This week I spent a few days at the American Public Power Association (APPA) National Conference in Seattle. The priority issues facing APPA members in 2012 are similar in many respect to those facing the entire electric power industry, but there are certain aspects of the unique characteristic of APPA members that differentiate them from investor owned utilities (IOUs). They are all government owned, but have the ability to 100% debt finance capital investment. They also tend to have a close relationship with the local community and are better positioned for developing successful community-based programs such as energy efficiency.
By way of background, the APPA, which is based in Washington DC, is a not-for-profit, non-partisan service organization founded to advance the public policy interests of its members. It represents most of the more than 2,000 community-owned electric utilities in the US. Most public power utilities are owned by municipalities, but some are owned by counties, public utility districts, and states. For example, all of Nebraska is served by public power. APPA members also include joint action agencies (state and regional consortia of public power utilities) and state, regional, and local associations that have purposes similar to APPA.
Regulation, fuel mix and power rates
The utility industry as a whole is facing interesting times in the U.S. The electric power industry is getting more complcated as Mr Crisson emphasized repeatedly.
At the top of the list of things that the APPA is concerned about is regulation. This has not always been the case for public utilities, because they are government and in the past most of the regulation came from their municipal governments. But this year Federal regulation, especially that from the EPA is directly affecting public power utilities. One third of public utilities generate power and a significant proportion of that is from coal-fired plants. Related to the EPA's Mercury and Air Toxics Standards (MATS), the closure of 26 GW of coal-fired capacity has already been announced. Estimates of the total coal plant closures range between 40 and 70 GW and even higher. The APPA is very concerned about the time frame for compliance of three years. As a measure of that concern, the APPA has filed suit against the EPA for the first time in its history with a petition for reconsideration asking the EPA to grant additional time to public power utilities to meet the MATS standard.
It seems certain that the fuel mix for electric power generation is going to change significantly in the short term. Speakers at the APPA event were very pessimistic about the future prospects for coal. The alternatives that APPA members are considering are energy efficiency, renewables, nuclear, hydro (small and large scale), and natural gas.
Energy efficiency
For many APPA members the cheapest "alternative fuel" is energy efficiency and this is an area for which municipal utilities are in a much better position that IOUs because they are part of government and can participate directly in the process of setting energy efficiency standards for building codes.
In 1990 Burlington voters approved a bond to fund energy efficiency programs. Since 2003, Burlington Electric Department (BED) customers and all Vermont electric customers pay a small monthly Energy Efficiency Charge (EEC) that supports efficiency programs. The City's annual electricity consumption in 2009 was about 2 percent greater than in 1989. BED has been able to meet the energy needs of a growing local economy over the last 19 years through efficiency. BED estimated that energy efficiency investments save Burlington consumers more than $10.1 million of retail electric costs annually. BED's energy efficiency program began in 1991 with Burlington Electric Department's Guidelines for Energy Efficient Construction, that was adopted for state wide construction. BED has a very high proportion of LEED-certified buildings.
Both Tacoma Power and BED said that they are not only participating in writing building codes, but also in inspection and enforcement, something that I suspect it would not be possible for an IOU to do.
Natural gas
The alternative fuel that is getting the most attention is natural gas, because reserves appear to be substantial as a result of hydraulic fracturing technology, and the price of natural gas in the U.S. domestic market continues to be exceptionally low. Henry Hub prices ended at $2.18 per MMBtu last week. But there are concerns about security of supply, the future of natural gas prices and the effect of LNG exports on prices. Many utilities are not convinced that this is the silver bullet.
In addition more EPA and other agency regulations are expected in the future, for example, on CO2 emissions and toxics and CH4 emissions related to shale gas and hydraulic fracturing. Increasing EPA and other Federal agency regulations are expected to lead to increased fuel prices and more decomissioning of coal-fired capacity. Some speakers even foresee similar regulation being applied to natural gas fired plants as is currently shutting to coal-fired capacity.
One speaker, Art Berman, argued that because of the depletion of conventional reserves and the unexpectedly rapid decline in production from shale-gas wells, 2-3 years for a shale-gas well versus 20-30 years for a conventional well, reserves are significantly overstated. He cited evidence from the Haynesville shale-gas play that without new wells, production would decline 48% per year.
Berman believs that increasing demand, for example from fuel switching from coal, the rapid decline in production from shale-gas wells and environmental regulation will likely raise natural gas prices. He argued that the industry needs a $7 price to be commercially viable.
Nuclear power
Another alternative fuel type is nuclear. I attended a standing-room-only presentation by Nuscale, a small modular nuclear reactor (SMR) manufacturer, that claims that its small scale reactor is able to shut down safely in the event of a station blackout, which is what occurred at Fukushima Daiichi. Nuscale has announced its first US customer, South Carolina Gas and Electric, and is the planning stage to build a SMR plant at Savannah River. Other manufacturers of SMR reactors include Babcock & Wilcox and Westinghouse.
Hydro
In some parts of the country there is interest in medium scale hydro projects, especially because hydro provides dispatchable capacity. Intermittent power creates demand for capacity that can be ramped up rapidly (dispatchable) which includes hydro, gas-fired, and storage batteries and pumped hydro. Snohomish County PUD has just commissioned a 8.3 MW hydro project at Young's Creek, the first new hydro project in Washington state in 20 years and expects to build more in the future. Even in California where large scale hydro is not considered to be renewable, Sacramento Metropolitian Utility District (SMUD) is actively pursuring a 400 MW 3 unit variable speed pumped storage hydro project at Iowa Hill, primarily because it would provide dispatchable capacity to backstop intermiitent sources. I blogged previously about Switzerland intending to use similar pumped hydro capacity to become "Europe's battery."
Department of Energy
The Department of Energy (DOE) has sent a memorandum to the Power Marketing Agencies (PMAs) requesting them to take a leadership role in the DOE's goal of creating a more secure and sustainable electric sector nationwide. The PMAs are instructed to include NERC reliability standards, integrate variable resources, enable scheduling on an intra-hour basis, support centralizing dispatch, include responding to solar flares and minimize cyber-security vulnerabilities in their strategic and capital improvement plans. The APPA in a response to the memorandum says that these proposals will result in increased electricity rates for BPA (Bonneville Power Administration), WAPA (Western Area Power Administration), SWPA (Southwestern Power Administration), and SEPA (Southeastern Power Administration) customers.
Workforce issues
A major issue facing electric power utilities, and other utilities, that was called out by Mr Crisson as a priority was workforce turnover, often referred to as the aging workforce. I have blogged about this problem many times and it was gratifying to hear the CEO of the APPA call this out as a priority issue.
Technology and innovation
There was a lot of discussion of new technologies that are transforming the electric power grid including advanced grid technology, often referred to as smart grid, power storage technology including large scale lithium ion batteries, electric vehicles, small modular nuclear reactors, and distributed generation (typically small scale intermittent sources such as wind and solar). The challenge for a historically conservative industry is to focus more on innovation in order to speed up the rate of adoption of new technology.
Subscribe
Comments