Arkansas Electric Energy Law : Arkansas Electric Energy Lawyer & Attorney : Eric Hughes Law Firm : Wind & Solar Power, Distributed Generation : Arkadelphia, Little Rock, Pine Bluff

I recently read comments by Forrest Lucas, the owner of Lucas Oil (which has its name on the stadium where the Indianapolis Colts play), opposing the construction of a biomass generating facility in Crawford County, Indiana.  The article in the Louisville Courier-Journal by Grace Schneider quotes Mr. Lucas as saying, apropos of government-sponsored grants, property tax abatements, state incentives and federal tax credits for such facilities:

If these guys come in with their own money, it's one thing.  This is about America wasting huges sums of money. . .  This is not just about Crawford County or the state of Indiana.  It's not a good thing for the country.

which made me wonder if government (public) support for those developing industries is such a good thing.  Afterall I strongly believe, as the country at large does, that free market capitalism is best way to create national wealth and raise the standards of living for the greatest number of people.  I take from his comments that Mr. Lucas believes that, too.

But after thinking about it I concluded that public programs designed to support and encourage the development of alternative and renewable energy sources is a good thing.  There are three basic reasons for this conclusion:

• Public support for new technologies and industries, whether through tax policies or direct subsidies, have been utilized from the country's beginning to create a economic growth;
• Considering the significant public subsidies to fossil fuels, alternative and renewable energy sources suffer, at least partially, from an artificially created competitive disadvantage;
• Based on our ongoing need to develop clean energy and foster energy independence, no source of energy should be eliminated from the portfolio yet.

GOVERNMENT SUBSIDIES TO NEW INDUSTRY AND INFRASTRUCTURE HAS HISTORICALLY BEEN THE CATALYST FOR ECONOMIC GROWTH

Anyone with a smidgen of knowledge about the economic history of this country knows that free markets are aided and sustained by government rules and regulations, government investments, and government tax policies.  Certainly the Father of free market capitalism as practiced in the United States, Alexander Hamilton, understood that.  Just read Hamilton's First and Second Reports on Public Credit and his Report on Manufactures.  Likewise, the tariffs of 1816 and 1828 were taxes designed to protect and spur the growth of particular economic sectors.  That has been the case throughout the country's history.  In his book Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now, the investment bankerFelix Rohatyn eloquently describes some of the government programs upon which our free market economy is built:

• The Erie Canal
• The Transcontinental Railroad
• The Rural Electrification Administration
• The Interstate Highway System

There are other, but you get the idea.

RENEWABLE ENERGY SOURCES COULD COMPETE BETTER ECONOMICALLY BUT FOR THE GOVERNMENT SUBSIDIES TO FOSSIL FUELS.

Fast forward to today and consider the debate on government tax policies and other incentives that are designed to spur the development of alternative and renewable forms of energy.  Opponents of these forms of energy often say that they are too expensive, that the generating capacity of wind, solar, biomass and other forms of renewable energy would not exist without government subsidies.  That is undoubtedly true.  But here is another truth:  those forms of generation are at a greater competitive disadvantage than they would be if not for government subsidies to fossil fuels.

I once heard a preacher say there is nothing wrong with fishing with your kids on Sunday morning.  Fishing is a wholesome activity, and especially good if you are spending the time with your family.  However, he went on to say that an even better activity is spending that time with them in church.  Both activities are good; just one is better than the other.

The same principal applies to Arkansas's growing biomass industry.  Phoenix Renewable Energy is building biomass plants in Camden and El Dorado for the the production of wood pellets.  The pellets will be used in Europe for home heating and electricity production.  That is good.  Certainly those communities in South Arkansas can use the jobs and economic development that Phoenix is creating.  There may be an even better use for Arkansas's biomass potential, however.

We previously noted that Arkansas has the biomass potential to produce 150% of the state's residential electric needs.  Moreover, biomass is certain to have an increasing share of the U.S. electricity generation portfolio.  Why not utilize that fuel within the state, rather than importing fuel (coal) for electricity production, and exporting dollars?  Arkansans currently spend 10.1 billion annually for fossil fuel, a significant portion of which is fuel for the production of electricity.

The Arkansas Code, sections 14-206-101 through 14-206-112, permits Arkansas municipalities to acquire or construct, and operate, an electric public utility plant for the production, transmission, delivery, or furnishing of any public service.  Moreover, section 14-200-101 permits municipalities owning or operating facilities may extend service to rural areas contiguous to the municipality.  Municipalities in Arkansas with nearby biomass stocks, including timber and wood products waste, biomass feed stocks grown on marginal agricultural land, and even municipal waste, in conjunction with companies like Phoenix Renewable Energy, should consider municipal electric power generation and distribution.  The benefits are obvious:

• Local economic development -- through the construction and operation of facilities, as well as through the manufacture and installation of distributed generation systems made an integral part of a municipal electric utility.
• Keeping the money for fuel costs in the community -- rather than importing fossil fuel and exporting dollars, the money for fuel stays in the local economy.  Arkansas timber owners, loggers, and wood products manufacturers would have a ready market for what would otherwise be waste products.  Moreover, Arkansas farmers and landowners would have additional cash crops.
• More local control of energy production -- decisions about energy production would be made locally, rather than by entities far away without knowledge of local conditions and needs.
• Creating a sustainable community -- What industry wouldn't want to locate in a community with sustainable power production and what employees wouldn't want to relocate to an environmentally conscious community?
• Incentives for integration of smart grid technologies and distributed generation -- In a sustainable community, grass roots efforts at distributed generation could be rewarded through a net-metering policy that purchases any excess generation, rather than our current state system that is like a cell phone plan where you surrender the unused minutes.

Point to remember:  Lest you think municipal electric generation from biomass is a pie-in-the-sky proposition, read about the Joseph C. McNeil Generating Station in Burlington, Vermont.  That electric power generating station has been producing power from wood waste for Burlington for nearly 30-years.

Arkansas Nuclear One, which provides one-fourth of the electric power in Arkansas, and more than half sold by Entergy Arkansas, turned 35 this month, according to an article in Arkansas News.  Entergy supports climate change legislation, and in 2001 voluntarily capped its carbon emissions to the previous year's release.  More importantly, it has since reduced its emissions by 17.5 percent, to 43.9 million tons in 2008.  According to company officials, Nuclear One is emissions free.

Regarding the importance of climate change legislation, the article quotes Entergy Chairman and CEO Wayne Leonard as saying:

We're playing Russian roulette with the planet and our economy.  The difference is there's a bullet in every chamber except one.  We have to answer the question of whether we're more important than future generations.  I believe with all my heart that everybody involved in this debate in their own heart knows what the answer to that question is.

Not all groups view nuclear power as the right alternative to reduce emissions and retard climate change.  The article notes that the Sierra Club in Arkansas is opposed to nuclear power because of nuclear waste.  The Sierra Club supports the use of wind, solar, and geothermal, along with natural gas a a bridge fuel, to provide electric power and reduce carbon emissions.

Our Take:  Every type of electric energy generation has its own drawbacks.  Wind and solar are emissions free, but are intermittent and require a lot of land and significant investments in transmission.  Coal is cheaper, but the emissions are a primary driver of climate change.  Natural gas has fewer emissions than coal, but is subject to price volatility.  Nuclear power solves the problem of emissions, but there are safety concerns and problems disposing of nuclear waste.  However, if the overriding goals are energy independence and stopping climate change, then each form of generation should be seriously considered and implemented where and when appropriate.

The Wind Coalition, a group devoted to the development of wind energy in the United States, is attempting to intervene in the Arkansas Public Service Commission's White Bluff Docket, wherein Entergy Arkansas and the other owners of the White Bluff generating facility seek approval for environmental upgrades.  According to the Wind Coalition's filings, its

members have begun acquiring land rights to potentially construct wind farms in and near Arkansas, and are willing and able to provide renewable energy in Arkansas to [Entergy Arkansas] or other companies.  A Declaratory Order from the Commission indicating that the Project (which, as structrured, has no renewable generation component) is in the public interest would potentially preclude the Wind Coalition from providing such renewable energy to [Entergy Arkansas] or another entity in the future.

In addition, the Wind Coalition states that permitting it to intervene would:

• ensure that wind energy is considered on the same playing field as other types of generation such as coal, nuclear, and natural gas;
• assist in the evaluation of Entergy's price assumptions for coal supply; the capital costs of wind power; wind capacity factors; the economic impacts of joining the Southwest Power Pool; and whether Entergy considered the improved import capability from the upcoming transmission upgrades approved over the next four years;
• assist the Commission in developing a full, fair and adequate record upon which to base its decision concerning whether the White Bluff upgrades as currently structured is in the public interest.

Entergy asserted in its original petition that it "considered whether renewable generation and efficiency alternatives would be appropriate for comparison" but "concluded that it would be unrealistic to assume that either alternative" would be effective.  If the APSC permits the Wind Coalition and other similar groups to intervene in this docket, submit additional evidence, and independently evaluate Entergy's analysis, would certainly go far "in developing a full, fair and adequate record upon which to base its decision regarding the proposed White Bluff upgrades.

The Arkansas Public Service Commission Staff sought a suspension of the procedural schedule in the Commission's White Bluff docket on December 3.  Entergy Arkansas joined in that effort today.

The requested delay is based upon the response of the U.S. Environmental Protection Agency and U.S. Forest Service to the proposed permit for the facility to be issued by ADEQ.  In a letter to the Arkansas Department of Environmental Quality regarding the permit application for the White Bluff upgrades, the EPA noted that:

we do not feel an SO2 emission limit of 0.15 lbs/MMBtu has been shown by the Arkansas Department of Environmental Quality (ADEQ) to be BART [Best Available Retrofit Technology]. . . [W]e do not believe ADEQ has properly conducted its BART analyses . . . including the Entergy White Bluff facility, as required by 40 CFR 51.308.  Had this analysis been performed, we feel that a more stringent control level would have been likely shown to be BART.

The U.S. Forest Service echoed those concerns.

The upshot is that action by the EPA and other federal agencies could delay the implementation of the upgrades beyond the 2013 target date.  Therefore, the Commission Staff and Entergy have requested a suspension of the procedural schedule until the federal concerns are addressed by the ADEQ.

More important than the procedural delay, however, is the effect of the federal action on whether the project, as proposed, can move forward.  If there is a change in the allowable emissions rate, that may effect whether the technology proposed to be used is sufficient to meet the new allowable emission rate.

The more fundamental issue the Commission will have to address is whether, in light of other existing generating resources, the facility upgrade should be approved at all.

A new Natural Resources Defense Council report, A Clean Energy Economy for Arkansas, argues that clean energy is a key factor for rural economic development in the state.  Some key facts underlying the analysis are:

• Each year Arkansans spend $10.1 billion for fossil fossil fuels.
• Which translates to $3,500 in energy costs for every person (not household) in the state.
• 78% of those energy dollars leave the state, never to return.

Arkansas ranks 13th in per capita energy consumption, and is expected to need 2,500 megawatts (MW) in new generating capacity over the next 15 fears.

The report cites a previous NRDC study indicating that "green jobs" primarily in construction, engineering, installation, agriculture, and operation of rural energy production facilities -- jobs which cannot be exported.  According to the report, clean energy investments 3.6 times more jobs for people without a college education, and 2.6 times more jobs for people with a college education, than comparable investments in fossil fuel energy.

The report goes on to examine

the potential for renewable resource development in Arkansas and finds unprecedented opportunity for long-term economic growth in rural communities as well as new income sources fro farmers from an array of emerging clean energy technologies, particularly wind, biofuels, biopower, and biogas.

 Wind Power.  40 of Arkansas's 75 counties have commercially viable wind resources.  A federal government study projects that 1,000 MW of generating capacity would create $830 million in economic benefits over 20 years, including 3,496 construction and locally stimulated indirect jobs and 504 permanent operations jobs.

Biofuels.  With its strong agricultural base, Arkansas is "perfectly situated to become a center for the next generation of biofuels production."  Existing Arkansas crop and timber residue are "sufficient to produce 770 million gallons of transportation fuels each year, equivalent to 50 percent of all the gasoline used in Arkansas.

Biopower.  The report points out that combining solid biomass with coal at existing power plants is a relatively low-cost way to ramp up renewable resource development.  "If 10 percent of Arkansas's coal-fired power capacity were replaced with biopower, more than 700 new long-term jobs would be created, not including new agricultural jobs to produce and harvest the biomass fuel."

Biogas.  Methane from decomposing manure has 21 times the global warming potential as carbon dioxide.  While Arkansas is one of the nation's leading livestock and poultry producers, it has no operating biodigesters.  "In addition to providing a potential source of revenue and energy for livestock operation, anaerobic digestion systems create high-quality fertilizer and other byproducts while reducing odors, water pollution, and emissions.

Important Point.  Even the Arkansas Energy Office recognizes the potential for producing electric power with biomass, estimating that Arkansas has sufficient biomass potential to supply 150 percent of the state's residential electricity use.

A November 19 ruling by the Federal Energy Regulatory Commission will allow Entergy Arkansas to withdraw from a System Agreement with the other Entergy companies.  In December 2005 Entergy Arkansas notified the System Agreement participants that it intended to withdraw from the agreement as of December 2013.

Entergy Arkansas's withdrawal was prompted by the action of Louisiana regulators, which had caused some of the cost of Entergy Louisiana's more expensive natural gas fueled generating plants to be shifted to Arkansas rate payers.  Entergy Arkansas generates electric power primarily through nuclear and coal fired plants.

According to the Arkansas Democrat Gazette, FERC's ruling will save Entergy's Arkansas customers about $218 per year.

Other Important Points:

• If FERC does not permit a rehearing, the Louisiana regulators can appeal to the United States Circuit Court of Appeals for the District of Columbia
• As FERC Chairman John Wellinghof points out, the ruling "will allow Entergy and any interested party to engage in meaningful negotiations for a successor arrangement to the System Agreement to be in effect prior to the withdrawal of Entergy Arkansas. . . ."

Last March Entergy Arkansas sought a Declaratory Order from the Arkansas Public Service Commisson approving the installation of various environmental controls at its White Bluff facility made necessary by the Arkansas Department of Environmental Quality's implementation of the EPA's Regional Haze Rule.  Without the environmental controls, the facility will have to close in 2013.

Entergy and the co-owner's of the White Bluff facility contend that implementation of the environmental controls is the lowest cost reasonable alternative to meet their customers' long-term power supply needs.

However, a number of groups, including Entegra Power Group, LLC, GDF SUEZ, The Wind Coalition, Audobon Arkansas and the Sierra Club, dispute that Entergy properly considered a broad range of alternatives.

Why is this Important?  This PSC docket, unlike the docket approving construction of the Turk Plant, will focus attention on existing generating facilities and force the Commission to decide whether to allow utilities to build new generating capacity, expand their owned existing capacity, or make them utilize capacity already in existence, even if owned by a third party.

An interesting article in the December 2009 issue of The Atlantic magazine, Who Needs the Grid, reports on an old technology newly adapted to produce electricity cleanly and inexpensively:  fuel cells.  Bloom Energy has a power producing device -- called a Bloom box and about the size of a coffee table -- capable of powering a 5,000 square foot house.  The article, by Lane Wallace, reports that a five-kilowatt Bloom box has been used in an ongoing trial at the University of Tennessee, and,

has proved twice as efficient as a traditional gas-burning system and produced 60 percent fewer emissions.

Some of the article highlights are:

• The Bloom box has been in development for eight years with the support of a reported $250 million in venture capital.
• It is "fuel agnostic," meaning the boxes can be run on existing propane, natural gas, or ethanol sources, but can also be run on plant waste (biomass) or almost anything containing hyrdogen and carbon.
• The boxes operate independent of the power grid, critical for developing countries lacking infrastructure -- and nice for any consumer that wants to be free of its utility.

What Does It Mean?  One thing it means is that your local generating and distribution utility better get good at innovation.  If the ideas the utilities have expressed in the Arkansas PSC dockets on Sustainable Energy Resources, Ratemaking, and Energy Efficiency are any indication, they will be obsolete before they know it.