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In Washington and States, Coal Battle Intensifies
Electricity Currents A survey of trends and insights in electricity restructuring
In Washington and States, Coal Battle Intensifies In the ongoing battle between the proponents and opponents of coal, the former emphasize the cost of not using coal while the latter focus on broader and longer-term issues, including the environmental benefits of moving on to other energy sources. They also point out that alternatives to coal, while more expensive if narrowly defined, may bring other benefits, including well-paying jobs in other sectors of the economy. Replacing low-paying coal mining jobs with higher-paying ones installing windmills might not be a bad tradeoff. But it is hard to imagine much support for such a scheme in West Virginia, where job losses are likely to occur. If short-term cost – excluding environmental externalities – is the only criteria, conventional coal wins nearly every time, practically everywhere. Assuming a continuation of business-as-usual environmental policies in the U.S. would lead to the share of coal in electricity generation rising from the current 49 percent to 54 percent by 2030, according to Energy Information Administration (EIA) projections in the 2008 Annual Energy Outlook reference case. As far as the coal lobby is concerned, the more the merrier. The environmentalists, on the other hand, are trying their best to stop or delay the construction of coal-fired plants while awaiting comprehensive carbon legislation
Continued on page 9 Stop, Delay or Frustrate until Congress Acts: Proposed Coal-Fired Plants in Michigan That Have Drawn Environmentalists’ Opposition 750 MW, $1.9 B joint project by LS Power and Dynegy, Midland County 800 MW, $2 B project by Consumers Energy, Bay County 300-1,000 MW project by Wolverine Power Marketing Cooperative, Presque Isle County 10 MW coal/wood boiler at N. Michigan Univ., Marquette County 78 MW coal boiler at Holland Board of Public Works, Allegan County Source: Associated Press, April 15, 2008
May 2008 Vol. 21, Issue 4
In Electricity Currents This Month: In Washington and States, Coal Battle Intensifies . . . . . . . . . . . . . . . . . . . . . . . . Blackouts or Nukes: Which Do You Prefer? . . . Want More Wind? Then Build More Transmission Lines . . . . . . . . . . . . . . . . . . CPUC Pushes Jurisdiction to the ‘Breaking Point’ with Surcharge Plan . . . . . Bottlenecks Aggravate Rising Construction Costs . . . . . . . . . . . . . . . . . .
5 5 6 6 7
Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
Blackouts or Nukes: Which Do You Prefer? With 21 GW of capacity, Germany’s 17 operating nuclear plants generate roughly one-fourth of its electricity. Under a political agreement never favored by the power companies, all these plants are to be shut down by 2021 while there is a moratorium on building new ones. German Chancellor Angela Merkel is in favor of extending their operation and building new ones – partly to reduce the country’s carbon emissions, but also to reduce German dependence on coal and imported natural gas from Russia. But she is bound by the agreement – a thorny political issue. Mindful of her dilemma, power industry executives use every opportunity they get to 1040-6190/$–see front matter
5
mention primary fuels and commodities. In 2006, China reportedly built some 90 GW of new capacity, mostly coal. India, facing chronic power shortages, has announced plans to add 22 GW of new capacity in the next five years followed by another 70 GW in the following five years. Since there are a limited number of suppliers serving the global market, bottlenecks have appeared, prolonging waiting times for deliveries of critical components and parts. Developers are already complaining about significant delays in construction times for power plants. A relatively trivial combined-cycle plant that would have taken a mere two years to build now takes three or longer and costs substantially more. Rising Utility Construction Costs, a September 2007 report by The Brattle Group for the Edison Electric Institute (EEI), documents recent increases in raw material and commodity costs, such as steel
and cement. Copper wires, for example, have quadrupled in price in the recent past, assuming you can get what you need. The EEI study points out to a ‘‘growing backlog of project contracts at large engineering, procurement and construction (EPC) firms and speculates that future bids may be less cost competitive as ‘‘new construction projects are added to the queue.’’ Cost of steam generation plants, transmission, and distribution rose by 25 to 35 percent from January 2004 to January 2007; gas turbine prices rose 17 percent in 2006 alone, according to the same study. The impact on baseload units such as coal or nuclear plants? Add $20 per MWh to projections. And that is based on data up to 2007. One must presume that things have gotten worse since. & doi:/10.1016/j.tej.2008.05.007
In Washington and States, Coal Battle Intensifies Continued from page 5 from Congress and/or more stringent regulations from the Environmental Protection Agency (EPA) under a new administration after the November 2008 elections. This explains the stiff opposition facing developers of coal-fired plants across the country. Joe Lucas, director of Americans for Balanced Energy Choices, an advocacy group based in Alexandria, Va., likes to remind anyone who is willing to listen that, ‘‘We can’t meet our future energy needs without coal,’’ adding, ‘‘It’s a matter of how we use it. We will use it cleanly.’’ Environmentalists are not buying it. ‘‘They are trying to mislead the public,’’ contends Bruce Nilles, who runs Sierra Club’s national anti-coal campaign, adding, ‘‘They run around saying ‘clean’ like they have created some new version of coal.’’ The public is caught in the cross-fire, not sure which side to believe. The state of Michigan is one of many debating how it should meet its future electricity demand growth. May 2008 Vol. 21, Issue 4
With 19 coal plants already operating in the state, a coalition of environmental groups is fighting proposals for five new plants that need permits from the state’s Department of Environmental Quality. The environmentalists point out that conventional coal-fired plants are a Nineteenth Century technology currently pushed by the power industry to be built before Congress enacts carbon emission regulations. ‘‘If you want to pay more (for electricity), you don’t need coal,’’ counters Lynne Mackey, director of regulatory policy for LS Power, according to the Associated Press. ‘‘But this state wants to compete for jobs. This state has a bigger plan than just achieving a single-minded environmental goal.’’ Nowhere have the battle lines been more tightly drawn than in Kansas, where Rod Bremby, a little-known, unelected state official, decided last October, more or less unilaterally, to decline the permit for two proposed coal-fired plants, citing 1040-6190/$–see front matter
9
concerns about global warming – a precedent-setting case in the U.S. The state legislature, supported by the coal interest groups, subsequently passed a law reversing Bremby’s decision and essentially stripping him of all his powers. Kansas Gov. Kathleen Sebelius, siding with her secretary of health and environment, vetoed the bill in March. She has subsequently vetoed a second bill with similar language. The Associated Press in mid-April reported that lobbyists in Kansas had spent nearly $800,000 in support of the $3.6 billion Sunflower Electric Power Corp.’s project. While that may sound trivial by Washington standards, it is an unheard-of sum for a relatively small state such as Kansas. Steve Miller, a Sunflower spokesman, was quoted in the AP story saying, ‘‘I think it’s the most efficient and effective way to get our message out to people,’’ adding, ‘‘That message . . . ultimately translates into input to the legislators.’’ Outgunned but undaunted, the opposition has not given up the fight. ‘‘We’ve always known that we’re the little guy here in this fight,’’ Chris Cardinal, an organizer for the Great Plains Alliance for Clean Energy, was quoted as saying. ‘‘That’s why we had to take it out to the people.’’ Cardinal likes to play the David vs. Goliath card. ‘‘We don’t need hot air from lawmakers,’’ he said. ‘‘We need clean air for our children’s future.’’ That message apparently resonates with some Kansans, as well as people in other parts of the country. Aware of the uphill battle it faces, the coal lobby has intensified its public relations campaign with a $45 million budget from coal-burning utilities, mining companies, and others. In April, two separate lobbying arms of the industry were merged into the American Coalition for Clean Coal Electricity (ACCCE). The new name, while a mouthful, is more meaningful and recognizable. The previous two groups, founded in 1992 and 2000, respectively, called Americans for Balanced Energy Choices and
10
1040-6190/$–see front matter
the Center for Energy and Economic Development, avoided the word coal in their names – not a good idea if you want to promote a clean coal image. ACCCE’s Joe Lucas noted, ‘‘we recognize the next challenge is CO2.’’ Adding to coal’s woes, the Rural Utility Service (RUS), an obscure branch of the U.S. Department of Agriculture, announced in March that it will not fund new coal plants in 2008-09. RUS provides low-cost financing to rural electric cooperatives and has financed more than $1.3 billion in new plant construction since 2001. That was an outcome of a lawsuit filed in July 2007 by Earthjustice, an equally obscure anti-coal group, challenging RUS financing of a $600 million coal-fired power plant near Great Falls, Mont., pointing out that the agency had failed to consider the global warming implications of its decision. RUS, not wanting to get dragged into a protracted legal battle, decided to walk away from the case – exactly what Earthjustice wanted. ‘‘This is a big decision. It says new coal plants can’t go to the federal government for money, at least for the next couple years, and these are make-or-break times to get these plants built,’’ Earthjustice attorney Abigail Dillen told the Environmental New Service. The decision affects at least five other proposed coal plants in Kentucky, Illinois, Arkansas, Texas, and Missouri, according to ENS. Two Congressmen, Henry Waxman (D., Calif.), who chairs the House Government Oversight Committee, and Jim Cooper (D., Tenn.), were pleased. Citing the Montana plant and others, they said in a prepared statement, ‘‘We are concerned that financing these huge new sources of greenhouse gas emissions puts taxpayer dollars at risk, as well as undermines the U.S. government’s efforts to address global climate change by reducing GHG emissions.’’ RUS appears to have registered the message. & doi:/10.1016/j.tej.2008.05.003
The Electricity Journal
In Washington and States, Coal Battle Intensifies In the ongoing battle between the proponents and opponents of coal, the former emphasize the cost of not using coal while the latter focus on broader and longer-term issues, including the environmental benefits of moving on to other energy sources. They also point out that alternatives to coal, while more expensive if narrowly defined, may bring other benefits, including well-paying jobs in other sectors of the economy. Replacing low-paying coal mining jobs with higher-paying ones installing windmills might not be a bad tradeoff. But it is hard to imagine much support for such a scheme in West Virginia, where job losses are likely to occur. If short-term cost – excluding environmental externalities – is the only criteria, conventional coal wins nearly every time, practically everywhere. Assuming a continuation of business-as-usual environmental policies in the U.S. would lead to the share of coal in electricity generation rising from the current 49 percent to 54 percent by 2030, according to Energy Information Administration (EIA) projections in the 2008 Annual Energy Outlook reference case. As far as the coal lobby is concerned, the more the merrier. The environmentalists, on the other hand, are trying their best to stop or delay the construction of coal-fired plants while awaiting comprehensive carbon legislation
Continued on page 9 Stop, Delay or Frustrate until Congress Acts: Proposed Coal-Fired Plants in Michigan That Have Drawn Environmentalists’ Opposition 750 MW, $1.9 B joint project by LS Power and Dynegy, Midland County 800 MW, $2 B project by Consumers Energy, Bay County 300-1,000 MW project by Wolverine Power Marketing Cooperative, Presque Isle County 10 MW coal/wood boiler at N. Michigan Univ., Marquette County 78 MW coal boiler at Holland Board of Public Works, Allegan County Source: Associated Press, April 15, 2008
May 2008 Vol. 21, Issue 4
In Electricity Currents This Month: In Washington and States, Coal Battle Intensifies . . . . . . . . . . . . . . . . . . . . . . . . Blackouts or Nukes: Which Do You Prefer? . . . Want More Wind? Then Build More Transmission Lines . . . . . . . . . . . . . . . . . . CPUC Pushes Jurisdiction to the ‘Breaking Point’ with Surcharge Plan . . . . . Bottlenecks Aggravate Rising Construction Costs . . . . . . . . . . . . . . . . . .
5 5 6 6 7
Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
Blackouts or Nukes: Which Do You Prefer? With 21 GW of capacity, Germany’s 17 operating nuclear plants generate roughly one-fourth of its electricity. Under a political agreement never favored by the power companies, all these plants are to be shut down by 2021 while there is a moratorium on building new ones. German Chancellor Angela Merkel is in favor of extending their operation and building new ones – partly to reduce the country’s carbon emissions, but also to reduce German dependence on coal and imported natural gas from Russia. But she is bound by the agreement – a thorny political issue. Mindful of her dilemma, power industry executives use every opportunity they get to 1040-6190/$–see front matter
5
mention primary fuels and commodities. In 2006, China reportedly built some 90 GW of new capacity, mostly coal. India, facing chronic power shortages, has announced plans to add 22 GW of new capacity in the next five years followed by another 70 GW in the following five years. Since there are a limited number of suppliers serving the global market, bottlenecks have appeared, prolonging waiting times for deliveries of critical components and parts. Developers are already complaining about significant delays in construction times for power plants. A relatively trivial combined-cycle plant that would have taken a mere two years to build now takes three or longer and costs substantially more. Rising Utility Construction Costs, a September 2007 report by The Brattle Group for the Edison Electric Institute (EEI), documents recent increases in raw material and commodity costs, such as steel
and cement. Copper wires, for example, have quadrupled in price in the recent past, assuming you can get what you need. The EEI study points out to a ‘‘growing backlog of project contracts at large engineering, procurement and construction (EPC) firms and speculates that future bids may be less cost competitive as ‘‘new construction projects are added to the queue.’’ Cost of steam generation plants, transmission, and distribution rose by 25 to 35 percent from January 2004 to January 2007; gas turbine prices rose 17 percent in 2006 alone, according to the same study. The impact on baseload units such as coal or nuclear plants? Add $20 per MWh to projections. And that is based on data up to 2007. One must presume that things have gotten worse since. & doi:/10.1016/j.tej.2008.05.007
In Washington and States, Coal Battle Intensifies Continued from page 5 from Congress and/or more stringent regulations from the Environmental Protection Agency (EPA) under a new administration after the November 2008 elections. This explains the stiff opposition facing developers of coal-fired plants across the country. Joe Lucas, director of Americans for Balanced Energy Choices, an advocacy group based in Alexandria, Va., likes to remind anyone who is willing to listen that, ‘‘We can’t meet our future energy needs without coal,’’ adding, ‘‘It’s a matter of how we use it. We will use it cleanly.’’ Environmentalists are not buying it. ‘‘They are trying to mislead the public,’’ contends Bruce Nilles, who runs Sierra Club’s national anti-coal campaign, adding, ‘‘They run around saying ‘clean’ like they have created some new version of coal.’’ The public is caught in the cross-fire, not sure which side to believe. The state of Michigan is one of many debating how it should meet its future electricity demand growth. May 2008 Vol. 21, Issue 4
With 19 coal plants already operating in the state, a coalition of environmental groups is fighting proposals for five new plants that need permits from the state’s Department of Environmental Quality. The environmentalists point out that conventional coal-fired plants are a Nineteenth Century technology currently pushed by the power industry to be built before Congress enacts carbon emission regulations. ‘‘If you want to pay more (for electricity), you don’t need coal,’’ counters Lynne Mackey, director of regulatory policy for LS Power, according to the Associated Press. ‘‘But this state wants to compete for jobs. This state has a bigger plan than just achieving a single-minded environmental goal.’’ Nowhere have the battle lines been more tightly drawn than in Kansas, where Rod Bremby, a little-known, unelected state official, decided last October, more or less unilaterally, to decline the permit for two proposed coal-fired plants, citing 1040-6190/$–see front matter
9
concerns about global warming – a precedent-setting case in the U.S. The state legislature, supported by the coal interest groups, subsequently passed a law reversing Bremby’s decision and essentially stripping him of all his powers. Kansas Gov. Kathleen Sebelius, siding with her secretary of health and environment, vetoed the bill in March. She has subsequently vetoed a second bill with similar language. The Associated Press in mid-April reported that lobbyists in Kansas had spent nearly $800,000 in support of the $3.6 billion Sunflower Electric Power Corp.’s project. While that may sound trivial by Washington standards, it is an unheard-of sum for a relatively small state such as Kansas. Steve Miller, a Sunflower spokesman, was quoted in the AP story saying, ‘‘I think it’s the most efficient and effective way to get our message out to people,’’ adding, ‘‘That message . . . ultimately translates into input to the legislators.’’ Outgunned but undaunted, the opposition has not given up the fight. ‘‘We’ve always known that we’re the little guy here in this fight,’’ Chris Cardinal, an organizer for the Great Plains Alliance for Clean Energy, was quoted as saying. ‘‘That’s why we had to take it out to the people.’’ Cardinal likes to play the David vs. Goliath card. ‘‘We don’t need hot air from lawmakers,’’ he said. ‘‘We need clean air for our children’s future.’’ That message apparently resonates with some Kansans, as well as people in other parts of the country. Aware of the uphill battle it faces, the coal lobby has intensified its public relations campaign with a $45 million budget from coal-burning utilities, mining companies, and others. In April, two separate lobbying arms of the industry were merged into the American Coalition for Clean Coal Electricity (ACCCE). The new name, while a mouthful, is more meaningful and recognizable. The previous two groups, founded in 1992 and 2000, respectively, called Americans for Balanced Energy Choices and
10
1040-6190/$–see front matter
the Center for Energy and Economic Development, avoided the word coal in their names – not a good idea if you want to promote a clean coal image. ACCCE’s Joe Lucas noted, ‘‘we recognize the next challenge is CO2.’’ Adding to coal’s woes, the Rural Utility Service (RUS), an obscure branch of the U.S. Department of Agriculture, announced in March that it will not fund new coal plants in 2008-09. RUS provides low-cost financing to rural electric cooperatives and has financed more than $1.3 billion in new plant construction since 2001. That was an outcome of a lawsuit filed in July 2007 by Earthjustice, an equally obscure anti-coal group, challenging RUS financing of a $600 million coal-fired power plant near Great Falls, Mont., pointing out that the agency had failed to consider the global warming implications of its decision. RUS, not wanting to get dragged into a protracted legal battle, decided to walk away from the case – exactly what Earthjustice wanted. ‘‘This is a big decision. It says new coal plants can’t go to the federal government for money, at least for the next couple years, and these are make-or-break times to get these plants built,’’ Earthjustice attorney Abigail Dillen told the Environmental New Service. The decision affects at least five other proposed coal plants in Kentucky, Illinois, Arkansas, Texas, and Missouri, according to ENS. Two Congressmen, Henry Waxman (D., Calif.), who chairs the House Government Oversight Committee, and Jim Cooper (D., Tenn.), were pleased. Citing the Montana plant and others, they said in a prepared statement, ‘‘We are concerned that financing these huge new sources of greenhouse gas emissions puts taxpayer dollars at risk, as well as undermines the U.S. government’s efforts to address global climate change by reducing GHG emissions.’’ RUS appears to have registered the message. & doi:/10.1016/j.tej.2008.05.003
The Electricity Journal