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Wednesday, 01 August 2007 00:00

Feeding the need: New power plants destined for state’s future barring radical action

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A state energy bill expected to pass this week has received mixed reviews from environmentalists for failing to go far enough.

On the surface, it looks good. State utilities, namely Duke and Progress Energy, will have to generate at least 9 percent of their electricity from renewable resources by the year 2021 and reduce energy demand among the public by another 3 percent.

But Avram Friedman of Sylva sees the bill as a sell out. By the year 2021, energy consumption is predicted to increase by 30 percent. A mere 12 percent reduction through renewables and conservation won’t help, said Friedman, director of the Canary Coalition, a state air quality advocacy group.

“We have arrived at the climate change crisis due to levels of greenhouse gasses that we are presently emitting,” Friedman said. “People cannot continue using the same amount of energy or more.”

Progress and Duke are both backing the bill, however, along with a handful of environmental groups that see the bill as better than nothing, or a starting place. Friedman said the bill does more harm than good.

“It doesn’t relate the urgency of climate change,” Friedman said. “We have to act on the same scale that a nation acts when going to war. You ask for sacrifices from the citizens.” A bill that condones a net increase in energy consumption, fueled by power plant construction, is not worth supporting, Friedman said.

Cari Boyce, spokesperson for Progress Energy, defended the bill.

“I don’t know that the goal of this bill is to eliminate global warming,” Boyce said.

Progress and Duke both have new coal, oil or natural gas plants on the drawing board in the state.

“Some of our critics say ‘Just use renewable. Don’t build new power plants,’” said Paige Sheehan, spokesperson for Duke Energy. But that’s not reality.

“The public desire for energy continues to grow and it is clear we need to deal with it in a number of ways,” Sheehan said.

Boyce agreed.

“From our perspective we have to plan for the future and make sure when you flip that switch in your home the lights come on,” Boyce said.

Residents have a surprising amount of control over whether more plants get built. Duke and Progress can’t simply build new plants on a whim. They have to get permission from the N.C. Public Utility Commission. The utility commission uses a two-part litmus test to approve a new plant: is there a need for the extra power, and is the plant being proposed the least expensive route to get there.

The first part — is there truly a need for the extra power — is up to the masses. If residents drastically cut energy use, Progress and Duke couldn’t meet the litmus test that more energy is needed. Duke recently failed to justify the need for two new coal units outside Hickory, so the state turned down one of them. (see related article).

While residents can stop new plants from being built by reducing energy demand, likewise, they can unwittingly force new ones to be built. State law actually requires Duke and Progress to meet the demand for electricity, whatever that may be. It’s part of their mandate in exchange for being granted monopolies.

“We have what is known as a legal obligation to provide power,” said Sheehan.

The utilities can’t simply cap how much electricity they are making at current levels and tell residents to make do with what they have.

“We don’t have the ability to say we are only going to serve 80 percent of our customers. We have to provide that power,” said Ken Maxwell, spokesperson for Progress Energy.

Sheehan said Duke doesn’t look forward to building more power plants and would really rather not.

“The best plant is one that’s never built,” Sheehan said.

 

Follow the money

The controversial state bill started out solely as a renewable energy and conservation bill, initially written and pushed by a lead environmental group, Environmental Defense. But utilities jumped on board, wanting a bill that would also make it easier to build new power plants when the time arose to do so.

“We said this is a great time to take a comprehensive look at energy. Let’s look at renewables but also the other issues affecting our industry and therefore our customers,” said Sheehan.

Utilities’ favorite part of the bill helps them side step a major hang-up facing new coal plants today: Wall Street. Investors with billions to lend aren’t excited about putting their money into a new coal plant. It’s a technology of the past, and vulnerable to energy policies at the state and national level. Congress could crack the whip on emissions any day, forcing power companies to abandon plants in the works or install pollution controls that drive up costs significantly.

“Coal is not being looked at as a good investment anymore,” said Stephen Smith, director of the Southern Alliance for Clean Energy. “The investment markets are now walking away from coal plants.”

When an investment gets risky, lenders charge higher interest rates, which makes the plant more expensive to build — making power companies think twice before going down that road, Smith said.

The new state bill would change that. It allows Progress and Duke to tack the cost of planning and financing a new power plant onto residents’ power bills immediately. Currently, utilities can’t recoup the money they sink into a new plant until after it is finished and starts producing electricity. So investors have to float the project until it comes to fruition, making it a more risky proposition.

Under the new bill, utilities can start docking residents up front through their power bills. They will still need a cash infusion from Wall Street investors, but the state residents will be guaranteeing the loan. That makes the investment less risky, which means a lower interest rate, which means a cheaper coal plant, which means power companies won’t be motivated to find new ways to address energy demand, Friedman said.

“In essence, it is a subsidy for the building of new power plants,” Friedman said of the bill. “It makes it more easy to continue the current paradigm of energy generation. It moves the risk from the stockholders to the rate payers.”

Power companies claim the provision is beneficial to the public. Utilities would eventually recoup the cost of construction of a new plant anyway through power bills. Any money saved is less residents will pay in the long run.

“Nobody likes to have to do this, but we have to build new plants,” Sheehan said. “This will help us mitigate the cost of building those new plants. If investors believe this is not as risky a project, you have the potential of getting better financing.”

In addition to a better interest rate, the utility can start paying off its debt right away, and less interest will accumulate. When the utility has to wait until the plant is up and running to recoup the cost of construction, the interest has been piling up.

“It’s like a credit card. The longer you go without paying, the bigger the bill gets,” Sheehan said.

Boyce, the spokesperson for Progress Energy, claims the provision was a necessary part of the bill.

“Demand is increasing. We will need to build more plants,” said Boyce. “That’s exactly why it is so critical that this bill have all these components in it. It ensures the overall cost will be the lowest for customers.”

 

Too late for vetting

Environmentalists, on the other hand, would be perfectly happy if efforts to build new plants were thwarted by skeptical Wall Street investors.

“They would think twice about it if their investors were the ones taking the risk,” Friedman said of the utilities.

Utilities claim it doesn’t work that way, citing their state mandate as a regulated monopoly.

“That disregards the fact there is a need for power and we have an obligation to meet it,” said Sheehan.

Friedman sees this part of the bill — the upfront financing of new power plants — the most egregious, posing awful repercussions for the people and the environment. It moves backwards, encouraging the building of new power plants instead of renewable energy and conservation, turning back the clock on the work of activists like Friedman. Friedman wasn’t optimistic on the eve of the vote this week that legislators would see it that way, however. It had already passed the Senate and cleared committee in the House as of press time Tuesday.

“I think a lot of legislators might vote for it and regret it later,” Friedman said.

The bill was rushed through and groups like the Canary Coalition didn’t have time to educate the legislators before it was too late.

Meanwhile, “I think there is a tremendous amount of pressure being applied by the utility industry,” Friedman said.

Progress and Duke combined spent $1.7 million in lobbying efforts and campaign contributions to state lawmakers during the past four years, according to a recent report by Democracy North Carolina.

As the bill was corrupted, most environmental groups jumped ship, leaving only one or two environmental groups still hanging on in support. Friedman said the bill was too weak in the first place, setting renewable standards low on purpose to attract the power companies’ support.

“It did attract the utility industry and they came on board with all their baggage and now the ship is sinking,” Friedman said. The utility industry accepted the renewable energy mandates in exchange for what they wanted: a new formula for financing power plants.

To Friedman, it proves the utilities are not reliable partners.

“In some cases we can work together, but now we are talking about such a fundamental change in the energy paradigm. We have to use less energy and that is not in the best interest of the utility industry. It is a change that can result in the utility industry becoming smaller players,” Friedman said.

Friedman admitted he’s taking on a formidable foe.

“Our power lies with the public. We don’t have the money to combat the utility industry’s money. But we do have the public if we mobilize them,” Friedman said.

Legislation that is simply “better than nothing,” or a “step in the right direction” won’t move the masses, however.

“That isn’t going to excite anybody,” Friedman said. “If we really introduce something meaningful, people will get on board and that’s what will give us the political power to overcome the industry. We have to introduce a meaningful comprehensive program that actually reflects the urgeny of climate change and until we do we are not going to excite the public.”

 

A new way

There’s an economic flaw that keeps power companies from doing more to save energy. They only make money for the energy they produce. They get nothing for energy they don’t produce.

“They are in the business of producing and selling energy. What we need to do is reduce energy consumption and that goes against the economic interest of their stockholders,” Friedman said. “They are trying to make money, bottom line. That’s what we have to deal with.”

In a way, Sheehan agrees.

“In the past power companies have been rewarded for selling power,” Sheehan said.

That’s one thing the state bill would help change. If power companies give out coupons for free compact flourescent bulbs, the utilities can recoup the cost later in power bills. If power companies put smart meters on homes — allowing them to shut off your air conditioning or hot water heater when you are out during the day — they can recoup the cost of the program through power bills. Currently, the power company can only raise rates to cover the actual costs of producing energy — not saving energy.

“It makes that investment in energy efficiency the same as an investment in a power plant,” said Sheehan. “We need to be able to make a profit for our investors selling efficiency just like we are currently rewarded for selling power.”

Stephen Smith, executive director of the Southern Alliance for Clean Energy, agreed it’s a major flaw in the economic model.

“The utilities have a disincentive to encourage energy efficiency because they make money based on the electricity they sell. We need to fix that equation,” Smith said. But unlike Friedman, Smith wasn’t ready to dismiss the utilities’ role as a part of the solution.

“They can work with customers in a very direct way. They can educate and provide opportunities to reduce demand,” Smith said. “If the utilities were to be aggressive, they could begin to implement efficiency measures tomorrow and begin to moderate demand for additional energy.”

Friedman said putting the utilities in charge of reducing energy consumption is like the fox guarding the hen house — another problem he sees with the state bill.

“They’ll make it look like it doesn’t work,” Friedman said.

It’s unclear how excited utilities are about the idea either.

“The utilities are not responsible for cutting customers’ consumption. That is human behavior, and that’s where the change has to be made,” said Ken Maxwell, spokesperson for Progress Energy in Asheville. “We have to give them options and help educate them. It is up to customers to choose energy efficiency.”

Smith was optimistic about people wanting to save energy.

“If you give people financial incentives, they do want to step up and do things,” Smith said.

Duke Power has a jump start on meeting the renewable energy mandate in the bill. It is currently taking bids from companies with renewable energy to sell, Sheehan said. That’s the quickest and easiest way to meet the renewable energy mandate — to buy up renewable energy that’s already out there. But Duke is also offering contracts to entrepreneurs willing to start up new sources of renewable energy.

 

Motivating the masses

So far, the public doesn’t seem eager to change energy use. While The Inconvenient Truth captured America’s attention, back at home, few did more than switch to compact florescent bulbs — if even that.

Every household in the state has the power to vote with their pocketbook each month by buying $4 of clean and renewable energy through NC Green Power. But only 12,000 have joined since the program launched in 2005 — not many when compared to the millions of households.

In addition to media coverage, every utility in the region has included information on joining NC Green Power in their power bills.

But Jeff Brooks, spokesperson for NC Green Power, said people are still learning about the program, and as they do, momentum is building. Participation went up 25 percent over the last six months alone.

NC Green Power buys clean and renewable energy and puts it on the electricity grid. Your $4 a month subsidizes a block of this green power. Much of the green power being bought and placed on the grid is coming from private homes or business with wind turbines or solar panels that produce more electricity than they use. They sell their extra power back to the grid. Right now, there’s more of this green power being produced than there are participants in the program to buy it, Brooks said. The goal is to have demand outpace supply, which would theoretically spur the creation of new green energy production if market forces play out right.

Nonetheless, few environmental success stories were pulled off by simply appealing to the masses, or relying on consumers to vote with their dollars. Whether it was ridding the environment of poisonous DDT pesticides, cutting out CFC’s in aerosol cans or getting toxic used car batteries out of the nation’s landfills, most major environmental movements have occurred only through legislation.

Recycling is one of the few environmental movements that has convinced people to alter their behavior voluntarily. But it requires little sacrifice. The only cost is an extra trashcan and somewhere in the kitchen or garage to put it. And even then, when recycling trucks roll past people’s curbs, many opt not to recycle. Make it the law to recycle, and that might change.

Friedman still holds out hope that a critical mass of consumer demand for clean and renewable energy will take hold and effect change from the grassroots level up. But if it doesn’t, Friedman doesn’t write off the possibility of laws that would force Americans to change their ways — like energy rationing. Instead of utilities meeting the insatiable demand for energy, simply draw the line and ration how much each household can use.

“You might have to mandate it,” Friedman said. “We have to decide whether we have a responsibility toward future generations. If we do, then we have to take radical action.”

For now, voluntary rationing on a large scale isn’t very successful. Homeowners associations in many mountain developments actually ban outdoor clotheslines — which doesn’t bode well for conservation advocates.

To spur along changes at the household level, the Clean Air Community Trust is amassing a team of global warming missionaries. Armed with a kit they call “Energy in a Box,” they will appear on your doorstep and produce things like compact-florescent bulbs and weather-stripping and install them in your home.

There’s another problem with encouraging electricity conservation.

“There hasn’t been a lot of incentive for customers to change behavior because the cost of electricity isn’t that much,” Boyce said.

Friedman has an idea to combat that. It’s called reverse rate structure. Most things cost less the more you buy — the classic economy of scale. But what if electricity cost more the more you buy? Friedman suggests a household energy threshold that triggers a more costly kilowatt hour when the threshold is passed.

“Our feeling is the social, environmental and health impact of burning coal is so profound that it can’t be considered a commodity like anything else on the market,” Friedman said.

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