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

We often hear statements that clean, renewable energy is just too expensive as compared to energy derived from fossil fuel.  In Arkansas, arguments are being made in the Public Service Commission's "Sustainable Energy Resources (SER)" docket (08-144-U), that fossil fuels (coal) is the cheapest form of fuel for electricity production.  However, not all of the costs of producing electricity from coal are included in your monthly utility bill.  There are external costs -- increased health care costs, damage to timber and agricultural production, among many others -- that are real costs we each pay, however they may be hidden in.

In the Wall Street Journal's Environmental Capital Blog, Keith Johnson writes:

For policymakers, these externalities represent an opportunity as much as a headache.  For all the worries that a bigger role for government in the energy business -- from cap-and-trade schemes to solar-powered subsidies -- represents a retreat from free markets, that's hardly the case.  Energy markets aren't "free" today, and the playing field is anything but level.

New energy policies that seek to redress those problems, and unleash rather than further stifle a genuine market for energy, will point the way toward a new energy future that makes sense, both environmentally and economically.  That's because, if new policies set out to tackle those externalities once and for all, the environmental answer will quite often become the economic answer.  Everything has its price -- and its cost.

We agree.  As we have previously said, the Public Service Commission docket on Sustainable Energy Resources represents an opportunity for Arkansans to propose policy alternatives.  Arkansas has a wealth of resources for the production of electricity, and should take advantage of the opportunities for the economic development of the state, especially in its rural areas.

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.

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.

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.

UPDATES:

Bloom Energy to Unveil Bloom Boxes Wednesday

Bloom Boxes Could Promote Economic Development in Arkansas

Bloom Boxes Unveiled by Bloomenergy

According to a new study released by the Utilities Telecom Council (UTC), Smart Grid technologies can yield benefits of $110-million annually to utilities.  The study -- entitled Smart Grid Economics:  Making the Business Case for Smart Network Technology -- was based on a comprehensive Smart Grid deployment by utilities with one million electric meters.

SmartGridNews.com reports that the study shows that with the use of Smart Grid technologies:

• System reliability is increased from 99.48% to 99.75%, reducing outage minutes by 16.8 million customer minutes
• Nearly 300,000 tons of carbon emissions are eliminated annually
• Over 9,000 direct and indirect job-years are created
• The internal rate of return for the smart network program is calculated at 13.8% without accounting for the value customers may place on the increased reliability of the electric grid; when factoring in these benefits, internal rate of return exceeds 35%
• System benefits calculated by the end of a 10-year forecast period are likely to exceed $110 million per year

As may remember from a previous post, the Arkansas PSC has current dockets investigating the proper use of these technologies in Arkansas.

Electric energy efficiency, conservation, demand response, innovative ratemaking, and transmission are hot topics throughout the United States, and the Arkansas Public Service Commission is actively addressing these issues.

• ENERGY EFFICIENCY.  Beginning in 2006, the Commission led an inquiry into the potential for utility led energy efficiency and conservation programs (06-004-R).  The result was the Commission's Rules for Conservation and Energy Efficiency Programs, under which the state's electric utilities implemented Quick Start C&EE programs for 2008 and 2009, and have filed plans for a Comprehensive C&EE Plans for 2010 and beyond.
  

• TRANSMISSION.  The Commission's Electric Transmission Docket, (08-136-U) was initiated in September 2008 to consider the state of the existing transmission network and to gather "information on new technologies related to the efficient transmission of electricity."  Not is the Commission examining new technologies that will "lead to greater optimization of the electric transmission grid" but is also considering "the adoption of 'Smart Grid' technologies" to increase energy efficiencies for consumers.
  

• RATEMAKING.  The implementation of Smart Grid and other technologies leading to energy efficiency and conservation pose issues of cost recovery and other revenue issues for utilities.  Therefore, the Commission initiated a docket expressly to consider innovative ratemaking rules (08-137-U).  In its Order establishing the docket, the Commission noted that while increased energy efficiency and demand response opportunities may decrease usage by consumers of electricity, but acknowledged "that revenue recovery by the utilities could be compromised absent possible implementation of decoupling mechanisms."
  

• SUSTAINABLE ENERGY.  Finally, the Commission is also considering the "expanded development of Sustainable Energy Resources ("SER")" (08-144-U).  The Commission defined SER to include energy efficiency, demand response, automatic metering (including the "Smart Grid"), and renewable resources.  Moreover, the Commission pointed to a number of regulatory models implemented across the country that include cost recovery for utilities implementing SER programs and lost revenue allowances (decoupling of utility profits from sales volume) to remove disincentives fro utilities to help customers save energy.

In light of the overlap between these four dockets, the Commission might consider consolidating them into a single docket for developing a regulatory framework that addresses:

1. Current and future generating capacity requirements;
2. Rules for siting and transmission for utilities and Independent Power Producers;
3. Integration of electricity produced by renewable resources;
4. Standards for the implementation of demand response, including automatic metering and "Smart Grid" technologies for consumers; and
5. Rules for cost recovery and decoupling.