Prepared by Chris Deisinger, MSB Energy Associates
On behalf of the Piedmont Environmental Council
July 10, 2000
Recent growth in electric demand and peak load has sparked a rush to build new electric generating capacity across the U.S. As of March 2000, proposals to add in excess of 165,000 megawatts of new capacity by 2004 had been announced, and more have been proposed subsequently. Please refer to Appendix A.
Electric industry restructuring – whether implemented or considered impending in various jurisdictions – has led to unwillingness on the part of conventional utilities to invest in this new capacity. Instead, independent power providers are becoming the predominant developers of additional generation and much of the new capacity is being proposed and built on a purely speculative "merchant-plant" basis.
In return for the abandonment of long-term Integrated Resource Planning and regulatory oversight of vertically integrated utilities, the market will, some hope, provide adequate supply and reliability. It is already evident, however, that serious and unresolved issues of public policy have arisen regarding this new model for capacity addition. Reliability is still a critical question as evidenced by numerous widespread blackouts and brownouts over the last several years, communities feel threatened by unwanted development, environmental impacts are uncertain, and overwhelming reliance on natural gas to fuel new capacity threatens to increase costs for winter heating for many Americans.
Dispersed citizens’ and environmental groups and energy activists have been confronting these issues on a case-by-case basis throughout the country, particularly as they relate to local siting controversies. However, there is a strong need to for a comprehensive analysis of new generation planning and its potential social, land-use and environmental impacts, development of policy proposals to mitigate the most severe impacts, and coordination of activities and strategies among the various stakeholders.
This paper attempts an initial outline of important policy considerations provoked by our experience so far with the new wave of proposals to build electric generation. It is based on our experience supporting citizens’ and environmental groups on a consultative basis in Wisconsin and Indiana as well as tracking proposed capacity additions and related issues on a national basis.
Power System Planning
Capacity adequacy
Reliance on the "market" alone does not assure adequate capacity. In a free market, capacity may be underbuilt, overbuilt or built in the wrong location with respect to transmission constraints. Furthermore, real competition among providers may or may not exist. Regulatory oversight must still be exerted to ensure that there is enough capacity available to distribution utilities to serve native load.
Unfortunately, Independent Power Providers often seek to avoid regulatory jurisdiction or seek protection behind confidentiality agreements. As a result, oversight and public scrutiny of contractual and financial arrangements, planning and forecasting are made more difficult.
Regulatory bodies need to consider whether additional capacity will in fact reliably serve native load under capacity contract or increase the availability of competitive wholesale power for the native market. Regulatory oversight must also assure that if added capacity is depended upon to serve native load or provide a competitive market, that the facility has assured an adequate and reliable supply of fuelstock.
Capacity additions, which generally can be expected to contribute to reliability, can in fact detract from it if power is contractually obligated to customers in other jurisdictions and if there are negative impacts on transmission.
Resource Diversity
Over-reliance on supply solutions, and on a particular supply solution – gas fired turbines, is a characteristic of the current trend in the electric industry. The retreat from integrated resource planning, and from regulatory mandates, has led to a steep decline in demand-side management (DSM) programs. This has contributed to the dramatic growth in load over the past few years.
While gas-fired capacity addition may be seen as a solution, it is not clear that it is the best or only solution. Consideration must be given, in some forum, to viable alternatives, especially to DSM and distributed generation resources (DR). In the absence of integrated resource planning, opposition to particular power plant projects can act as a backhanded spur to consideration of alternatives, whether DSM, renewables, other supply options or the use of distributed rather than centralized alternatives.
Reliance on gas-fired generation presents particular risks. Except in very unusual circumstances, gas cannot be stored on the site of generation but must be supplied by a well and pipeline system of limited capacity. Interruptions of gas supply at critical time periods could threaten reliability, as could excessively high gas prices that would make it unprofitable for plants to operate. A solution could be to require dual-fuel capability, such as oil, but there are associated environmental effects and capital costs.
Natural gas prices have undergone a dramatic runup. Wholesale prices are now at about $4.44 for a million BTUs compared to $2.39 one year ago, with stocks 10 to 15% below those of a year ago. Storage for winter is not being replenished because of increased summer demand and prices. Increased use of natural gas for electricity production is contributing to a gas supply situation that will not quickly come back into balance. The 50% of American homes that rely on natural gas for heating could be significantly hurt by much greater gas prices this winter, and disproportionately the burden will fall on the poor and those with fixed incomes. In effect, this is a negative convergence – a shift of costs for summer electric reliability to winter gas consumers.
Transmission issues
As noted, siting of plants can affect transmission either negatively or positively depending on the system and the load served. Such impacts need to be analyzed in the particular and in the aggregate, since it has already been noted by many observers that increased long-distance power transfers in conjunction with the booming wholesale power market have increasingly strained the transmission system. Regulatory or administrative agencies responsible for the oversight of the transmission system must assure adequacy and assure that plant siting and power sales do not negatively affect other consumers or potential consumers. Potentially affected transmission owning utilities must be involved in system impact studies and apprised of their results.
Conversely, transmission system operators must be prevented from actions that serve to benefit their unilateral interests to the detriment of other users such as IPPs, power marketers and their customers, as happened in July 1999 when Cinergy pre-empted eight different wholesale power customers in violation of contracts, after its declaration of force majeure.
Cost allocation for transmission and connection upgrades must be determined in the case of new generation resources. Fair allocation should require that all beneficiaries pay. However, the terms of FERC Order 888 allow transmission owners to allocate the full marginal cost of transmission system upgrades to the entity that requests interconnection even though all transmission users may benefit from both the presence of new generation and the addition of new transmission facilities. Regulatory oversight and procedures by state agencies, the FERC or even independent system operators (ISOs) must be in place to determine these beneficiaries and allocate costs among the generation developer, the transmission owners and ratepayers.
The impacts of new generation development need to be analyzed on an aggregate basis as well as with respect to local impacts. On a national and regional basis, the huge amount of new capacity proposed will result in significant increase in certain emissions with an effect on a larger geographic scale such as oxides of nitrogen (NOx) and carbon dioxide (CO2) as well as sulfur oxides (SOx) if coal or oil are fuel sources, unless this new generation offsets older, dirtier generation. Given the relatively unchecked growth of demand, this is far from certain. With EPA mandates for state-implemented NOx budget reductions impending in some regions, new power generation may negatively impact other economic development.
Other potential pollutants are of more local concern, such as Carbon Monoxide (CO), ammonia as a byproduct of particular control technologies and Hazardous Air Pollutants (HAPS). The EPA is currently studying HAPS produced by gas-fired turbines and developing MACT standards (Maximum Achievable Control Technology). There may be a particular concern with formaldehyde production from gas-fired turbines.
Because emission control technology keeps advancing and because the choice of appropriate control technologies are determined by state regulatory authorities under EPA oversight in the air permitting process, determination of emissions controls for various pollutant classes can be a complicated and contentious process.
Oversight of permitting and knowledge of technical options can be used by citizens groups to protect their local air quality and to help push standards for new sources on a state and national level. These include the BACT standards (Best Achievable Control Technology – mandated in regions that presently "attain" air quality standards) and LAER standards (Lowest Achievable Emission Reductions- for nonattainment areas.)
A challenge for activists will be to harmonize concerns about new generation development with the movement to control unchecked emissions from older, and very large and dirty, coal plants "grandfathered" under the 1977 Clean Air Act.
Power plant cooling and operational requirements of proposed new generation have significant impacts on local water resources and quality.
Plant demand for water can strain water resources and require high capacity wells and groundwater withdrawals, affecting aquifers, or increased demand on municipal sources to an extent that could constrain future development.
Discharges and pollutant loads into surface water and, through seepage systems, into groundwater have to be understood and properly permitted. Concerns have been raised in some locations about the use of municipal wastewater in cooling systems as a potential health problem.
Finally, natural gas pipelines and transmission lines that serve new generation may negatively impact streams and wetlands.
Land used for plant sites is unavailable for other uses and can affect the potential economic development, character and aesthetics of a community. There needs to be processes and regulations in place that direct construction of new generation to brownfilelds and commercial/industrial districts rather than in greenfields, rural areas and farmland.
With more than 165 gigawatts of new generation development now proposed, concerns have been raised about massive overbuilding. This overbuilding would be an economically inefficient use of resources, would cause unneeded environmental and local impacts and could result in a "Boom and Bust" scenario where speculative development is followed by industry collapse and bankruptcy. A financial meltdown would not only threaten investors, but local communities might be saddled with abandoned facilities, foregone taxes and liability and cleanup issues.
This scenario has been predicted by, among others, William Grealis, an executive with Cinergy, who told Forbes magazine that that if even half of the merchant capacity now being proposed were to be built, the nation would experience a classic boom and bust cycle in electric generation.
New generation is being developed, in many particular instances, with many of the characteristics of a pyramidal holding company structure, with layers of limited liability companies and complicated financial arrangements hidden from the oversight of the public or regulators. These structures dilute and prevent accountability and increase the potential risk to the public, investors and local communities. Given decisions to build plants, safeguards need to ensure that plants are completed and that clear and ensurable liability for environmental damage, plant cleanup and decommissioning.
Restructured markets for electric power are still in a process of development. New gas-fired generation may corner the market on critical peaking capacity thus increasing the risk of market manipulation and spiking prices. This is currently an issue in California where a legislator prominent in that state’s restructuring efforts, Senator Peace, is now charging that market manipulation by merchant generators and utilities has led to recent high prices.
While local communities are increasingly seeking to determine their future development and character in a planned and democratic manner, proposals for plants can disrupt and override local consensus and control.
This is particularly true and problematic in areas where a regulatory gap exists in regard to proposals by independent developers – on the one hand these developers seek the protection of state-granted "public utility" status to override local zoning and oversight, while, on the other, having no obligation to serve local requirements and avoiding state oversight of many of the functions of the "regulated monopoly" utilities.
The balance between the rights of the general public and the individual property owner is ambiguous in the case of generating plants built by independent developers as well as the transmission and pipeline capacity needed to serve them. Use of "public utility" classifications to avoid local zoning oversight and eminent domain to ensure construction on behalf of unregulated profit-making entities raises significant issues of fairness and process. Even in cases where property owners make deals with developers, the community as a whole or other individuals may suffer uncompensated persistent impacts.
Communities and individuals concerned about power plant development often find themselves unaware, unprepared and unable to adequately educate themselves about the complex issues at stake. They are often put at a disadvantage by the considerable resources arrayed by those who have an interest in development. Moreover, developers, and their allies, often hide behind confidentiality and seek to expedite the regulatory decision making and permitting processes by reference to reliability concerns. In many cases, public trust and morale has been undermined.
As noted, in many jurisdictions a regulatory gap is being created. Public Utility Commissions have drawn back from integrated resource planning and have exempted independent developers from the necessity to obtain construction authority or have made the granting of this authorization almost automatic. At the same time the authority of local governing bodies has been nullified or restricted. A new regulatory paradigm needs to be developed.
Some jurisdictions have acted proactively given this challenge, while others are dealing with the issue in response to citizen backlash against development proposals. Massachusetts has developed a comprehensive approval procedure and criteria for approvals overseen by the Massachusetts Facilities Siting Board. In other states there are inquiries underway and demands for moratoria on new construction until the issues can be sorted out.
Summary
Once again, this is a preliminary outline of issues, but it serves to emphasize that there are very significant policy concerns regarding the new electric generation at all levels – national, regional, state and local.
For the public interest to be protected these issues need to be analyzed much more comprehensively, developments tracked and policy options developed.
Many individual groups and citizens have sought, often with very limited resources, to educate themselves and intervene in the process. It seems clear that there is a need to coordinate these efforts, raise the discussion to a higher level, and find appropriate forums for policy development and advancement.
Moreover there is a need to provide local organizations faced with proposed developments with technical and legal resources so they can understand issues and processes, develop positions and provide meaningful input.
Total Proposed New Natural Gas Generation Capacity(as of March 28, 2000) |
||
|
Region |
Minimum MW |
Maximum MW |
|
ECAR |
17,800 |
20,650 |
|
ERCOT |
26,479 |
26,739 |
|
FRCC |
10,640 |
10,691 |
|
MAAC |
11,183 |
11,583 |
|
MAIN |
20,165 |
21,102 |
|
MAPP |
807 |
807 |
|
NPCC |
34,335 |
35,930 |
|
SERC |
29,103 |
30,103 |
|
SPP |
8,285 |
8,285 |
|
Total |
158,797 |
165,890 |
|
Summary of Proposed Gas-fired Electric Capacity by NERC Region |
|||
|
As of March 28, 2000: all North American Reliability Regions except Western States Coordinating Council |
|||
Compiled by MSB Energy Associates on behalf of Clean Air Task Force |
|||
|
Region |
State |
Minimum MW |
Maximum MW |
|
ECAR |
Indiana |
5,390 |
7,290 |
|
Kentucky |
2,916 |
3,076 |
|
|
Michigan |
2,140 |
2,510 |
|
|
Ohio |
5,038 |
5,158 |
|
|
West Virginia |
2,316 |
2,616 |
|
|
Total |
17,800 |
20,650 |
|
|
ERCOT |
Texas |
26,479 |
26,739 |
|
Total |
26,479 |
26,739 |
|
|
FRCC |
Florida |
10,640 |
10,691 |
|
Total |
10,640 |
10,691 |
|
|
MAAC |
Delaware |
588 |
588 |
|
Maryland |
1,905 |
1,905 |
|
|
New Jersey |
3,220 |
3,220 |
|
|
Pennsylvania |
5,470 |
5,870 |
|
|
Total |
11,183 |
11,583 |
|
|
MAIN |
Illinois |
17,629 |
18,319 |
|
Missouri |
535 |
535 |
|
|
Wisconsin |
2,001 |
2,248 |
|
|
Total |
20,165 |
21,102 |
|
|
MAPP |
Minnesota |
807 |
807 |
|
Total |
807 |
807 |
|
|
NPCC |
Connecticut |
4,966 |
4,966 |
|
Massachusetts |
12,789 |
12,824 |
|
|
Maine |
4,243 |
4,773 |
|
|
New Hampshire |
1,415 |
1,945 |
|
|
New York |
9,840 |
9,840 |
|
|
Rhode Island |
1,082 |
1,582 |
|
|
Total |
34,335 |
35,930 |
|
|
SERC |
Alabama |
4,336 |
4,336 |
|
Arkansas |
2,493 |
2,493 |
|
|
Georgia |
6,871 |
7,671 |
|
|
Louisiana |
1,565 |
1,565 |
|
|
Mississippi |
7,505 |
7,505 |
|
|
North Carolina |
3,160 |
3,160 |
|
|
South Carolina |
753 |
753 |
|
|
Tennessee |
910 |
1,110 |
|
|
Texas |
60 |
60 |
|
|
Virginia |
1,450 |
1,450 |
|
|
Total |
29,103 |
30,103 |
|
|
SPP |
Louisiana |
2,250 |
2,250 |
|
Kansas |
300 |
300 |
|
|
Missouri |
500 |
500 |
|
|
Oklahoma |
5,235 |
5,235 |
|
|
Total |
8,285 |
8,285 |
|
|
Overall Total |
158,797 |
165,890 |
|