Jan
16
2018

Tough Sledding for Alaska

The Alaska Legislature resumes work today, amid much ongoing discussion of the state’s economic woes, including a $2.7 billion annual budget deficit. Important decisions lie ahead about how to stabilize the state’s finances and return to the days when Alaska’s economy hummed and people saw it as a land of opportunity.

As PACE wrote in December, raising taxes on the oil and gas industry, whether through new levies, or by removing long-standing incentives or credits, is the wrong way to address the financial quagmire. The oil and gas industry has faced over a decade of dizzying policy changes that make the long-standing fruitful government and industry partnership much harder to sustain.

H.B. 111, enacted in July 2017, removed some oil and gas tax credits last year.  Alaskans who want the state to get back on the right path by encouraging the industry to stay and expand its footprint should be watchful this session.

Signs that anything could happen abound. The legislature is being asked to consider paying for more government services by tapping the Permanent Fund for nearly $2 billion – a first since the Fund’s establishment in 1976. In December 2017, Governor Walker proposed a three-year payroll tax to raise revenue for infrastructure projects.

The heightened discussion about how to find money to pay for basic state government services means that the deliberations of a small working group becomes even more important. H.B. 111 set up a bipartisan and bicameral Oil and Gas Fiscal System Working Group, chaired by Rep. Geran Tarr and Sen. Cathy Giessel. It meets again this week, on January 18. At an organizational session in October, the members engaged in a thoughtful discussion of how to attract more oil and gas investment, especially more exploration and drilling.

As PACE observed last month, higher taxes on the oil and gas industry are clearly not the answer. The state has tried this option for over a decade, yet failed to close the gap. Instead, raising taxes on oil and gas has likely deepened the state’s fiscal woes by targeting the industry that provides or supports one-third of Alaska’s jobs.

Even though it will be tough sledding, it’s time instead for the legislature and Governor Walker to fully and honestly examine the causes of widely diverging revenues and expenditures and fashion creative and effective solutions. Lawmakers can reassure many Alaskans by demonstrating early on that the enduring partnership between the state, its citizens, and the oil and gas industry is valued and viewed as integral to creating a brighter future for all.

Jan
11
2018

PACE Continues Florida Engagement on Deregulation

On Friday, the Florida Constitution Revision Commission will once again examine deregulation of the wholesale and retail electricity markets. PACE will testify, as we did in December, to share our views and research on why deregulation doesn’t work for consumers. 

Dear Chair Thurlow-Lippisch:

Thank you for reconvening the General Provisions Committee on January 12 for a portion of the morning to further discuss Proposal 51. The Partnership for Affordable Clean Energy will appear again in order to shed light on why Florida should not enshrine complex electricity policy in its Constitution and explain why the Texas electricity market isn’t something Florida should seek to emulate.

The proposed strike-all amendment 513104 to Proposal 51 now itself makes the case for why this topic and its concepts should not be cemented in Florida’s Constitution by, in four distinct places, referring to tasks the Legislature should undertake, including in clause (c), adopting “comprehensive legislation to implement this section … which shall take effect January 1, 2023.”

Advocates for Proposal 51 who speak continuously of innovation also make the case. As electricity markets evolve, if innovation is the trend, chiseling the superstructure of wholesale and retail electricity markets into stone makes no sense. Why should Florida bind itself to a minority of U.S. states who have seen nothing better than mixed results after two decades of experimentation with organized wholesale markets and retail choice?

The Lone Star State comes up repeatedly as a model, most likely because Infinite Energy serves in parts of Texas’ deregulated markets. It and 62 other companies offer the public chances to rate their service on a scale of 1 to 5 stars. Out of the 63 companies, only 1 has 5 stars, while 2 have slightly over 4 stars. Our friends at Infinite Energy receive 3.5 stars. Thirty-seven of the 63 companies – nearly 60 percent – are rated under 3 stars. Put another way, the majority of Texas competitive retail electricity providers are poorly rated by their customers. So, while there may be choice in the Texas market, there’s not much good to choose from.

Florida should let the Lone Star State keep these 63 companies in their market to continue the deregulation experiment. If they set up shop in Florida, someone in state government will have to oversee them and ensure that Floridians are protected if the ups and downs of competition cause unsuitable business and marketing practices.

Press calls and lengthy papers continue to tout lower prices in Texas and the great benefit of building so much more generation. Prices eventually moderated in Texas, but much of the credit goes to the large, diverse and relatively young base load fleet in Texas that predated deregulation and the shale gas revolution which pushed natural gas commodity prices lower after, but not because of, deregulation.

The other major driver of lower prices is massive subsidies for construction of wind generation. These subsidies have caused overbuilding of wind generation and let artificially low-priced wind distort the market. Exposing wholesale markets to the volatility of commodity markets and subsidy policy shifts has resulted in large swings in Texas retail pricing and Texas prices are expected to, once again, swing back upward in the coming months. Whether Texas can soften those swings is an important lesson to learn before deeming the Texas experiment a success.

It is also important to note that market swings and distortions have become so drastic that Texas has lost traditional baseload plants, and new gas plants have not materialized, so Texas may not have enough cushion in its generation fleet to make it through a prolonged hot summer or other lengthy weather events. Just last month, Texas officials notified the public that this cushion had been cut in half since May of last year and is now far lower than what is recommended by the North American Electric Reliability Corporation (NERC) or Texas’ own Electric Reliability Council of Texas (ERCOT).

In the latter half of the 19th century, many southeasterners left their homes, placing the simple legend “GTT” on their front doors to let their families know they had Gone to Texas to seek better fortunes. Now, for-profit energy marketers have written “GTF” on their front doors. However, the citizens of Florida don’t have to open their doors or their wallets, and the Constitution Revision Commission should not force the issue.

Thank you again for creating a short forum tomorrow to discuss these critical issues.

Sincerely,

 

Laura M. Schepis

Executive Director

cc:        CRC Members

Jan
09
2018

Baby, It's Cold Outside

The great majority of U.S. citizens east of the Mississippi have engaged in popular January 2018 conversations – first, “it is so, so [insert profanity of choice] cold outside.” In the greater D.C. metropolitan area, that is quickly followed by “why are the [choose another profanity] schools closed AGAIN?” Involuntary confinement to home offices has allowed energy policy observers to freely opine on the impacts of winter storms and the deep-freeze. Articles and blogs are piling up like … 

While “Deep Freeze 2018” (there isn’t yet a catchy “Polar Vortex” phrase for this event, and “snow bomb” doesn’t apply in D.C. where less than one inch fell last week) hasn’t caused actual freezing of pipelines as seen in 2014, it has once again highlighted some fundamental truths. A diverse fuel mix is incredibly important to keeping lights and heat going. Intermittent renewable sources that depend upon ideal weather conditions cannot get the job done alone, especially given the current state of storage technology and the transmission grid.

Reviewing triple-digit spot gas prices over the weekend inspired me to take my daughter and her friends to “The Last Jedi” and buy extra-large popcorns as it seemed less expensive than sitting inside another day with two gas fireplaces running. I don’t have dual-fuel fireplaces and so cannot emulate some of the power plants which burned wood waste to make it through (thereby adding to renewable energy’s share of the Deep Freeze power mix).

In late December, analysts at Bloomberg New Energy Finance noted that natural gas prices had crept up to $18/mm BTU, already making coal more economical to run. Last week, DOE’s Office of Fossil Energy reported that “coal was the leading provider of electricity for heating in the East” and that “[c]oal beat out every other form of power plant in the federally overseen PJM electricity market.”

DOE also cited Florida’s Jacksonville Energy Authority (JEA), as reporting fuel dispatch prices for natural gas plants ranging from $6.73/mm BTU to $9.59/mm BTU, while dispatch from coal-only plants showed as $2.38/mm BTU to $3.9/mm BTU. What looks like small differences in fuel prices translates to large impacts on power costs.

Deep Freeze 2018 isn’t just a “coal rules” story. Instead, it reminds us that stable baseload resources that are ready to run are still the backbone of the power grid. If we push too many coal, nuclear and natural gas plants out of the market, in crunch-time, we will rely too much on fuel oil, as occurred in ISO New England and New York last week.

Yesterday, the Federal Energy Regulatory Authority unanimously rejected DOE’s proposed “Grid Reliability and Resilience Pricing Rule” which sought to guarantee compensation for some plants that keep a robust fuel supply on-site and can respond handily in extreme situations. In the wake of Deep Freeze 2018, that surprise move may raise even more questions about what to do next time it’s this cold outside.