Coal-nundrum and Ex-gas-peration 15

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1. 

   randino Posted 9:30 am
   08 Jul 2009

   Ideology trumps reason every time.  Why is it that corporate america hates the very ideal of a public health system when it could save them a bundle in paying for private medical plans?  Because they have a greater loyalty to the ideology of free market fundamentalism than they do their own bottom lines.  Reason is a mirage, a collective delusion that plays little to no role in human events. Randy Cunningham 

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2. 

   Sean Casten Posted 10:14 am
   08 Jul 2009

   The efficiency question is easy.  Because under current regulations, utilities must pass all of their costs along to their customers.  Ergo, saving costs through efficiency creates exactly zero benefit to utility shareholders.Re: gas, in my experience they are broadly supportive of climate legislation, for exactly the reasons you mention.  But the specifics are problematic.  It's one thing to support climate legislation that gives gas a differential advantage over coal, but another to support climate legislation (like Lieberman-Warner) that imposes a tax on gas imports and LNG terminals which cannot readily be passed along to customers.  The gas industry folks I know are subtle enough to appreciate those differences, and push accordingly - but saying they don't like "climate legislation" is sort of like saying grandpa doesn't like people.  They like some climate legislation...

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3. 

   Auden Schendler Posted 11:30 am
   08 Jul 2009

   Sean:Good point on natural gas. On the efficiency front, though, I half agree, but it's not clear to me that the utilities are better off NOT doing efficiency even if they're not decoupled--ie, if a utility has a choice between a new billion dollar coal power plant that carries lots of risk, or several hundred million in DSM programs that avoid that huge expense and risk, then it does have benefit to them above and beyond the climate issue.

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   1. 

      Sean Casten Posted 12:16 pm
      08 Jul 2009

      Auden,You're right in a world where investors make rational calculations of cost and risk.  Unfortunately, that's not the world of utilities.  A utility investing in a coal plant effectively gets to shift all that risk onto the rate payer as soon as the commission declares the investment "prudent".  Indeed, there is 100 years of judicial history of utilities facing insolvency due to lousy investments who got bailed out by the public - PG&E in CA in the early part of this decade being only the most recent example. There is a close analogy to the current financial crisis, wherein Freddie Mac & Fannie Mae got hugely over-levered, in large part because lenders assumed that the government would never let them fail.  Lenders were right, as they got bailed out, and it will be a long time before we've resolved the consequences of banking managers who are insulated from their risks (and apparently, longer still until we actually try to fix the problem.)  This is the same dynamic in utility-land by virtue of ratepayer-guaranteed capital recovery.  So when all risks look essentially identical, the bias comes towards maximizing shareholder gains - a function both of returns and absolute investment (e.g., a 15% return on a million dollar investment pays a bigger annuity to shareholders than a 30% return on a thousand dollar investment.)Note that decoupling doesn't solve this particular problem - it gets fixed only if we undo the regualted utility model.  To be sure, decoupling done right may give a way for utilities to profit from efficiiency which they don't currently have - but it doesn't, on it's own, cause utilities to suddenly think of risk in the way that you and I do.

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4. 

   TheAK Posted 9:06 pm
   08 Jul 2009

   Washington Public Power Supply's $2.4 billion default due to abandoned nuclear is STILL the LARGEST municipal default in the history of the U.S. -- and it was in the 1980's.Natural gas emits another 25% of GHGs from transportation and production (see NREL study by Pamela Spath).  And how "clean" is drilling and frac'ing and ruining the water supply?Why don't the utilities use existing natural gas and coal plants and hybridize with Concentrating Solar Power or wind?  Re: efficiency programs - I believe only one state (Vermont) had the courage to put in place third party energy efficiency (EE) at a MUCH lower cost than the utilities.  The utilities only care about "cost recovery" -- they don't seem to get it on climate change.The utilities largely created this climate change mess, and I doubt they'll get us out of it. We need REAL competition in the market place, so that small companies can compete.  Instead we get bloated utilities with even more bloated executives who care more about multi-million dollar salaries than solving serious energy issues.  The average utility CEO makes $6 million/year. 

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   1. 

      Sean Casten Posted 6:02 am
      09 Jul 2009

      Theak,You're absolutely right on nuclear.  Public Service of NH was - if memory serves - the biggest corporate bankruptcy in US history (or very close to it) when they went bankrupt due to Seabrook nuclear overruns.  But that still doesn't change the misaligned risk/reward innate to regulated utilties - it simply shows that at some point, the public loses their tolerance to keep throwing money at construction projects that aren't generating power... something nuclear has uniquely been able to do.  But for other generating assets, as long as they're built, utilites get rates that guarantee recovery.  If you build a solar panel on your house and the revenue doesn't recover the capital, it's your loss.  But if a utility builds the same project, they get to raise their rates to guarantee recovery of capital.  It's a sweet deal if you can get it.  And while I share your scorn at big utility CEO salaries, it bears noting that even though a utility CEO is no good at running a "real" business subject to competition, they are damn good at running their regulators.  Which is the way they make money... 

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5. 

   TheAK Posted 7:11 am
   09 Jul 2009

   I'm sure you know the story of Samuel Insull and how he and his cronies "created" the regulatory system we have today.  If I remember correctly, it was in the early part of the 1900's when there was a battle royale between the private power companies and the munis.  Insull came up with the regulatory system as a way that appeared public, knowing full well that it was easy to affect the regulatory system.  In the couple of states that I've worked in -- and as someone fairly new to the PUC process -- I can't believe how FEW people really know what's going on, and how hard it is to get basic, critical information.  It's a fight all the way.  (I was amused by the recent decision in WV in the SWEPCO case where the judge admonished the PUC staff and attorneys for basically doing nothing.  Unfortunately, that's what we have.  A system with very little transparency.How do we change this?  What do we need to do to open up the process and make this critical information public?  How do we implement True Cost Accounting, where we look at ALL values, including water use, effect on peak load, pollution, health costs etc?Any advice?

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6. 

   Sean Casten Posted 7:47 am
   09 Jul 2009

   <!--[if gte mso 9]><xml> Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4 </xml><![endif]--><!--[if gte mso 9]><xml> </xml><![endif]--> You're a scholar!  I've always
   maintained that anyone who really wants to understand the regulatory disaster
   that is the modern electric utility commission ought to read a biography of
   Samuel Insull. For what it's worth, my sense of
   Insull is that he wasn't necessarily a bad guy, and in many ways, we owe him a
   debt of gratitude.  After all, prior to the adaptation of the
   "regulatory compact" to electric utilities, electricity was sporadically
   available in time and geography.  The obligation to serve + monopolies +
   gov't rate setting did electrify the country, creating inordinate benefits in
   the process.  Where I think we made a wrong turn was not in granting
   Insull his requests, but rather that we granted them in perpetuity.  In
   lots of other cases (think patent law) we give businesses exclusive franchise
   rights for a finite period of time that gives them an incentive to invest
   high-risk capital without completely distorting competitive pressures. There's
   really no reason why we couldn't have applied the same model to utilities...
   but we didn't. One comment: note that Insull didn't create the regulatory
   compact, he just applied it to electricity.  Much modern utility
   regulation still harkens back to jurisprudence from cases like Munn v. Illinois
   in the 1800s - which in turn cited British common law, and continues to be
   cited as a framework for goods & services that are deemed to be too
   important to be left to the whims of a volatile market... even if the list of
   those goods & services seems to change with the years (but in each year
   presumed to be perpetually unique).  The "natural monopoly" of
   electric generation and distribution was once applied to telephones, let us
   recall.  And before that to grain elevators.  Quoting Munn (wherein
   the Supreme Court concluded that it was in the public interest for government
   to take over a private grain elevator and set prices going forward):   “… it has been customary in England from time immemorial,
   and in this country from its first colonization, to regulate ferries, common
   carriers, hackmen, bakers, millers, wharfingers, innkeepers, &c., and in so
   doing to fix a maximum of charge to be made for service rendered, accommodations
   furnished, and articles sold… Congress, in 1820 conferred power upon the city
   of Washington ‘to regulate… the rates of wharfage at private wharves… the
   sweeping of chimneys, and to fix the rates of fees therefore… and the weight
   and quality of bread”   Times change, eh?  No
   matter how much regulated utilities might want us to believe otherwise – I presume
   none of us laments the the demise of our state chimney sweep and breadweight
   commissions! 

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7. 

   Auden Schendler Posted 7:49 am
   09 Jul 2009

   Theak:In Colorado, at least, thanks to the Governor's appointments, the PUC has started an effort to establish regulatory oversight over Tristate , one of the bigger utilties in the region. This is a huge step towards what you describe. Right now, Tristate makes decisions that affect us all, but they do it in private. And they are heavily coal dependent. The PUC wants to daylight their decisionmaking process. The result would be better decsions for society, not just for Tristate, and there are prior examples in CO where PUC involvement led to cleaner, more diversified power. That said, PUC oversight is not a done deal with Tristate, and the Governor recently, and oddly, made amends to the utility, which in turn announced plans for a 30MW renewable energy project. To me, this just shows how well PUC oversight works--even the suggestion of it drove change! Your point is well taken though, about the cluelessness of the public, and the press, regarding this issue. (One exception is the Pulitzer level reporting on Colorado utility issues by David Williams at the Colorado Independent.)  I often tell people that the most important thing they can do is run for their utility board. I usually have to shake them awake after I say that.Auden

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   1. 

      Sean Casten Posted 11:58 am
      10 Jul 2009

      I sure hope CO is getting better, but they've historically been one of the more utility-leaning commissions in the country.  They have long had one of the single worst rates for PURPA qualifying facilities in the country.  (Recall that PURPA was the 1978 law that said that utilities had to enter into long-term contracts with "qualifying facilities" - cogen, biomass, small hydro, etc. - that were set based on the utility's avoided cost of power.)  Different states set different rules for how that "avoided cost" calculus should be done, but CO uniquely came to the conclusion that PSCO's avoided rate was the fuel cost of the coal at their most efficient coal plant.  So if you wanted to invest capital in a cleaner, more efficient, more economic plant in the state, the best you could ever hope for was to get paid a rate in the 1 - 2 cent/kWh range - even as PSCO was getting all sorts of other capital approved with full, rate-payer backed capital recovery.To the best of my knowledge, all those tariffs are still on the books. 

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8. 

   Nemo Posted 8:38 pm
   09 Jul 2009

   California's PUC might be a better model to look at regarding energy efficiency:http://www.californiaenergyefficiency.com/index.shtml"The Plan advances a solid framework that incorporates energy efficiency into the standard for operating in California—for utilities, businesses, and consumers.
   It includes four “Big Bold strategies” strategies for significant energy-savings:
   All new residential construction in California will be zero net energy by 2020:
   
   All new commercial construction in California will be zero net energy by 2030
   
   The Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped to ensure optimal equipment performance; and
   
   All eligible low-income homes will be energy-efficient by 2020"

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9. 

   TheAK Posted 11:42 am
   10 Jul 2009

   I live in Colorado, where Xcel Energy's revenues are $2.4 billion/year.  In 2008, Xcel spent over $1 billion on coal and natural gas - WOW.  Plus there are costs for chemicals and pollution control devices etc.  It's tragic that we're spending all this money on fossil fuels while pretending that the fossil fuels have zero externalities.TVA estimates it will spend $1 billion to "clean up" the coal ash from the spill at the Kingston coal plant.  How much will we spend in the future on coal ash "clean-up" and how do you "clean it up" exactly?  (Perhaps you've seen the campaign "we don't want to be your ash-hole" from a woman in AL where TVA is dumping the coal ash.)

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10. 

    TheAK Posted 11:45 am
    10 Jul 2009

    Thanks for your insightful comments and the lessons, Auden and Sean.  You are both my heroes out there, helping those of us new to this understand the information and gain perspective.

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11. 

    TheAK Posted 11:46 am
    10 Jul 2009

    Comment: natural gas emits half as much CO2 when burned, but transportation and production add another 25% per NREL study by Pamela Spath.

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    1. 

       Sean Casten Posted 12:07 pm
       10 Jul 2009

       Theak,Two comments:1. Transportation and production do indeed add fuel chain considerations, but that's also true for coal; one can't consider one without the other.  It's been a long time since I did the analysis, but my recollection is that pipelines are less energy intensive per unit of fuel moved than rail, which is the predominant mode of transport for coal.  If I dug through old spreadsheets long enough, I could come up with the exact comparison... In any event though, neither fuel exists naturally in a pile next to the power plant, so transportation considerations need to be applied to both.2. An interesting wrinkle on comparative CO2 emissions from coal and natural gas plants is that you have to take efficiencies into account.  Per DOE/EIA data, the fuel efficiency of our natural gas fleet has been steadily increasing over the last 10 years while the fuel efficiency of the coal fleet has been steadily decreasing.  See comparative chart here.  On an equivalent efficiency basis, it's about right to presume that natural gas (at the plant gate) is 50% as CO2-intensive as coal.  But since efficiencies aren't equivalent, the gas advantage is considerably higher - something closer to 33% of the CO2-intensivity of coal, and getting lower by the year as the coal fleet gets ever less efficient.At the risk of making too much of the transportation metaphor, we need to get this particular train re-routed...

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