Interview: Founder & Director of The Center for Integrated Water Research

If I told you that I wanted to introduce you to Professor Brent Haddad, what would be your reaction? Would you be perplexed by the name? Would you wonder who he was?

If you're in the energy, utility business or an environmentalist- you should know of him. Professor Brent Haddad, together with Nancy Rader, helped to develop RECs or Renewable Energy Credits/Certificates. Yes, you read that correctly; this is the man that helped to bring about a way to capture the positive environmental attributes associated with producing energy through a renewable generating resource and 'containing' or monetizing these attributes into a commodity that could be tracked, traded and counted. The result has been extraordinary, especially when integrated into a policy/mandate such as a Renewable Portfolio Standard (RPS), in propelling renewable energy technologies forward.

I found out about Professor Brent Haddad and Nancy Rader during my efforts in researching RECs. In getting in touch with Professor Haddad I wanted to know how the idea came about, the difficulty they faced in selling the idea, and, finally, about how RECs had evolved since their initial concept and the role that they will play in the future. He couldn't have been nicer in accommodating my request. What follows are his responses to my questions.

About Brent Haddad: Professor of Environmental Studies at the University of Santa Cruz, and the Founder and Director of the Center for Integrated Water Research.

Question 1: What was the original trigger/problem that led you and Ms. Nancy Rader towards conceptualizing RECs?

Nancy had just scored a huge and unexpected victory when the California Public Utilities Commission chose her concept for public support for renewable energy over the rival approaches. The usual suspects (utilities and main stream environmental groups) had advocated for a public benefits surcharge, a tax per kilowatt-hour sold that would result in creation of a big pile of money for the doing of good deeds, such as supporting renewables and providing for payment relief for poor people during cold winter months. This pile of public money would of course become a battleground for politically-connected good-guys, with whoever was powerful enough walking away with their own chunk. Of course, with sufficient oversight, good things can happen with a public benefits surcharge, but an approach like this is a band-aid on public problems, not a therapy that leads to a cure. Nothing fundamentally different happens when public money is sprinkled on a problem. The CPUC liked the idea that you could do two things at once – support renewables production while also driving down the cost of renewables through competition. Renewables' only long-term hope was to compete head-to-head with fossil-fuel electricity on a cost basis, and to do that, we needed policies that would provide strong incentives to innovate on all aspects of renewable: technology, financing, management, and integration with power grids. Nancy had submitted a concept brief on behalf of the American Wind Energy Association and her idea was adopted. This was very affirming for anybody who believes in the power of good ideas.

She had already won this big battle when her husband, Dick Norgaard, my PhD Advisor and a founder of the Ecological Economics movement, suggested that she contact me in order to help her move from concept to program. I’d been a broker of emission reduction credits when that program had just gotten launched and also been an NASD-certified securities principal (that’s a fancy way of saying salesman), and had studied why some markets worked and other failed.

Question 2: Economist think of money as a medium of exchange. Could RECs be thought of as a medium of exchange?

Yes, RECs represent the “green” in green energy. It’s what people wanted, so we named it (“RECs”) and defined it so it could be tracked, traded, and counted.

Question 3: When the two of you first proposed the concept to decision makers, how difficult was it to explain the concept to them and for them to accept the purpose of these instruments?

I had been a salesman and had also been a teacher at every level from second grade (a very hard audience) through PhD students (another hard audience for the same reasons). I’d had a couple of radio programs in college. I also remember marveling at a professor at UCLA in the 1970s and 80s named Malcolm Kerr, who would sit on stage with a benign smile and attentive eyes and take question after question from screaming, angry, saliva-dripping students. He’d rephrase the questions to the student’s satisfaction and then answer it, leaving the student slumped in his or her chair in wonder and respect. (If you want a really sad story, learn more about his life.) And my dad was a radio announcer and speech giver, so I grew up with a communicator. I was also used to getting challenged and defending my points right on the spot. I saw what could be done if you knew your topic and kept your temper and presence of mind. This was really important since early on we had some surprise attacks in public that were really vicious and personal in tone and we needed to keep our cool and quickly sort through the personal attack to find the substantive point. Then we needed to find that perfect phrase that politely made the attacker look like the nasty jerk that they actually were without making it seem like we were descending to the level of the attacker, and then when the audience had recovered from witnessing the rhetorical Aikido move, we had to explain and refute the substantive point. At that point, I'd take a sip of water. Another key point was that individually and as a team, Nancy and I hated to lose any fight. I was used to battling for sales, basketball rebounds, sweethearts, and intellectual ideas. There’s nothing worse than knowing you should have won and you didn’t, like the Lakers in ’69-ouch. We were there to win.

There were two camps in those early meetings, those who figured the RPS system out right away and those who needed a little more clarification. In the first, I-get-it, camp was a subset who were threatened by the RPS. They were the major opposition. The threatened group included those who believed they were first in line for major bucks from the public benefits surcharge, those who hadn’t thought up the RPS and were catching heat from their sponsors for getting cut out of the public policy process, those who thought their utilities didn’t have enough renewables already to keep their costs down and would suffer under the RPS in the coming open markets for power (they didn’t really get what was being proposed), and power producers who didn’t want to see their market share eroded by the growing renewables market. These groups would dog us as we made the rounds up and down the west coast giving presentations on the RPS. But the vast majority of people were open minded and curious and would get an a-ha moment when they figured out what was going on. We used 1990s software to make simple pictures and schematics that explained what we were proposing. I also printed up a pile of “Renewable Energy Credits” that looked like Monopoly money, and would pass them around the room so people could get the idea that RECs were tradable. I’d then collect them at the end of the meeting so I could use them the next time around. In one case, I must have been doing an awful job because two people had used the back of one of them to pass a note, and it read “When is this guy going to shut up?"

Question 4: Is there a difference between your original REC concept and their use today?

We got what is known in San Francisco as a “splash hit” the first time around. But it wasn’t due to steroids. We had spent hours talking through every scenario and thinking through every objection and complication. Nancy knew the renewables world and I knew the marketable permits world (I also knew the renewables world a little bit.) Nancy understood legislation and regulation and I understood markets. (By “knew” and “understood” I mean we had studied and worked in these arenas for a number of years, enough to have both practical and theoretical ideas about how things worked. And in case any of you are thinking about following California and dismantling your public university system, we got all the training at UC Berkeley. Your [actually your parents’] education tax dollars were at work solving environmental problems and serving society in unexpected ways.)

One difference today is that people have in some cases changed the name of RECs to certificates or some other name, which enables them to take some ownership, which is fine, as long as the program works.

Question 5: How do you see RECs shaping the future of the energy industry and, in a broader context, mitigating our effects on the environment?

RECs are a crucial stepping stone to greenhouse gas markets. They are a demonstration that major corporations as well as small entrepreneurs can successfully participate in markets created by regulations to solve social problems. They have allowed conservative political leaders to get behind GHG trading, as well as environmentalists.

Interview: Program Officer of Maine PowerOptions

It was purely by accident that I arrived at the website of Maine PowerOptions when researching about a similar topic for the Blog. However, the more I read about the organization, the more interested I grew with it until I simply had to get in touch with its Program Officer, Mr. Jonathan Youde. Our discussion covered a whole range of topics; from the organization's relationship with its sponsors, suppliers and participants to the services and savings the aggregation model provides. I came away from our discussion excited about their efforts but more importantly convinced that the aggregation model Maine PowerOptions uses could be a model/service worth replicating across the country.

To learn more about Maine PowerOptions visit them at: http://www.mainepoweroptions.org

Question 1: What is Maine PowerOptions?

Maine PowerOptions is a program jointly funded and operated by the Maine Municipal Bond Bank (MMBB) and by the Maine Health and Higher Educational Facilities Authority (MHHEFA), working since 1998 to promote aggregated purchasing opportunities for governmental units and 501c non-profits throughout the State of Maine, including Municipalities, Schools, Water & Sewer districts and other not-for profit organizations. Maine PowerOptions (MPO) keeps members informed of key developments, pricing opportunities, Maine Public Utilities Commission rulings, default pricing and market trends. MPO provides competitive electricity supply pricing throughout the year for members consideration. Often the organizations that come to Maine PowerOptions need to make decisions about their energy costs and/or need an understanding of the “whole” energy picture. We try to give them as much information as possible to empower them in making the right decisions as far as their energy needs are concerned. The one-time membership fee for joining is a scaled-fee dependent upon annual electricity consumption, for those using less than $25,000 of electricity the fee is waived.

Question 2: What is your relationship with The Maine Municipal Bond Bank?

We are co-sponsored by The Maine Municipal Bond Bank and by The Maine Health and Higher Education Authority. Their sponsorship allows Maine PowerOptions to provide valuable information to members and to operate our Electricity and Oil program at no cost to members.

Question 3: How many members participate in Maine PowerOptions and what are some of the underlying characteristics members need to possess to work with Maine PowerOptions?

Currently we have about 752 members of which 270 are currently contracted in our electricity program and 110 members have current Fuel Oil contracts, while others receive informational updates from us. As a member, they will receive information regarding Maine’s Energy markets. In terms of underlying characteristics, participants can work with us to contract their Medium or large electricity accounts in Central Maine Power or Bangor Hydro territories. Our members have generally good credit ratings and consistent load profiles, as an aggregation we present an attractive group for Suppliers.

Question 4: Could you briefly explain Maine Power Option's aggregation model and how fruitful has this model been in terms of price negotiation with suppliers and savings for participants?

Maine PowerOptions goal is to bring together all its members regardless of size to combine the group purchasing power and influence into one group. Using this model, we have been able to create successful competitive request for bids and the winning bidder is required to provide competitive pricing opportunities for all our members. Members can then choose individual options based upon price, contract term and timing of the offer. Market timing can play a major role in competitive price and each member can choose when they wish to participate, additionally the choice of contract term allows them to fix their electricity supply rate for one, two or three years. Our estimate is that since our inception the electricity aggregation program has saved participants approximately $15 million dollars when compared to the Standard Offer.

Question 5: Is electricity the only commodity that Maine PowerOptions focuses on?

Our current primary focus is on Electricity and Fuel Oils. We operate a competitive bid process for the procurement of Propane, #2 Heating Oil, Diesel and Gasoline, members submit their fuel needs and MPO provides registered suppliers with that information. Bids are submitted and returned to members who can then choose to accept or reject by location. Fuel Oils procurement has fewer regulations and is more straightforward. Options offered to members are either fixed or index-linked price and rarely exceed one year. There are very few if any Fuel Suppliers who serve the entire State, this fact prevents MPO from using the same group-purchasing model as for Electricity. The competitive bid process gives all Suppliers large or small equal opportunity to compete on any location.

Question 6: How much electricity and fuel oil does Maine PowerOptions work to supply to its members at any given time and does Maine PowerOptions have a commodity trading division to do this?

Each offer or bid is driven by member participation, the greater the participation the greater the contracted kilowatts or gallons. The timing of each electricity offer is dependent upon market forces indicating when to provide the offer. The timing for the Fuel Oil bid is driven by participant response and by market timing. MPO does not own or trade in the Oil or Electricity markets.

Question 7: How strong is the demand for “green” electricity and does it make sense to be buying “green” power today when energy prices have fallen so dramatically?

Demand is strong but pricing tends to influence the ‘bottom-line’, the result is that those members who are requesting renewable or green options have been reduced in the last two years. There are a number of incentives and educational promotion by various groups, which will ultimately improve demand for Renewable Supply.

Question 8: What is Maine PowerOptions' relationship with Renewable Energy Certificates (RECs)?

At the request of members, we will provide REC products to fit their usage and load profile. A member can request any renewable or Green E certified product and we will add it in the form of a REC to their Supply package. REC’s allow members to purchase green energy in blocks based upon their demand, these purchases reduce their carbon footprint and reduce our dependence upon fossil fuels.

Interview: Maine's State Economist & Deputy Director of State Planning

Fairly recently, I had an opportunity to interact with Mr. Michael LeVert; Maine's State Economist and Ms. Sue Inches; Deputy Director of Maine's State Planning Office. To me, Maine has always been an interesting state because of its foresightedness in making renewable energy part of its future. It was one of the first few states that started diversifying its energy portfolio to encompass renewable sources long before it became fashionable to do so. Today, Maine continues to make strides in diversifying its energy portfolio by finding new ways to incentivise and attract developers and renewable/alternative energy generators. What is particularly surprising to me is how dedicated the movement is; from the Governor of Maine down to those involved with policy development. In interacting with Ms. Inches and Mr. LeVert, I had an opportunity to gain an insight into the matter on a personal level, and was also introduced to a more comprehensive cost-benefit analysis method that could be used to make the case for renewable energy clearer.

About Sue Inches: Sue is the Deputy Director of the State Planning Office. In that capacity, she works on legislative policy on a wide range of issues including energy, land use, natural resources, and building and energy codes.

About Michael LeVert: Michael is Maine's State Economist. He served as staff economist on the Governor's Council on Maine's Quality of Place and the University of Maine's Center for Research on Sustainable Forest's “Keeping Maine's Forests as Forests” study group. Michael manages the Economics and Demographics team and sits on the State's Revenue Forecasting Committee.

Question 1: How high on the list of competing economic priorities is the development of alternative/renewable energy for the State of Maine?

Sue Inches: This is a very high priority for the Governor. Grant programs at both the Public Utilities Commission and the Maine Technology Institute are available to help communities and businesses develop alternative energy technologies.

Question 2: Many states have been ambitiously attracting companies to locate or expand operations within their borders through various policies. What should I know about Maine if I were a business owner (small/large scale) participating in the alternative energy/renewable energy sector and looking to expand or relocate?

Sue Inches: Maine has an entrepreneurial workforce that includes expertise in machine work, and construction which applies directly to alternative and renewable energy . Maine also has a terrific quality of life, and some business incentives available.

Question 3: To what extent do energy efficiency/conservation efforts help to reduce long term energy demand for the State and how may those savings be utilized?

Sue Inches: Energy efficiency and conservation is a high priority and in addition to our regular programs, there are now federal stimulus funds to weatherize low income homes. The savings are realized by the homeowner because their heating costs are reduced. Maine Housing has also developed a database to capture data on energy and carbon saved. Their plan calls for selling the carbon savings on the voluntary market when that market becomes available. The resulting funds will be used to weatherize more homes. See the Maine State Housing Authority website for more info.

Question 4: What are non-market valuations and how might they factor into making the case for alternative/renewable energy?

Michael LeVert: Non-market valuation is a method to estimate the value of goods and services that are not traded in markets or that have prices that don’t fully reflect their economic value. For example, the economic value of, say, a cleaner, healthier ecosystem can’t be assessed by looking at market prices because there is no mechanism for which people can pay for this service. But of course a healthier environment has enormous economic value. Moreover, people are willing to pay for this service.
Non-market valuation is a collection of sophisticated and well-established techniques, usually survey based, to determine what people would be “willing-to-pay” if a market did exist. Sometimes the value that society places on these types of goods and services can be inferred from other markets – for example, the cost incurred to travel to Baxter State Park can be used to proxy the value people place on this resource above and beyond simply the gate fees; just as the premium paid to purchase a house near conservation land is an estimate of the value of living near open space. Other times, hypothetical markets must be created to infer the economic value of non-market goods and services.
Anytime a cost-benefit analysis is done, it’s essential that all costs and benefits are accounted for, including non-market ones. This is particularly relevant when making the case for investing in renewable or alternative forms of energy. Comparing alternative sources of energy to traditional ones, for example crude oil, goes beyond just price per kilowatt hour. The effects of energy production on the air we breathe, the water we drink, on our climate in general, and on our quality of life should be included too. Many of these things don’t have markets and are therefore challenging to estimate. Non-market valuation, by examining these aspects of energy production and use, has the potential to play a vital role in making informed decisions about the types of energy we use.
The tendency of people to incorporate non-market values in their consumption decisions is growing. Just look at the number of hybrid car owners. The premium paid for a hybrid coupled with today’s relatively cheap ($2 gallon) gas is indication that hybrid buyers are willing to look beyond the market price when choosing which vehicle to buy.

Question 5: Based on your personal experience, what is one energy saving/conservation tip you could offer to readers?

Sue Inches: Close your chimney flue and woodstove air intakes when not in use. A chimney sucks heat right out of your house. Its like an open window except worse because convection draws the warm up and out of your house. If you stand on the roof with your face looking down the chimney, you’ll feel a draft like a giant hair dryer.