Feature

US energy Bills go head to head


Stephen Barlas

Both houses of the US Congress have started work on energy bills they hope to pass by autumn. Stephen Barlas investigates.

One thing is already certain. The deadline for both Bills currently under proposal is ambitious since the Senate and House versions will contain both parallel and non-parallel provisions. Certainly, both Bills will emphasise renewable energy production, transmission and facilitation. In the last category, the Senate is likely to pass a provision which will provide new aid to companies that manufacture products such as wind turbine blades.

The Senate Bill, now under consideration, is called the Restoring America's Manufacturing Leadership through Energy Efficiency Act of 2009 (S. 661). It is supported by Senators of each party, Jeff Bingaman (D-N.Mex.) and Lisa Murkowski (R-AK), the chairman and ranking Republican on the committee. That guarantees that it will be included as an amendment to any omnibus Energy Bill the Senate passes. The manufacturing Bill aims to help smaller companies produce alternative energy products – such as wind turbine blades – and reduce their consumption of energy, in part by use of alternative energy sources.

Twist bend coupling

The big question, though, is whether the assistance Congress is considering will give manufacturers the kind of help they need. Jeff Metts, president of Dowding Machining, made it clear at energy committee hearings in March 2009 that his company needs grants, not loans. His company is in the midst of an expensive process to develop a fully automated process for using carbon fiber – for the first time, apparently – to make wind turbine blades which will include innovative design architecture such as “Twist Bend Coupling.” This can reportedly improve turbine wind capture efficiency up to 10% over today's blade capability. The blades will be able to withstand more battering, too.

But Metts wants grants, not loans. “The current economic conditions make tax abatements, guaranteed loans and bank financing an unusable formula to leverage private investments,” he said. “We are asking for grant money that will allow a real opportunity for unprecedented success in this industry.”

The Bill sponsored by Bingaman and Murkowski includes two grant programmes. However, they may be of only limited use to Dowding and other metalworking firms. One of the grant provisions makes available as much as US$500,000 on a one-time basis to a state-industry partnership as long as the partnership matches that with its own US$500,000.

Those “Innovation in Industry” grants – made on a onetime basis – could be used either to reduce energy use within a company or industry, or to produce innovative alternative energy products. So theoretically a company such as Dowding could qualify for a grant and use it to establish a wind turbine blade manufacturing capability. However, Congress would have to pass this Bill first and then, most important, appropriate the funds in a separate Bill, which may be the more difficult of the two legislative feats to accomplish, given the looming US$1 trillion-plus federal deficit.

Renewable portfolio standard legislation again takes flight; still faces heavy wind

One of the biggest fights Congress will face as both the House and Senate begin to move omnibus energy Bills forward is over a renewable portfolio standard (RPS) which would dictate how much power the electric utility industry will have to generate from alternative sources such as wind, solar, biomass, geothermal and other renewables.

Of course, a number of individual US states have their own ambitious RPS standards, with California, of course, leading the pack with a 33% dictate by 2020. Congress has tried in the past, most recently in the Energy Independence and Security Act of 2007, to establish a federal RPS but the effort fell flat in the face of opposition from electric utilities, Republicans and some state public service commissions, especially in the southeast portion of the US, where renewable resources are sorely lacking.

But President Barack Obama's endorsement of a national RPS and the more commanding Democratic majorities in both the House and Senate make an RPS dictate more likely in 2009.

The ball started rolling in the House in March with the introduction of the American Clean Energy and Security Act of 2009, sponsored by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.), chairman of the House Energy and Commerce Committee and the committee's energy and environment subcommittee, respectively. As of this report, the two expect the committee to pass the Bill by the Memorial Day recess, which begins the last week in May. The Waxman/Markey Bill would require retail electricity suppliers to meet 6 per cent of their load in 2012 with electricity generated from renewable resources. The renewable electricity requirement gradually rises to 25% in 2025. The Governor of any state may choose to meet one fifth of this requirement with energy efficiency measures.

While Republicans on the Waxman committee – and in Congress generally – support a US RPS in principle, they are likely to have some problems with the Waxman Bill. Rep. Joe Barton (R-TX), the top Republican on the Waxman committee, complained that the Bill would not count nuclear-generated energy for the purposes of meeting a federal RPS. “If we are serious about reducing emissions, being energy independent and creating jobs, keeping nuclear off the table is a mistake,” he said.

The RPS provision got strong support from Edward C. Lowe, general manager, market development renewables, GE Energy Infrastructure. GE entered the wind business in 2002 and the solar business in 2004. Lowe lauded the establishment of state RPS mandates in the US but said that by themselves these mandates were not enough to really propel adoption of alternative energy production and use. A national standard is needed.

But even a national standard would not be sufficient on its own. “Two additional challenges confronting the long-term growth of the US renewable energy industry are transmission and siting,” Lowe said.

FERC allows new rate incentives for renewable transmission projects

While Congress struggles to create a national RPS, the Federal Energy Regulatory Commission (FERC) is doing what it can do under its current authority to clear the way for the construction of new transmission capacity dedicated to moving wind energy from one region of the country to another. FERC has slowly started to grant incentives to move renewable power from one part of the US to another.

FERC effectively “green flagged” one of the biggest wind energy transmission projects to be proposed when it offered significant rate-making freedom in mid-April to the Green Power Express (GPE) project planned by ITC Holdings. However, that US$10-US$12 billion project has generated some intense opposition from possible competitors and others. At the same time FERC was extending an open hand to GPE, it was getting a light kick in the bottom for not being forthcoming enough in terms of its approval of two affiliated TransCanada lines, the Chinook and Zephyr.

TransCanada challenged parts of an order issued in February by FERC which was meant to ease the way for construction of its Chinook Power Transmission and Zephyr Power Transmission projects, both of which would run 1,000-mile lines from wind sources in the northern Rockies area to points near Las Vegas, Nevada. The lines would cost US$3 billion each to build, and supply more than 6,000 MW of power.
Ellen Berman, senior counsel, US transmission for TransCanada, says the company is very pleased with the FERC order issued in February, which for the first time allowed an electric transmission project to pre-subscribe half of the capacity of the new transmission to “anchor” customers. Those are wind generation companies, which Berman declines to name. They have already signed commercial agreements with TransCanada for half the capacity of Chinook and Zephyr, which would be built starting in 2012 and ready to carry power in 2014 – if they get the go-ahead from both regional planning groups and investors. Berman adds that TransCanada's appeal to FERC in April for changes to the February order amount to a “very limited issue on a pretty technical point”.

The GPE network would cost between US$10 billion and US$12 billion, eventually span 7 states and deliver up to 12,000 MW of wind energy and stored energy from the Dakotas, Minnesota and Iowa to Midwestern load centres in Chicago, Minneapolis and southeastern Wisconsin. FERC's approval of rates for the GPE “superhighway” has ignited complaints from numerous competitors and potential customers that ITC failed to make the case for the rate concessions FERC granted it and that the big project has yet to be vetted by its regional planning organisation, the Midwest Independent Transmission System Operator (MITSO).

James P. Johnson, assistant general counsel, Xcel Energy Services Inc, says there is “no compelling evidence that the Green Power Express is the right project to address the reliability, economic, wind integration, and generation interconnection needs of the Midwest at a cost that is more attractive than alternative reinforcement options.” Xcel affiliates have already received approval to build wind transmission facilities to the Minneapolis-St. Paul region. Part of the proposed GPE project would serve the same metropolitan region.

The GPE project, too, has a long way to go before construction could or would begin. But FERC's April order providing rate incentives makes it more likely that ITC will find investors and that the MITSO will approve the project. FERC said the project is eligible for transmission investment incentives because it will provide significant benefits like greatly improved transfer capability and access to wind generation. The order grants approval of an incentive return on common equity of 12.38%; deferred recovery for start-up, development and pre-construction costs through the creation of regulatory assets; inclusion of 100% of construction work in progress in rate base; abandoned plant treatment; and use of a hypothetical capital structure comprised of 60% equity and 40% debt until any portion of the project is placed in service.

FERC conference considers broader alternative energy issues

Joe Welch, the chairman, president and CEO of ITC Holdings, was one of many industry bigwigs to attend the FERC conference called Integrating Renewable Resources into the Wholesale Electric Grid held in March, to air broad policy issues affecting FERC approval of wind and solar transmission lines such as ITC's proposed GPE.

Welch provided the overlay for the session by noting that the American Wind Energy Association has estimated that up to 305 GW of installed wind capacity is achievable by 2030. Currently, there is approximately 20 GW of installed wind capacity in the USA. “And while this may appear to be an impossible task, ITC believes it is achievable under the appropriate circumstances if a proactive regional approach to transmission system expansion is begun today,” Welch stated.

There was a consensus among all the speakers that FERC needs to spur a regional planning process which guarantees, in the words of Betsy Moler, executive vice president for Exelon Corporation, that “the right projects get built in the right places”. That has been one of the complaints about the proposed GPE project: that a thorough regional vetting has not taken place.

But Moler emphasised that regional planning won't be enough. She argued that FERC needs “exclusive” authority for siting electric transmission projects, which it currently does not have. That would have to be granted by Congress. That authority should extend to all new high voltage transmission, defined as transmission lines 345 KV and above, and any feeder lines of 100 KV and above, that connect new, non or low emitting resources. The authority should be based on the Natural Gas Act model for intrastate natural gas pipelines.

The FERC conference produced cautionary notes, too. Pedro Pizarro, executive vice president of power operations for Southern California Edison Company, talked about state RPSs, and mentioned California's recent increase from 25% to 33% by 2020. Higher RPS levels can result in significant amounts of surplus energy that cannot be used on the grid or sold to others, he explained. Power must be offloaded when generation is greater than load and export capability.

In California, this is likely to happen in March through May when hydro, wind and solar production can all be high while the system load is far from the summer peak. Energy storage and off-peak-electric-vehicle charging may mitigate the need to dump this energy in the future. However, these energy storage technologies are not yet mature enough to significantly contribute to most resource plans today.

But Alan Schriber, chairman, Public Utilities Commission of Ohio, provided the other side of the coin: state RPS' dictate that new transmission be built from wind- and solar-rich areas to resource-poor areas such as Ohio. Ohio passed legislation in 2008 that requires 25% (of total kWh) by 2025. Half of this may be from advanced energy resources, and at least half from renewable resources, with a five per cent solar requirement. While at least half of the renewable requirement must be through facilities located in the state, the remainder must be deliverable to the state. Ohio's current green rules are as follows: power is assumed to be deliverable from contiguous states and must be shown (proven) by a study that it is deliverable from non-contiguous states. “So it is critical to us to be able to get transmission built to substantiate that the power is deliverable to us,” Schriber emphasised.

About the author

Stephen Barlas is Renewable Energy Focus' Washington correspondent.

 

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