markets

Source: CRS.

Notes: Sixteen states’ power markets (CT, DE, DC, IL, ME, MD, MA, MI, NH, NJ, NY, OH, OR, PA, RI, and

TX) have restructured power markets that allow utility customers the option of buying unbundled utility service.

PURPA also defined a new class of qualifying generating facilities (QFs) that would receive

special rate and regulatory treatment under FERC, and allowed these entities to sell power to

electric utilities. Under PURPA, QFs include “small power” production facilities that generate

less than 80 megawatts using solar, wind, geothermal, biomass, or waste; that is, renewable

energy generators. In response to restructuring, states began instituting requirements for utilities

to include a certain portion of new sources of renewable-generated electricity in their generating

capacity. At the time, renewable sources of electricity appeared to offer cost-competitive

alternatives to conventional fossil and nuclear generated power, and thereby benefited the utility

rate-payer. For a further discussion on deregulation, see Appendix A.

State Renewable Portfolio Standards

A Renewable Portfolio Standard (RPS) is a state requirement that a certain portion of the power

that utilities sell to end-use (retail) customers must include electricity generated from a renewable

resource by a certain date. Some states have mandatory RPS requirements, while others have

voluntary programs. States with mandatory RPS rules require that either a percent of an electric

Congressional Research Service

DOD Purchase of Renewable Energy Credits

supplier’s energy sales (MWh) or installed capacity (MW) come from renewable resources (see

Figure 3). While the United States as a whole has not adopted a national renewable portfolio

standard, most states have established their own standards. The standards as well as the

definitions of renewable energy vary from state to state, and the requirements are different

because states have designed RPS rules independently. States also tend to define RPS rules to

take advantage of their unique renewable resources. Thus, each state’s unique set of resources and

goals has resulted in a patchwork of conflicting rules that determine a renewable energy project’s

eligibility for participating in an RPS. Presently, 29 states and the District of Columbia have

adopted binding RPS policies; 8 states have adopted nonbinding (voluntary) standards.13

Renewable Portfolio Standard

A renewable portfolio standard is a policy that requires electricity providers to obtain a minimum percentage of their

power from renewable energy resources. Currently, 29 states, the District of Columbia, and two territories have RPS

policies in place. Eight states and two territories have adopted renewable portfolio goals instead of a binding RPS.

In 2011, RPS rules required 133 million MWh of electricity from renewable facilities, which is

slightly more than 3% of the total 4,000 million MWh of U.S. electricity produced in 2011.14 One

forecast predicts that RPS requirements will grow to 210 million MWh by 2015.15 In total, states

will require an estimated 100,000 megawatts of new renewable capacity by 2035, which could

represent 7% of total U.S. retail electricity sales.16

Generally, states organize REC products into tiers, depending on the resources they promote.

When a state creates or revises its RPS, it may place a new REC product (associated with the

newer qualifying renewable energy project) in a higher tier than older projects. The REC tiers

may depend on generating technology, start-up date, and geographic location. Newer projects

generally qualify as Tier I vintage, while RECs from older projects may be relegated to lower

tiers and eventually phased out (sunset provision). The projects may continue to operate even

though the RECs phase out. Over time, the RPS percentage requirements attached to upper tier

exceeds the lower tier. Newer tier RECs also command higher prices (discussed below). RPS

mandates generally leave it up to the utilities to determine how they will comply. Typically, a

utility will competitively solicit the supply needed to meet its RPS obligation or seek RECs on a

secondary market.17

States have also encouraged a market for selling and trading RECs. However, the marketplace

that evolved reflects the balkanized approach that states have individually taken in creating their

own renewable portfolio standards. Essentially, there are two markets for renewable energy—

voluntary and compliance. The voluntary market for renewable energy consists of businesses and

individuals purchasing renewable energy beyond the amounts present in standard utility service

or provided through government requirements. Compliance markets are those where state

Department of Energy, Database of State Incentives for Renewables & Efficiency, http://www.dsireusa.org/

summarytables/index.cfm?ee=1&RE=1.

Platt’s Special Report, Renewable Energy Certificates, April 2012, http://www.platts.com.

Ibid.

DOE, 2010 Wind Technologies Market Report, p. 62-63.

That is, a utility will issue a request for proposals and select the projects that offer the most promising package of

siting, operational expertise, and cost.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

renewable portfolio standards or other legal mandates require utilities and electricity providers to

provide or purchase renewable energy as part of the portfolio offered to their regular customers.

Figure 3. State Renewable Portfolio Standards and Goals

Source: Energy Information Administration, Status of Electricity Restructuring by State as of September 2010

Notes:

State

RPS Policy

RPS Goal

Goal Date

State

RPS Policy

RPS Goal

Goal Date

State

RPS Policy

RPS Goal

Goal Date

Mandate

15%

2025

Mandate

40%

2017

Mandate

12.50%

2021

Mandate

33%

2020

Mandate

20%

2022

Mandate

25%

2025

Mandate

30%

2020

Mandate

15%

2020

Mandate

12.50%

2025

Mandate

23%

2020

Mandate

1,100mW

2015

Mandate

25%

2025

Mandate

25%

2025

Mandate

25%

2025

Mandate

18%

2020

Mandate

20%

2020

Mandate

15%

2021

Mandate

16%

2020

Mandate

40%

2030

Mandate

15%

2015

Mandate

5880mW

2025

Mandate

105MW

2010

Mandate

22.50%

2020

Mandate

20%

2017

Mandate

25%

2025

Mandate

20%

2020

Mandate

15%

2020

Mandate

20%

2020

Mandate

30%

2015

Mandate

10%

2015

Voluntary

10%

2025

Study

350MkW

2013

Voluntary

10%

2010

50%

2025

Study

Voluntary

10%

2020

Voluntary

23.80%

2025

Voluntary

15%

2015

Congressional Research Service

DOD Purchase of Renewable Energy Credits

State

RPS Policy

RPS Goal

Goal Date

State

RPS Policy

RPS Goal

Goal Date

Voluntary

10%

2015

Voluntary

20%

2025

Voluntary

15%

2025

Voluntary

State

RPS Policy

RPS Goal

Goal Date

The REC Market

RECs, also known as “Green Tags” or “Green Certificates,” certify that a renewable power

generator has produced a certain amount of power according to set requirements and standards.

When the generators produce power at a specified amount, a state issues them the right to sell a

REC. A REC sold with the electricity it represents is a “bundled sale”; one sold separately to a

different buyer is an “unbundled sale.”

RECs have varying attributes depending upon the underlying renewable energy source. As an

example, the Master Renewable Energy Certificate Purchase and Sale Agreement, which has its

basis in state laws of California and New York, defines three REC products:18

•

A standard REC includes all environmental attributes arising from the generation

of electricity associated with the REC, whether or not the environmental

attributes have been verified or certified and whether or not creditable under any

existing applicable program;

•

A basic REC consists solely of a certification of the generation of electricity by a

renewable energy source, without any additional environmental attributes;

•

A specified REC includes specified environmental attributes in addition to the

generation of electricity by a renewable resource.

Parties may tailor the Master Agreement to the laws of any state and to the delivery requirements

of Regional Transmission Organizations.

Renewable energy generators have several ways to sell RECs.19 They can advertise their credits

on a tracking system bulletin board, use an aggregator or broker to either purchase the RECs

directly or to assist the generator in finding a buyer, or use an auction or exchange platform to sell

RECs.

Currently, 10 regional REC tracking systems operate across the United State and Canada.20 (See

Figure 4.) This includes the North American Renewables Registry (NARR), which provides a

Assembled by a working group comprised of the American Council on Renewable Energy, the Environmental

Markets Association and the American Bar Association’s Section on Environment, Energy and Resources,

http://apps.americanbar.org/environ/committees/renewableenergy/RECMasterContract.pdf.

PJM, http://www.pjm-eis.com/getting-started/how-do-I-sell-recs.aspx?p=1.

Department of Energy—Energy Efficiency & Renewable Energy, Green Power Markets, Renewable Energy

Certificates (RECs) National REC Tracking System, http://apps3.eere.energy.gov/greenpower/markets/

certificates.shtml?page=3.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

web-based platform to create, track, and manage RECs in states not covered by one of the

existing APX tracking systems for the North American renewable energy market.21 APX initiated

REC trading when it created a California market in 1999. REC tracking systems provide a basis

for creating, managing, and retiring RECs, to ensure that each REC counts only once. Tracking

systems also provide load-serving entities (LSEs) the means of demonstrating compliance with

state renewable energy and related environmental policies, including renewable portfolio

standards (RPS).22

Figure 4. Renewable Energy Tracking Systems

Source: Adopted by CRS from the Environmental Tracking System of North America, The Intersection Between

Carbon, RECs, and Tracking: Accounting and Tracking the Carbon Attributes of Renewable Energy, February 2010,

http://www.etnna.org/publications.html. DOE Energy Efficiency & Renewable Energy, Green Power Markets,

http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml?page=3.

Notes: The North American certificate tracking systems for electricity are regionally based and created

primarily to provide a mechanism to monitor compliance with state RPS programs.

REC Prices

REC prices depend on a number of factors, including generation technology, generation year

(vintage), purchased volume, generation region, and whether the RECs meet compliance

obligations or serve voluntary retail consumers.23 REC prices in both the voluntary and

compliance markets can be difficult to determine without the assistance of a broker. Only a few

APX, Inc. provides a software transaction platform for creating and managing RECs. http://www.apx.com/

Load serving entities (LSEs) provide electric service to end-users and wholesale customers. LSEs include the

competitive retailers (CRs) that sell electricity at retail in the competitive market. ERCOT, http://www.ercot.com/

services/rq/lse/.

U.S. DOE Office of Energy Efficiency & Renewable Energy, Renewable Energy Certificates (RECs), REC Prices,

http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml?page=5.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

sources publically disclose REC prices: PJM-GATS, the state of New Jersey, and brokers at

SRECTrade24 and Flett Exchange.25 Maryland, Pennsylvania, and the District of Columbia are the

only jurisdictions that require public disclosure of REC prices. The Intercontinental Exchange

(ICE), formerly the Chicago Climate Futures Exchange, reports prices for the REC futures its

clears for Connecticut, Massachusetts, and New Jersey.26

Generally, REC sales in mandatory RPS markets command higher prices than RECs in voluntary

markets, and higher tier (newer vintage) RECs command higher prices than lower tier (older

vintage) RECs (see Table 2). In voluntary REC markets (nine states), wind prices in October

2011 ranged from $1 to $2.75. In compliance REC markets, wind prices ranged from a few cents

to over $40. Solar Renewable Energy Credits (SRECS) have sold as low as $15 in Ohio and as

high as $320 in Massachusetts.

Table 2. Renewable Energy Certificate Markets (July 12, 2012)

$/MWh

RPS Policy

Low Price

Mid Price

High Price

Connecticut

Mandatory

45.00

46.50

48.00

Maryland

Mandatory

3.20

3.25

3.30

Massachusetts

Mandatory

58.00

59.00

60.00

New Jersey

Mandatory

3.20

3.25

3.30

Ohio In-State

Mandatory

2.00

2.50

3.00

Class I/Tier I RECs

Pennsylvania

Mandatory

3.15

3.20

3.25

Texas

Mandatory

2.50

2.55

2.60

Maryland

Mandatory

200.00

205.00

210.00

Massachusetts

Mandatory

305.00

312.50

320.00

Solar RECs

New Jersey

Mandatory

135.00

140.00

145.00

Ohio In-State

Mandatory

150.00

162.50

175.00

Pennsylvania

Mandatory

20.00

22.50

25.00

SRECTrade currently operates monthly auctions for Solar Renewable Energy Certificates (SRECs) in the District of

Columbia, Delaware, Massachusetts, Maryland, North Carolina, New Jersey, Ohio, and Pennsylvania. In SREC states,

the Renewable Portfolio Standard (RPS) requires electricity suppliers to secure a portion of their electricity from solar

generators. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created for

every megawatt-hour of solar electricity created.

•

1 SREC = 1,000 kWh of solar electricity = 1 MWh of solar electricity

•

10 kW solar capacity = ~12 SRECs per year

The SREC sells separately from the electricity it represents (unbundled). The value of an SREC is determined by the

market subject to supply and demand constraints. SRECs can be sold to electricity suppliers needing to meet their solar

RPS requirement. The market is typically capped by a fine or solar alternative compliance payment (SACP) paid by

any electricity suppliers for every SREC they fall short of the requirement. The sale of SRECs is intended to promote

the growth of distributed solar by shortening the time it takes to earn a return on the investment.

http://www.srectrade.com/

See Flett Exchange, http://www.flettexchange.com/.

ICE Report Center, Category—End of Day Report, Market—ICE OTE, Report—ICE OTC Physical Environmental

Settlements, https://www.theice.com/marketdata/reports/ReportCenter.shtml#report/129.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

RPS Policy

Low Price

Mid Price

High Price

California Bundled REC (Bucket 1)

Mandatory

35.00

37.50

40.00

California Bundled REC (Bucket 2)

Mandatory

6.00

9.00

12.00

California Tradable REC (Bucket 3)

Mandatory

0.75

1.12

1.50

National, any technology

Voluntary

0.65

0.70

0.75

National, wind

Voluntary

0.75

0.82

0.90

California RPS

National RECs

Source: Platts, Megawatt Daily, July 13, 2012.

Notes: Prices are for the value of the environment attribute of the renewable energy certificate only and do not

include energy. Bundled transactions are normalized by subtracting the market price of electricity. Prices are for

a given day, in this case July 12, 2012.

DOD Electricity Demand vs. State RPS

Twenty-nine states have not restructured their electric power industries (i.e., do not offer

customer choice of unbundled utility service). See Figure 5 and Table 3. Of those states, 19 have

adopted RPS goals.27 Estimated DOD demand in those 19 states represents 1,001 thousand MWh

or almost 56% of DOD’s renewable energy goal of 1,857 thousand MWh (7.5% of 24,765

thousand MWh). From DOD’s perspective, the opportunity to buy RECs independent of utility

service may be limited if it exists at all. However, at least in the 19 states that have adopted RPS

goals, DOD will be consuming the renewable-generated power (as part of the electricity it

obtains) under their utility-service contracts.

The 16 states that have restructured, adopted an RPS, and have introduced a REC market would

appear to offer DOD the best opportunity to purchase RECs unbundled from utility service.

(Considering that, federal facilities must consume renewable energy in order to meet Section 203

of EPAct goals raises the question should facilities also have to consume the electricity directly

associated with RECs.) However, the 16 restructured states represent only 28% of DOD’s

estimated power demand, which may limit DOD’s opportunity to meet overall RPS goals by

buying RECs in these markets exclusively. Other factors such as transmission grid

interconnection may place further limitations on DOD’s opportunity to buy more RECs in these

markets to make up for fewer opportunities in other states. These states have RPS goal-dates that

are at least a decade or more out, which introduces some uncertainty about their RECs’ future

availability. However, DOD utility bills in these states will begin to reflect increasing proportions

of renewable-generated power as its utility service providers must comply with the state RPS

goals. This raises the question as to whether DOD would be competing for the same RECs that

utilities must buy to meet state RPS goals. A REC is a co-product of renewable energy generation

sold in the blended electricity product that everyone receives in an RPS state.

Although six states (Arizona, Arkansas, California, New Mexico, Montana, and Virginia) have

suspended restructuring (i.e., power and service remain bundled), all but Arizona have adopted an

RPS. DOD’s estimated demand in these states amounts to 333 thousand MWh, or barely 18% of

the renewable energy goal. Virginia and California represent states where DOD power demand is

AK, CO, HI, IN, IA, KS, LA, MN, MO, NE, NV, NC, ND, OK, SD, UT, VT, WA, WI.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

highest. However, utility service in these states will include a certain amount of renewablegenerated power to satisfy state renewable portfolio standards. The opportunity to buy RECs from

markets outside these states along with the associated power will depend on open access to

wholesale transmission.

Figure 5. DOD Power Demand vs. State RPS

Thousand Megawatt-hours

Source: Created by CRS based on data from EIA and DOD.

Notes: DOD power demand estimated on the basis that 45% of the energy DOD facilities consumed in FY2010

came from electricity as reported in the FY2010 DOD Annual Energy Management Report (reported in Btu and

converted to MWh). See Table 3.

The NDAA goal of purchasing of RECs is (arguably) to promote the development of new

renewable energy projects and increase the availability of renewable-generated electricity, given

the volume of purchasing that DOD presumably brings to the market. However, compared to the

state’s projected RPS sales (1,702,079 thousand MWh summed from Table 3), DOD’s 7.5%

renewable energy goal (1,890 thousand MWh) represents roughly 0.11% of the projected RPS

goal. Selling RECs separately from the electricity produced by renewable energy projects can

help some projects become more viable, and attractive to investors. Purchasing RECs is generally

a compliance strategy for meeting RPS or similar goals, and by itself does little to promote new

renewable energy projects.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Table 3. State RPS Goals, Retail Power Sales, and Projected RPS Sales vs. DOD Demand Estimate (2010)

Million MegaWatt-hours (MMWh)

Mandatory RPS

Voluntary RPS

State

RPS

Goal

RPS

Date

Retail

Sales

MMWH

Projected

RPS

Sales

MMWh

23%

2020

30,392

6,990

25%

2025

11,606

2,906

20%

2020

11,877

2,375

25%

2025

144,761

20%

2022

65,336

15%

2020

1,100mW

7.5%

DOD

Estimated

Demand

MMWh

No RPS

State

RPS

Goal

RPS

Date

Retail

Sales

MMWH

Projected

RPS

Sales

MMWh

40%

2017

11,532

4,613

50%

2025

6,247

3,124

10%

2025

105,994

36,190

10%

2020

13,067

123

10%

2010

57,123

8,569

15%

2015

103,649

*3,180

23.80%

2025

10,890

2,592

22.50%

2020

79,179

17,815

30%

2015

144,624

43,387

12.50%

2025

154,145

25%

2025

46,026

18%

2020

16%

5880mW

Total

7.5%

DOD

Estimated

Demand

MMWh

Retail

Sales

MMWh

Projected

RPS

Sales

MMWH

7.5%

DOD

Estimated

Demand

MMWh

State

RPS

Goal

RPS

Date

90,863

48,194

10,599

15%

2025

72,831

10,925

29,850

2,985

33%

2020

258,525

85,313

117

12,956

1,296

30%

2020

52,918

15,875

2015

57,846

8,677

231,210

10%

2015

11,356

1,136

140,672

20%

2025

28,044

5,609

40%

2030

10,017

4,007

20%

2017

5,595

1,119

22,798

32,032

105mW

2010

45,445

*304

19,268

15%

2025

11,507

Total

148,964

26,814

2020

7,799

2025

358,458

1,374,829

113,806

17,071

155

20%

2020

40,421

8,084

415,258

56,229

545

93,569

350mW

2013

85,080

*1,012

1,247,876

25%

2025

67,800

16,950

*16,998

116

15%

2021

86,085

12,913

1,439,356

521

49,687

15%

2015

13,423

2,014

20%

2020

22,428

4,486

25%

2025

33,773

8,443

12.50%

2021

136,415

17,052

82,479

103,522

15%

2020

90,380

13,557

10%

2015

68,752

6,875

17,114

1,964,401

206,494

824

Total

Source: FERC, “Renewable Power & Energy Efficiency Market: Renewable Portfolio Standards,” http://www.ferc.gov/market-oversight/othr-mkts/renew/othr-rnwrps.pdf. EIA State Electricity Profiles January 30, 2012, http://www.eia.gov/electricity/state/index.cfm. Notes: Estimated RPS Sales calculated from RPS Goal x Retail Sales,

and in the case of Goals stated as capacity RPS Mw x 365 days x 24 hours x 33% availability. DOD power demand estimated on the basis that 45% of the energy DOD

facilities consumed is reported in Btu and converted to KW.

CRS-14

DOD Purchase of Renewable Energy Credits

DLA Energy Purchasing

DOD’s executive agent for purchasing bulk energy commodities (fuel, natural gas, and

electricity) is DLA-Energy (DLA-E), which also acts on behalf of some federal agencies (see

Figure B-1 for a breakdown). It also offers assistance in purchasing renewable energy through its

Renewable Energy Initiatives team.28

DLA-E aggregates all of its clients’ fuel or energy requirements in order to buy energy in bulk (at

wholesale prices). (See Appendix B.) It then “resells” the energy commodities to its clients with

a surcharge to cover its operational costs. DLA-E does not receive annual appropriations; instead,

it operates a working capital fund that clients “repay” when they purchase their commodities.

DOD clients budget their fuel or energy requirements in their operation-and-maintenance (O&M)

accounts as part of the annually appropriated National Defense Authorization Act.

DLA-E derives its general procurement authority from 10 U.S.C. Section 2304 (Contract:

Competition Requirement), since this gives DOD the authority to buy almost any kind of supply

or service. In addition, DLA-E also works through brokers to assist installations and facilities in

purchasing RECs. A working capital fund provides a means of financing inventories of stores,

supplies, materials, and equipment as well as industrial/commercial-type activities commonly

provided through DOD departments or agencies through accounts established by the Treasury

Department. (See Appendix C.)

Current DLA-E REC Purchasing

In FY2010, DLA-E purchased 440.5 thousand MWh of RECs (the equivalent of 1,503 billion

Btu). This met roughly one-fourth of DOD’s renewable 7.5% energy goal. DLA-E purchased

two-thirds on behalf of the Air Force, and the remaining one-third on behalf of the Army. The

Navy generally relies on RECs to meet its renewable energy goals, but does purchase renewable

energy when the cost is competitive with local sources of conventional power. The Air Force is

the largest DOD user of renewable electric energy, meeting its goals primarily through the

purchase of renewable energy and RECs.

Renewable energy generators rely on brokers to sell and trade the associated RECs, and federal

facilities interested in acquiring RECs must go through the same brokers. Renewable energy

generators can also convey RECs through a power purchase agreement (PPA) if the renewable

energy generator contracts with a utility to supply power. However, DOD opportunities to

contract RECS through a PPA may be limited, given certain contractual limitations.29

In meeting past goals for using renewable-generated electricity, federal agencies were able to

purchase RECs without purchasing the associated power. Merchant renewable energy generators

in some jurisdictions can usually sell RECs in one megawatt-hour blocks, and may be able to sell

them separately from the physical electricity with which they are associated. This previously

allowed some federal customers to satisfy EPAct energy-intensity reduction goals with RECs

generated elsewhere (but without the associated power transmitted through the grid to them). In

http://www.desc.dla.mil/

See CRS Report R41960, Federal Agency Authority to Contract for Electric Power and Renewable Energy Supply,

by (name redacted).

Congressional Research Service

DOD Purchase of Renewable Energy Credits

2008, GAO reported that federal agencies continued to rely on RECs rather than site-generated

renewable energy to meet EPAct goals.30 Given the need for firm uninterruptable power, the

argument for buying RECs is that agencies are better served than taking physical delivery of

intermittent and variable renewable power. However, the RECs purchased added additionally to

energy costs, and no real delivery of kilowatts followed.

DLA-Energy offers assistance in purchasing renewable energy through its Renewable Energy

Initiatives team.31 Since 2003, DLA-E has purchased RECs for multiple sources of renewable

energy (see Figure 6), with wind and biomass the most prevalent as of late.

At present, DLA-E can only respond to individual client requests to buy RECs. Accurate agency

reporting on state-by-state electricity consumption might better aid DLA-E in developing a

strategy for identifying the regional markets with the best opportunities for buying RECs to meet

goals. Individual states have taken a balkanized and uncoordinated approach in adopting

renewable portfolio standards. This has created a REC market with many brokers and prices that

are neither transparent nor aligned.

Figure 6. Summary of DLA-E REC Purchases

2003-2011

Source: DLA-Energy.

Notes: For FY2011, EPAct 2005 required that not less than 5% of total electricity consumed by the federal

government came from renewable energy. For FY2012, the requirement rises to 7.5%.

Policy Discussion

Federal energy-efficiency policy is a legacy of an era of energy price shocks, increasing reliance

on imported petroleum, and increasing demand for electric power. By compelling federal

agencies to become more energy efficient, policy makers saw a means of making additional

generating capacity available to utility ratepayers. As long as the cost of making building energyefficiency improvements did not exceed an agency’s past spending on energy, the improvements

were justified. The improvements do not necessarily reduce overall agency spending, as the

energy savings must pay for the improvements. Nor did they necessarily reduce the taxpayer

U.S. Government Accountability Office, Federal Energy Management-Addressing Challenges Through Better Plans

and Clarifying the Greenhouse Gas Emission Measure Will Help Meet Long-Term Goals for Buildings, GAO-08-977,

September 2008, http://www.gao.gov/new.items/d08977.pdf.

http://www.desc.dla.mil/

Congressional Research Service

DOD Purchase of Renewable Energy Credits

burden. The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) mandated a

30% energy reduction goal for federal buildings that potentially represented $1.1 billion in

savings if the reduction came from reduced electricity use, assuming rates stayed constant.

CRS estimated DOD electricity demand by state to compare the demand to state REC markets,

the rationale being that states with robust REC markets and comparatively high DOD electricity

demand should presumably represent the best opportunities for capitalizing on bulk REC

purchases. However, this raises the question whether purchasing retail electricity in these states

would already meet the NDAA-goal, as states with RPS programs mandate their utilities to

include increasing amounts of renewable-generated power.

As the result of the 2007 U.S. Supreme Court decision that the Clean Air Act requires the federal

government to impose limits on emissions once it has determined that they are causing harm,32

the Environmental Protection Agency (EPA) began rulemaking on limiting CO2 emissions. (A

federal appeals court recently upheld a finding by the EPA that heat-trapping gases from industry

and vehicles endanger public health, defeating states that had sued to block agency rules.)33

Congress debated whether to limit carbon dioxide emissions in 2009 and 2010 in the American

Clean Energy and Security Act (H.R. 2454), but the lack of consensus in the Senate effectively

ended the debate. Also in 2009, the newly elected Obama Administration issued Executive Order

13514, Federal Leadership in Environmental, Energy, and Economic Performance, that directed

federal agencies to establish an integrated strategy towards sustainability and making reductions

in greenhouse gas (GHG) emissions a priority. As a consequence of these new regulatory and

policy initiatives, the focus on reducing building energy-intensity shifted to reducing GHG

emissions (primarily CO2) associated with the fossil energy consumed in supplying their

electricity, ideally through increased substitution of renewable energy resources. These may come

at an additional cost, however, when pursued through purchasing RECs, as the NDAA provision

proposes. Critics of the Obama policy may make the argument that it attempts to promote federal

subsidization of a renewable energy industry in the absence of a federal renewable energy

portfolio standard, as numerous states have already adopted. The true cost of realizing the policy

objective is difficult to estimate, at best.

RECs provide a compliance strategy for meeting GHG emissions,34 but do not necessarily

advance renewable energy development or deployment. If the NDAA goal is to develop and

deploy more renewable energy projects, then NDAA should place emphasis on encouraging such

projects.

In the absence of statutory language authorizing agencies to purchase RECs for meeting EPAct

goals, FEMP had interpreted the Section 203 goal to mean that federal agencies must consume

renewable energy to count it toward meeting energy efficiency goals. This raises the policy

question should facilities consume the power associated with RECs they buy in order to count

them toward meeting the NDAA provision. In that regard, DOD has stated that

U.S. Supreme Court, Commonwealth of Massachusetts et al. v. Environmental Protection Agency, November 29,

2007. See CRS Report R41103, Federal Agency Actions Following the Supreme Court’s Climate Change Decision in

Massachusetts v. EPA: A Chronology, by (name redacted).

U.S. Court of Appeals for the District of Columbia, Coalition for Responsible Regulation, Inc., et al., Petitioners v.

Environmental Protection Agency, Respondent State of Michigan, et al., Interveners; June 26, 2012.

Assuming the renewable energy is low-carbon or carbon-neutral. The lifecycle GHG emissions from some renewable

sources (mainly biomass energy) have been questioned.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

RECs are useful to DoD in that they can improve economic returns for investors that may

construct renewable energy projects on DoD land. This makes projects feasible that would

otherwise not be attractive to investors. However, RECs are not energy, and if DoD

purchases them, they are an expenditure that does not contribute to energy security posture.

DoD sees minimal benefit in purchasing RECs beyond assisting with compliance with

renewable energy mandates, and in general would prefer to allocate funds directly on energy

or projects that produce it.35

If the NDAA provision intends to stimulate new renewable energy projects, alternative means

already exist. Secretary of Defense Leon Panetta and Secretary of the Interior Ken Salazar have

signed a Memorandum of Understanding (MOU) that encourages appropriate development of

renewable energy projects on public lands withdrawn (set aside) for defense-related purposes, and

other onshore and offshore areas near military installations.36 DOD has already made

underutilized land available for several large-scale photovoltaic projects through which DOD

benefits from payments that offset its installation electricity costs. (See CRS Report R41960,

Federal Agency Authority to Contract for Electric Power and Renewable Energy Supply, by

(name redacted)).

Department of Defense Annual Energy Management Report Fiscal Year 2010, p. 27.

Memorandum of Understanding between the Department of Defense and the Department of the Interior on

Renewable Energy and a Renewable Energy Partnership Plan, July 20, 2012.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Appendix A. Deregulation and Restructuring of the

Electric Power Market

Industry restructuring and deregulation are sometimes discussed synonymously, but are slightly

different. Restructuring is a result of states trying to introduce competition and customer choice,

while deregulation breaks up a vertical monopoly on electricity long held by utility companies,

separating the electricity functions into competitive generation, from still-regulated transmission

and distribution functions.

Prior to 1935, holding companies controlled the bulk of the nation’s electric and gas distribution

networks. The Public Utility Holding Company Act (PUHCA) of 1935 dismantled much of the

existing holding-company structure that exploited the operating utility companies and gave the

Securities and Exchange Commission (SEC) power to promote physical integration of electric

utilities in the interest of improving engineering efficiency. Local utilities held customers captive

and charged rates regulated by state public utility commissions (PUCs). In essence, the PUCs

required electric companies to serve a given area at a given price, but simultaneously guaranteed

that these companies would receive stable and, in many cases, very generous profits, and freedom

from the threat of rivals’ competitive entry. Electric utilities that owned their own bulk power

transmission lines could restrict their competitors’ ability to move power (and thus offer utility

customers competitively priced power) by restricting access to their transmission lines. Military

installations relied on either self-generated power or, where local utility service was available, on

utility service agreements to purchase electric power. While PUHCA had created an electric

power industry structure that essentially lasted until the mid-1990s, high energy prices during the

1970s led policy makers to look at dismantling it to promote competitive pricing, among other

goals.

Congress began deregulating the industry with the Public Utility Regulatory Policies Act of 1978

(PURPA), followed by the Energy Policy Act of 1992 (EPAct) that allowed new entities to

acquire generation facilities and provide electrical energy for sale to electric utilities. In 1996, the

Federal Energy Regulatory Commission (FERC) issued Order 888 to encourage wholesale

competition. Prior to Order 888, electric utilities that owned bulk-power transmission lines could

restrict their competitors’ ability to move power by restricting access to their transmission lines.

The FERC order required utilities to allow other electric suppliers access to their transmission

lines as an incentive for more competitiveness in the power market.37

PURPA defined a new class of qualifying generating facilities (QFs) that would receive special

rate and regulatory treatment under FERC. Under the PURPA definition, QFs include “small

power” production facilities that generate less than 80 megawatts using solar, wind, geothermal,

biomass, or waste; that is, renewable energy generators. PURPA also required utilities to buy

power from QFs within their service territory (with some exceptions) at the utility’s “avoided

cost” of power production via a state authorized “power purchase” contract (more commonly

referred to as a power purchase agreement).

16 U.S.C. §824i (Interconnection) approved interconnections of electric energy producers (utilities, cogenerator, or

small power producers) to any electric utility transmission facilities to sell or exchange electricity. 16 U.S.C. §824j

(Wheeling Authority) approved any electric utility to provide transmission services to any electric energy producer (or

any other electric energy generating entity) requiring a transmitting utility for sale for resale.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

The FERC order also opened the opportunity to contract power separately from distribution, and

various states moved to open power markets to retail customers. Ideally, the state power market

restructuring that followed promised retail consumers the opportunity to contract with the lowest

cost supplier of electric power independent of local utility service (unbundled service).

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Appendix B. DLA-E Electricity Contract Awards

While most of DLA-E contract awards are for fuel, an increasing number are for electricity.

DLA-E’s contract portfolio exceeds 17.1 MWh of electricity valued at $1.2 billion.38 (CRS

estimated that DOD consumes some 24.8 million MWh.) DLA-E does not buy all of DOD’s

electricity, as some installations buy directly from their local utilities in regulated markets. DLAE’s largest customer is the Navy followed by the Army (Figure B-1). In 2011, it awarded over

$416 million in new electricity contracts (Figure B-2).

Figure B-1. DLA Electricity Customer Segmentation

% $ under contract

Source: DLA Energy, FY2011 Fact Book.

Figure B-2. DLA Electricity Contract Awards

FY2011

Source: DLA Energy, FY2011 Fact Book.

Gwendolyn J. Crimiel, Legislative Affairs, HQ Defense Logistics Agency, #redacted#.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

DLA Energy has awarded multi-year energy contracts in states which have been deregulated or

restructured and has received requirements from customers. These states are Delaware, the

District of Columbia, Illinois, Maine, Maryland, Massachusetts, New Jersey, New York,

Pennsylvania, and Texas (Figure B-3).

Figure B-3. Installation Energy Contract Awards

Source: DLA Energy, FY2011 Fact Book.

Notes: DLA Energy has experience in all states in which deregulation/restructuring has occurred and in which

requirements have been received: Delaware, the District of Columbia, Illinois, Maine, Maryland, Massachusetts,

New Jersey, New York, Pennsylvania, and Texas. DLA Energy has not reported on any activity in Alaska or

Hawaii regarding installation energy contract awards.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

Appendix C. Laws Affecting DLA-E Procurement

Intra-governmental revolving funds (which include working-capital funds) are accounts that

record collections earmarked by law for a specific purpose and associated budget authority,

obligations, and outlays for business-like activity conducted primarily within the government.39

Collections are credited to the expenditure account, and funds are included in the budget.

A federal agency can perform reimbursable work for another federal agency under authorization

that allows the use of advances or reimbursements in return for providing others with goods and

services.40 Authority exists in various laws that establish revolving funds, including franchise

funds and working capital funds; provisions in appropriations that allow agencies to use the

amounts they collect; and the Economy Act (31 U.S.C. §1535, Agency Agreements).

When authorized by law, an agency may credit payments to a revolving fund established to order

goods or services. Revolving funds operate on a reimbursable basis when working capital

(undisbursed cash) is available; otherwise, advance payments must accompany orders.

DLA Working Capital Funds

Previously, DOD and other federal agencies depended on annual appropriations to finance

industrial or commercial-type activities. That required Congress to issue individual allotments

and required federal agencies to account for them by reporting under the allotment line item (a

time and paperwork intensive means of accounting).

Congress authorized the DOD to establish working capital funds to operate commercial and

industrial-type activities by directly “costing” the activities’ products under the 1949 Title IV

(§405) amendments to the National Security Act of 1947 (NSA). The NSA amendment (Title 10

U.S.C. §2208(a), Working-Capital Funds) placed emphasis on increasing the activities’ efficiency

by directly billing the ordering agency for the cost of work performed or the cost of

manufacturing of an item. While the amount of cash an agency keeps on hand ebbs and flows,

working capital funds are not immune to budget cuts.

DOD currently operates six working capital funds (DOD refers to these as activities): three within

the Defense Logistics Agency (DLA), two within the Defense Information Systems Agency

(DISA), and one by Defense Finance and Accounting Service (DFAS). A separate Army Corps of

Engineers fund provides expenses necessary to maintain and operate the plant and equipment

used in civil works functions.

DLA (organized in the early 1960s) operates the Supply Chain Management (SCM), Energy

Management, and Document Services funds.

•

The SCM fund manages the DLA materiel from initial purchase to distribution

and storage, and then finally reutilization or disposal.

Office of Management and Budget, Section 20, Terms and Concepts, OMB Circular No. A-11 (2008), 2008, p. 38.

Office of Management and Budget, Section 20, Terms and Concepts, Section 20, 2008, p. 41.

Congressional Research Service

DOD Purchase of Renewable Energy Credits

•

The Energy Management fund provides worldwide energy support for the

military services and other authorized customers (discussed further below).

•

Document Services provides products and services produced either in-house or

procured through the Government Printing Office.

DFAS, organized in 1991, provides pay and financial information for the military services. DISA,

reorganized in 1991, provides command and control capabilities and related enterprise

infrastructure for the military services and national leaders.

The Army Corps of Engineers uses a separate revolving fund for expenses necessary to maintain

and operate the plant and equipment used in civil works functions (33 U.S.C. §701b-10,

Revolving Fund; Establishment; Availability; Reimbursement; Transfer of Funds; Limitation).

The revolving fund is available without fiscal year limitation. The Secretary of the Army

originally established the fund by capitalizing inventories, plant, and equipment of the civil works

functions of the Corps of Engineers that were on hand at the time.

Anti-Deficiency Act

The Antideficiency Act (31 U.S.C. §1341, Limitations on Expending and Obligating Funds)

prohibits an officer or employee of the U.S. government from making or authorizing an

expenditure exceeding an amount available by appropriation, or making an obligation before an

appropriation is made (unless authorized by law). That is, an agency cannot disburse revolving

funds into a negative cash position in anticipation of federal disbursements.

The Congressional Budget Act

The Congressional Budget Act of 1974, as amended (31 U.S.C. 1535) defined spending authority

as authority provided in laws other than appropriation acts to obligate the U.S. government to

make payments. More specifically, it includes contract authority, authority to borrow, authority to

forgo the collection of proprietary offsetting receipts (the use of monetary credits or bartering),

and authority to make any other payments for which the budget authority is not provided in

advance by appropriation acts. The latter includes, but is not limited to, authority to make

payments from offsetting collections from nonfederal sources credited to appropriation or fund

accounts.

The Economy Act

The Economy Act of 1932 authorizes an agency to place an order with a major organization unit

within the same agency or another federal agency for goods and service, provided that the

ordering agency has enough money to pay for the order. Transactions authorized by the Economy

Act are limited by the statutory requirement that the amount obligated by the ordering

appropriation is required to be deobligated to the extent that the agency or unit filling the order

has not incurred obligations before the end of the period of availability of the ordering

appropriation. Under the Economy Act, payment (via expenditure transfer) may be made in

advance or reimbursements may be made. Advances and reimbursements from other federal

government appropriations are available for obligation when the ordering appropriation records a

valid obligation to cover the order. The act states that the providing (servicing) agency shall

Congressional Research Service

DOD Purchase of Renewable Energy Credits

charge the ordering (requesting) agency “on the basis of the actual cost of goods or services

provided” as agreed to by the agencies.

Author Contact Information

(name redacted)

Specialist in Energy and Defense Policy

#redacted#@crs.loc.gov, 7-....

Acknowledgments

Richard Campbell, Specialist in Energy Policy; Amber Wilhelm, Graphics Specialist; and Elizabeth

Roberts, Information Research Specialist.

Congressional Research Service

EveryCRSReport.com

The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the

Library of Congress, charged with providing the United States Congress non-partisan advice on

issues that may come before Congress.

EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The

reports are not classified, and Members of Congress routinely make individual reports available to

the public.

Prior to our republication, we redacted names, phone numbers and email addresses of analysts

who produced the reports. We also added this page to the report. We have not intentionally made

any other changes to any report published on EveryCRSReport.com.

CRS reports, as a work of the United States government, are not subject to copyright protection in

the United States. Any CRS report may be reproduced and distributed in its entirety without

permission from CRS. However, as a CRS report may include copyrighted images or material from a

third party, you may need to obtain permission of the copyright holder if you wish to copy or

otherwise use copyrighted material.

Information in a CRS report should not be relied upon for purposes other than public

understanding of information that has been provided by CRS to members of Congress in

connection with CRS' institutional role.

EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.