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All Energy Decisions Have Costs

Perhaps nowhere else is the old adage that if something “is too good to be true, it probably is” more true than in the energy sector. With highly interconnected systems, complicated cost accounting methods, and heavy, long-term capital investments, adjusting one lever in the energy sector almost always produces an unintended consequence somewhere else.

Consider the recent news from Hawaiian Electric Company, which recently announced that its customers installed a record amount of solar power last year. That is welcome news in a political climate demanding more renewable energy, right? Well, not so fast.

Customers who installed nearly 30 megawatts in nameplate capacity from solar panels have saved about $7.4 million in electricity costs. While that is good for them, the millions of dollars in lost revenue to their regulated utility would have been used to pay for a number of fixed costs such as billing, meter reading, and transmission. To make up for the shortfall, Hawaiian Electric Company is forced to raise its rates between half-a-cent and 1.7 cents per kilowatt/hour. That’s about $10 per month per customer on the high end.

You see, no electricity customer lives on an island, even if do live in Hawaii. Even customers with solar panels remain connected to the grid, taking advantage of services and infrastructure for which they don’t fully pay. That’s because Hawaiian Electric Company collects funds for these fixed costs through its power rates, which those with solar panels avoid, at least when the sun is shining. And when the sky is dark, Hawaiian Electric must stand ready to power those homes.

In other words, some in Hawaii who are able to afford expensive solar panel installations are saving money. Those who can’t are picking up the slack, paying more for services and infrastructure that all customers enjoy, but not all customers pay for. Tripling Hawaii’s residential solar capacity sounded good, but it was too good to be true. An economist might refer to the higher rates in Hawaii as an ‘externality.’ For the rest of us, especially those Hawaiian customers paying more for the same services, it’s just a raw deal.

It’s the illusion that customers who install solar panels are ‘leaving the grid,’ when they are firmly tethered to it. The same illusion that more distributed energy is good for consumer choice, when the reality is that allowing ventures such as independent solar power producers, for example, to cherry-pick profitable industrial customers is bad news for all other customers. It’s good politics, but bad economics. Great for headlines, but neglectful of the customer bottom line.

Initiatives like this are being considered in states and cities across the nation. In Georgia, for example, Senate Bill 401 runs the real risk of recreating the faulty experiment of our 50^th state. For the sake of power customers, let’s hope that policy makers consider the outcome in Hawaii and avoid making the same costly mistakes.

PACE in National Journal: Is Obama’s Blueprint Built to Last?

Late last week, the National Journal asked its panel of energy experts what the President’s State of the Union address means for the energy agenda. Among the numerous responses from across the nation was a piece by PACE Executive Director Lance Brown entitled “Obama’s Blueprint: Built to Last?” This response appears below.

Last week, President Obama’s State of the Union address touted an economic blueprint for an “America Built to Last.” But unless that blueprint includes overturning recent regulations implemented by the Environmental Protection Agency, our economy will continue to suffer. While President Obama and the EPA continue to defend new rules – like Utility MACT – consumers can look forward to higher costs and less reliability.

The president’s address also included a number of sound bites on energy, including pledges to install renewable power on federal lands and to launch new initiatives to boost renewable power use in the military branch. Instead of focusing on common-sense initiatives that will lower the price of energy for Americans, the administration stubbornly continues to pursue renewable power experiments that make little sense in the current economic reality.

According to a recent report by Bloomberg News, Spain has halted subsidies for renewable energy projects in an effort to rein in the nation’s spending. Spain was among the first nations in the world to aggressively subsidize renewable energy projects, often cited by renewable advocates in the United States as a policy model for American lawmakers. Just days prior to Spain’s announcement, the German government announced it would phase out all national subsidies for renewable power by 2017. And yet President Obama continues to position America as a leader in the “clean energy race?” Mr. President, it’s time we start learning from the mistakes of others.

We have real opportunities here at home to make American less reliant on foreign oil – opportunities that have been rejected simply for political gain. The Keystone XL is but one example. As the USA Today editorial board put it, Obama’s decision “exemplifies the continuing fecklessness of U.S. energy policy.” And yet – at the same time – the president moves forward with Arctic drilling. I applaud the administration on this decision, but it’s time to stop talking from both sides of our mouths. To reject a stable, reliable and vast source of energy that Keystone XL would provide while advocating for new energy initiatives is counterproductive and unrealistic.

If we’re going to move forward, we need energy policy based on reality rather than focus groups.

Read Brown’s response online here.

Nations Go Dark on Solar Subsidies

According to a report by Bloomberg News, Spain has halted subsidies for renewable energy projects in an effort to rein in the nation’s spending. Spain was among the first nations in the world to aggressively subsidize renewable energy projects, often cited by renewable advocates in the United States as a policy model for American lawmakers.

According to the report, “The system’s debts were racked up as revenue from state- controlled prices failed to cover the cost of delivering power.” In other words, Spain’s energy policies, heavy on renewable subsidies, created a $31 billion deficit that now plagues Spanish leaders.

Just days prior to Spain’s announcement, the German government announced its would phase out all national subsidies for renewable power by 2017. As the world’s largest market for solar panels, Germany’s announcement sent solar stocks plummeting worldwide. A report by Bloomberg News says that stocks for major Chinese solar panel manufacturers fell as much as 17% over a two-day period following the announcement. Germany’s largest solar manufacturer fell 7% on the news.

According to German Economy Minister Phillip Roesler, mounting costs tied to solar subsidies were threatening the nation’s economy. German officials expected about 3 gigawatts of solar installation in 2011, but instead saw 7.5 gigawatts. The glut of solar installation in Germany, funded heavily by taxpayer subsidies, led to the early phase out of the subsidies. The program had simply become too expensive.

While solar energy advocates fear that the subsidy pullback could create instability in the marketplace and chill demand, PACE believes that the experiences in Spain and Germany can teach us important lessons about the dangers of choosing winners and losers in the energy marketplace. Spanish taxpayers have paid dearly to make their nation a global leader in renewable energy, at a time when Spain’s unemployment rate is nearly 23%. Germany, long known for its commitment to solar power, has also generated some of the highest electricity rates in the world.

As the President continues to talk about America’s standing in the so-called “clean energy race,” policy makers should pay attention to this recent news from Spain and Germany. The entry price for the clean energy race is high. What constitutes victory, at least for consumers, is unclear at best. Those two facts alone should create serious doubt about whether heavy renewable energy subsidies should be part of our national future.

Report Says Wind Not the Answer

With nations around the world, including ours, aggressively marketing wind power as an answer to tomorrow’s energy questions, a new study should catch our attention. The study was published by Civitas, a British think tank, and cites recent research from the Netherlands published by a retired Dutch physicist.

“Wind power could actually produce more CO2 than gas and increase domestic fuel bills,” states the Civitas report, arguing that the switching on and off of backup fossil sources due to too little or too much wind supply causes more negative consequences than benefits.

“You keep having to switch these gas fired power stations on and off, whereas if you just have highly efficient modern gas turbines and let it run all the time, it will use less gas,” said Ruth Lea, an economic adviser to Arbuthnot Banking Group and the author of the Civitas report.

According to reports such as this one in The Telegraph, Britain’s government wants to build as many as 32,000 wind turbines in the next 20 years in an effort to reduce the nation’s carbon emissions. American policymakers are encouraging similar measures through taxpayer-funded subsidies for renewable power.

The report from Civitas, predictably, has its critics. What is clear, however, is that Britain’s energy policies have quickly made the nation’s power rates some of the most expensive in Europe. A recent report by PACE also detailed the ways in which Europe’s plunge into renewable power has also raised the specter of power grid instability.

Higher costs and less reliability sound like a bad bargain for consumers. Hopefully, U.S. policymakers will take the time to look at the facts of this report and judge for themselves to what extent wind power should, or even can, provide part of tomorrow’s energy solution.

PACE in National Journal: “2012: The Year of EPA Accountability?”

This week, the National Journal posed the question, “What’s in Store for 2012?” More specifically, “What energy and environment issues should President Obama and Congress focus on this year?” As part of the publication’s panel of energy and environment experts, PACE offered the following response, entitled “2012: The Year of EPA Accountability?”

“Many Americans would probably agree that the primary concern of Congress and the Administration in 2012 should be the economy. But fixing the national debt is not exclusive to cutting costs and slashing budgets; it’s also about preventing legislation and regulations that will ultimately damage the nation’s economic well-being, and limit its ability to recover from these unprecedentedly trying economic conditions. Take for example, the discreet finalization of the Utility MACT rule right before the holidays. While, on the surface, this regulation makes the simple claim that its goal is for power plants to reduce emissions of mercury within the next three years, it does not mention the damaging results of what that unrealistic and unfair timeframe will be: a cost of nearly $11 billion annually; the closure of dozens of power plants and loss of an estimated million jobs over the next decade; a serious threat to the reliability of the nation’s power grid; and a burden on consumers who will have to deal with higher power bills.”

Read PACE’s full response in the National Journal here.

U.S. Must Take Reliability Threats Seriously

Among domestic policy issues, electricity policy is unique in a number of ways. Consider that the availability of electricity, unlike fuel supplies, is almost exclusively under domestic control. International politics plays virtually no role in the price of power. Consider also that discussions about electricity are essentially conversations about physical systems. When we speak about the future of the American power grid, we are referring to a mechanical structure with real moving parts. Contrast this to more abstract policy references to a “healthcare safety net” or a “social welfare system.” The distinction should be clear.

Sadly, too many discussions about American energy policy fail to recognize this reality, pretending instead, for example, that intermittent power sources can provide continuous power or that degrading the nation’s baseload power supply (largely fossil-based today) won’t affect our power system’s ability to function as designed. The latter oversight is foolish and potentially dangerous, realizations with which Europeans, perhaps a decade ahead of the U.S. in terms of carbon policy and renewable experimentation, are beginning to come to grips.

A recent report conducted by the Emerging Risk Initiative, an effort by European risk officers, focuses on power reliability risks and reaches some troubling conclusions. The report, entitled Power Blackout Risks, finds that the risk of electrical grid failure is “generally underestimated” and that governments should “establish clear frameworks for the governance of power supply infrastructures.”

Although we are at greatest threat from blackouts due to heat waves or major storms, phenomena unlikely to change, the report also finds that the volatility of renewable power supplies also pose a new threat. Especially in places such as Europe with aggressive outlays of renewable power, the intermittency of solar and wind power can make grids more vulnerable to blackouts.

“Not only may a scarcity of electricity result in a power blackout,” the report states, “but an oversupply can also lead to grid instabilities as they alter the frequency within the network.

Maintaining uninterrupted power supply is not just a matter of convenience. As the report finds, blackouts have huge ripples through economic systems, disrupting supply chains and halting production altogether in major industries. Blackouts can also put lives at risk, presenting immediate danger to vulnerable populations, in contrast to the vague “premature deaths” often cited by official cost-benefit analyses from U.S. government agencies. Records of nearly every major blackout in history bear witness to that unfortunate truth.

Europe is beginning to grapple with the consequences of two decades of energy policy that has made electricity more expensive and more unwieldy. As some in the U.S. argue that our nation should chart a similar course, we should heed reports like this and continue to ask whether new policies will make power more or less reliable. Reliability is far too important to overlook.

Media Underreports Environmental Progress

One of the most common criticisms about the public discourse on U.S. energy policy is the lack of clear definitions. Some in the conversation have created a false dichotomy that electricity sources are either “clean” or “dirty,” when the truth is that all energy sources have pros and cons. Others speak of “renewable power,” but exclude sources like hydropower. Perhaps most baffling is the term “green,” a broad label that can include everything from power sources to energy efficiency efforts to conservation to recycling.

Common among all of these terms is a lack of clear consensus about what they mean. America’s energy discourse has become an exercise in Orwellianism, with words losing their meaning and dialogue dissolving into parsed phrasing that informs no one, especially the public.

Yesterday, the Green Resource Center and Bama Environmental News recently released its 2011 Green Progress Report, a clearinghouse for Alabama’s environmental progress that lists dozens of important projects taking place across the state. These range from the oil spill response along the Gulf Coast to a conservation program that pays hunters for venison donated to needy families. In this context, the term “green” is a broad brush.

On the heels of this report, the Montgomery Advertiser editorialized on Alabama’s environmental progress, stating that it is “clear that Alabama has a long, long way to go before it can lay claim to being among the greener states in the nation.” The Advertiser editorial also referred to a Forbes survey of the “greenest” states in the U.S., in which Alabama ranked a lowly 48^th. However, that survey was conducted in 2007, hardly a timely snapshot.

The Green Resource Center and Bama Environmental News are solid institutions run by good people. Highlighting projects that make Alabama a better and cleaner place is worthy of time and effort, and deserves newspaper ink.

What PACE has argued is that media reporting and commentary on environmental progress has overlooked glaring improvements in power sector emissions, leading the public to believe that American air is dirtier than ever, when the exact opposite is true. EPA’s own statistics show that emissions of SO2 fell 71% from 1980 to 2010, from a high of more than 17 million tons to just over 5 million tons, and emissions of NOx fell almost as much, from a 1997 high of 6 million tons to just 2 million tons in 2010, for a total reduction of 66% during that nearly decade-and-a-half stretch.

Reducing America’s poverty rate by 71% would be landmark news. The media would fall over themselves to report a 66% drop in crime. PACE challenges the media to give the reduction of major emissions the attention it deserves.

PACE in National Journal: EPA Disregards Facts, Ignores Recent Improvements

The National Journal this week posed the question to its panel of energy experts, “What are the economic, health and political significance of President Obama’s mercury standards for power plants?” Furthermore, “What are the factors that EPA should consider when implementing the rule? What are the longer term implications of this rule in terms of both public health and the economy? What, if anything, should Congress do in reaction to this rule?”

In response, PACE Executive Director Lance Brown submitted the following response, which was published on December 19th. The full text of the response appears below.

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Considering all of the troubling information that has been brought to light since the introduction of Utility MACT, it is incredibly discouraging that the EPA moved forward in finalizing the controversial rule – even though a diverse group of elected officials, federal regulators, power suppliers and grid operators have highlighted how the rule stands to put significant stress on consumers, local and national economies, and the reliability of the power grid. The EPA and the Administration have continually ignored any evidence that challenges the rule, which itself suffers from statistical errors, inaccurate technological assumptions, and inadequate economic and reliability analysis. In fact, a recent Associated Press survey found that more than “32 mostly coal-fired power plants in a dozen states will be forced to shut down and an additional 36 might have to close because of new federal air pollution regulations.”

It was recently reported that internal Federal Energy Regulatory Commission (FERC) emails to the White House illustrate FERC’s own reliability concerns created by the Utility MACT. David Kathan, a senior economist at FERC stated in an email, “I don’t think there is any value in continuing to engage EPA on the issues …EPA has indicated that these are their assumptions and have made it clear they will not change anything on reliability or gas availability in the proposed rule.” FERC actually went so far as to ask that the EPA change the notation that they had “worked closely with FERC and the DOE” on reliability concerns stemming from Utility MACT during an interagency review. It is clear that FERC agrees Utility MACT will put America’s energy security at serious risk.

In allowing the EPA to move forward in finalizing Utility MACT, the Administration is choosing to turn a blind eye to its own Executive Order issued in January 2011 stating that the regulatory system must promote economic growth, job creation, and predictability while reducing uncertainty. The EPA power-sector rules will not only cost nearly $11 billion annually, but it will also impose significant costs on consumers and on industries that depend on affordable and reliable power to remain competitive in the international marketplace. For every one job that may be created in order to comply with the rule, we expect four higher-paying energy and manufacturing jobs to be lost. That’s a loss of more than one million jobs in the next decade.

The projected benefits of Utility MACT have been way overblown by its proponents in an effort to increase support. There has not been a specific MACT rule since the Bush Administration’s Clean Air Mercury Rule, which was set aside more than six years ago. However, power-plant mercury emissions have continued to decline substantially over this period. Most of the rule’s benefits come from reducing soot emissions. Yet, those emissions are already well controlled by the Clean Air Act, so Americans can only expect a few incremental health benefits from this expensive rule. Maybe that’s why the EPA has yet to make its final rule public – or even signal when it might – drawing criticism from environment, public health and industry groups alike.

Many in Congress have recognized the need to take action against Utility MACT. Senator Jim Inhofe has filed a joint resolution disapproving the rule, an effort that I support and urge his peers to follow suit. An overturning of Utility MACT will send an important message to the EPA and the Administration. The EPA should have recognized recent emissions improvements before implementing a rule with unrealistic deadlines for compliance. The end result will restrain domestic energy, endanger jobs, and saddle consumers with higher power bills.

EPA Must Be Held Accountable for Putting Economy At Risk, Ignoring Consumers and FERC

On Friday, the EPA will finalize their controversial Utility MACT rule with an expected public announcement on Monday, December 19. Utility MACT stands to put significant stress on consumers, local and the national economies, and the reliability of the power grid. I have repeatedly highlighted these issues in the past, but these concerns have been repeatedly ignored by the EPA and Administration.

As of now, the rule remains completely unchanged from its original form, even with all the troubling information that has been brought to light since the concept was initially introduced. Just this week, it was reported that internal Federal Energy Regulatory Commission (FERC) emails to the White House illustrate FERC’s own reliability concerns created by the Utility MACT. Perhaps even more concerning is that the White House and EPA seemed to turn a deaf ear when presented the information. David Kathan, a senior economist at FERC stated in an email, “I don’t think there is any value in continuing to engage EPA on the issues …EPA has indicated that these are their assumptions and have made it clear they will not change anything on reliability or gas availability in the proposed rule.”

Kathan went on to write, “As it has done in other responses, EPA continues to make a lot of assumptions and does not directly answer anything associated with local reliability… They provide the standard response that there will be enough time and they are confident that regional processes will accommodate any local capacity deficiency problem early in the process, or they do not directly respond to the question.”

FERC actually went so far as to ask that the EPA change the notation that they had “worked closely with FERC and the DOE” on reliability concerns stemming from Utility MACT during an interagency review. It is clear that FERC agrees that if released in this current state, Utility MACT will put America’s energy security at serious risk.

Many states will also face electricity bill increases well into the double digits as a result of the rule. The current state of the national and state economies has lead families to be much more fiscally conservative, but electricity is a basic necessity. We have to heat our homes in the cold winters and cool them in the hot and humid summers. A double-digit rate increase has a significant economic effect on those households already struggling to make ends meet.

Contributing to this challenging climate is the job market. There is a shortage of jobs both available and being created for those currently unemployed. And many studies have shown that this onerous EPA rule will lead to the loss of more than one million jobs over the coming decade. For every four jobs lost as a result of this rule, only one is created. In our already fragile economy, this is simply unacceptable.

Despite all of the glaring warnings, the EPA will move forward with its unreasonable and rushed implementation of Utility MACT. The EPA has chosen time and time again to ignore the societal and economic impact that this rule will have on individuals, families, industry and electric reliability. Utility MACT will cost the industry billions of dollars, many workers will lose their jobs, and consumers will be burdened by blackouts and brownouts caused by a weakening of base-load electricity.

The EPA needs to be held accountable. It is clear that Utility MACT will have dramatic side effects that will only set America back when we need to move forward.

FERC Should Weigh In On Utility MACT Reliability Concerns

The Federal Energy Regulatory Commission (FERC) is holding a technical conference this week to gather information regarding the potential threats to electric reliability that may be posed by Utility MACT and other EPA rules. Final written submissions are due to FERC on December 9, 2011, hardly enough time for the EPA to sensibly incorporate feedback into its final work product by its December 16th deadline.

What the EPA should consider however, is that Utility MACT affects some 40 percent of base-load capacity and almost half of U.S. net generation. In fact, FERC staff analysis has found that 81 gigawatts of generating capacity is “very likely” or “likely” to be taken offline by 2018 due to coal plant retirements and downgrades resulting from the rule.

FERC Commission Phillip Moeller stated, “I’m very concerned that it becomes our problem at FERC and a serious problem over multiple years if they don’t fully understand the implications of how complicated these grids are. It’s kind of this sea of uncertainty out there.” Moeller got more specific and stated, ““It’s not that these plants can’t be retrofitted and it’s not that they might not justify the investment, but having [them] all down at the same time seriously impairs the reliability of the Midwest,”

Earlier this week, the Midwest Transmission System Operator Inc. indicated the Midwest will be “severely challenged throughout the implementation of the proposed rules” given the EPA’s compliance restrictions. MISO is one of many companies expressing concern that the EPA’s shortsightedness will strain system capacity nationwide.

Energy reliability is not just a matter of convenience for consumers, steady reliable power is integral to America’s vigilance against those who threaten our national security. Many of the utility companies facing diminished energy reliability under these rules supply power to military installations and bases. In an article in today’s edition of National Journal, the Edison Electric Institute voiced the need for a Presidential Executive Order issuing companies an exemption from certain EPA regulations, “if the President determines that the technology to implement such standard is not available and that it is in the national security interests of the United States to do so.”

The EPA has consistently shown a disregard for the facts – that their burdensome and costly rules pose significant threats to America’s energy capacity and the economy. Utility MACT alone is estimated to result in a cumulative loss of 1.65 million jobs and cost the electricity industry over $127 billion by 2020. If the EPA is not held accountable, these regulations will stunt job growth, force families to stretch their already tight budgets even further, and add to the country’s seemingly ever-escalating deficit.

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