Friday, July 19, 2013

Model T or Tesla: Reformers take on $3.9B NJ grid project Post-Sandy plan draws challenge to 20th Century ways


When Hurricane Sandy tore into the east coast last year, it left several million people without power – some for weeks -- and provided what is widely believed to be a preview of life with global warming.

Anticipating more extreme weather, PSE&G is pursuing Energy Strong -- a $3.9 billion plan to fortify its power grid. With funding from ratepayers, the project would raise and protect switching and substations, reinforce utility poles and overhead wires, and replace gas lines and other infrastructure in flood-prone areas. The intention, according to the plan, is to capitalize on low interest rates, cheap natural gas, and “a glut” of available labor to produce a stronger, more reliable power-delivery system that will withstand extreme weather and rising sea levels.

Energy Strong is a massive infrastructure project, but it represents something much more. It’s a critical test of how eager society is to prolong the life of a 20th Century grid designed around fossil fuels, or begin shifting to a new generation of technology that encourages power from multiple energy sources, including wind and solar.

According to an industry-generated release on PR Newswire, Energy Strong draws support from a number of municipalities, labor unions, businesses and health care providers eager for a grid that can withstand extreme weather and the promise of jobs associated with a multibillion infrastructure project.

It is also facing challenges from influential lobbies. The AARP is questioning the return on investment to rate-payers, and the Sierra Club challenges the wisdom of spending billions to shore up rather than modernize an archaic system of power-delivery. Tom Johnson, of NJ Spotlight, has been covering the proposal from the beginning. He summed up stakes of the AARP challenged in a May article.

The dispute underscores the tough choices facing state regulators and utilities, both of which are under pressure from the public to avert widespread outages, that can leave some customers without any power for more than a week. How to do so without increasing electric bills, already among the highest in the nation, is the dilemma facing state officials.

The problem became even more divisive last week, when the New Jersey Sierra Club and the New Jersey Environmental Federation filed a “motion for intervention”with the New Jersey Board of Public Utilities. The motion argued that the agency should focus on energy efficiency, renewable energy, and distributed generation – where energy is produced closer to where it is consumed from a decentralized network of power sources – including  renewable sources and hybrids -- in short, more of what a 21st Century, post-fossil fuel grid would look like.

Johnson reported in a follow-up article this week:

The entry of the two environmental groups in the BPU rate case is unusual, but it underscores the concerns harbored by some who fear the state’s aggressive clean energy goals may be undermined by huge investments in making the power grid more resilient.

This is really an argument about fossil fuels versus renewable energy sources. To some degree, it reflects a broader, national and global argument about justifying capital investments necessary to build the infrastructure for shale gas delivery. Knowing what we know now about climate change, does it make sense to channel money into expanding the life of a carbon-based energy grid for resources that at best will last a few more generations (or less) and at worst make the planet less suitable for human habitation?

According to the motion filed by the Sierra Club, the PSE&G plan misses a critical opportunity to begin adapting the grid to sustainable energy, in addition to reinforcing it. “A solution that focuses solely on the physical protection of infrastructure misses a huge opportunity to address or eliminate the underlying causes of the vulnerability,” the motion states. The environmental groups seek input to the plan “to ensure that cost effective investments going forward capitalize on opportunities to reduce energy demand through energy efficiency and other demand side efforts… Also techniques such as the use of a smart grid, distributed generation and renewable energy sources can provide critical support to the delivery of reliable and cost effective power to the public.”

In a phone conversation this week, Jeff Tittel, director of the New Jersey Chapter of the Sierra Club, told me the plan is based on an archaic model that is “like trying to make upgrades to the Model T automobile in the age of the Tesla… It’s more about reinforcing and elevating and not about being smart.” The intervening parties are not looking to stop the program, but to influence it, he said, adding that additional perspective and planning will ultimately help ratepayers.

Company officials, meanwhile, are pitching the plan as an urgent step to storm-proof the grid in the face of climate change that is no longer an abstraction projected for future generations. More than 1.9 million PSE&G customers (and millions more served by other utilities) lost power after Sandy -- some for as long as two weeks. In addition to Sandy, two other storms -- Hurricane Irene, the freak snowstorm in October 2011 – have in the last two years wrought damage unprecedented in the utility’s 100-year history. As spelled out in a company press kit for Energy Strong: “Keeping the lights on day-to-day is no longer enough. Future investments must be about increasing resiliency, which is the ability to withstand damage and quickly recover from extreme weather and events.”

Whether the economics support an appreciable shift to renewable energy is a matter of public policy as much as technology, and it begins with plans such as the PSE&G proposal. Anti-frackers in New York, where a moratorium on fracking now in its fifth year has spurred a similar discussion about the role of renewables, have seized the opportunity to showcase a plan of their own, which I wrote about in May. It’s authored by Cornell University researchers and demonstrates how the state can be run entirely on non-fossil natural resources – sun, wind, and water. Some say this looks good on paper, but does not readily translate to the real world. But if not now, when will we overcome the inertial forces of a carbon-based infrastructure? At the very least, the New York state plan provides a starting point for much-needed discussions about the empirical framework for life after carbon, and the Sierra Club challenge to the PSE&G plan begins testing our willingness to move progressively in that direction.

7 comments:

  1. Listening to these arguments from PSE&G is like listening to an addict who is complaining about how his habit has ruined his life while he is simultaneously planning how to get his next fix. It's great that PSE&G gets that global climate change is real--that's step one. But PSE&G--and all of us--need to move to step two--we need to kick the fossil fuel habit and we need to do it ASAP. PSE&G's Energy Strong proposal = Energy Wrong.

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  2. Since I always comment on your blog Tom, I'm either a blog stalker or really like your reporting. It's the later. If your work sucked, I wouldn't follow it.

    I can't remember where I read an analysis on electricity economics that supports your central thesis. Could have been Dot Earth, Midwest Energy News, Energy Collective or Grist. Anyway, if someone remembers please cite. The analysis looked into how efficiency measures are hampered by the current rate structure. For example, electricity transmission cost is usually a fixed value each month. So as this cost becomes a greater portion of the overall monthly electricity bill, the incentive for implementing efficiency and use reduction measures are lessened. For example if the total bill is $100 per month and $50 of that is fixed. There's less potential for savings by purchasing LED light bulbs or whatever.

    Equally as interesting is the whole business of electricity transmission and delivery. This function is less sexy to investors (i.e. not as big of a return). And given deregulation, the old utilities are stuck with these assets, while the startups focus on generation. So instead of investors coming up with the capital for modifications or improvements, the cost gets thrown onto the ratepayers even before the thing is built. This is happening to generation facilities as well. Back in the day, a utility had to build a plant with bonds and investment capital and make a return through electricity rates.

    Oh man. Now I remember. The article wasn't on electricity, but water supply and delivery privatization. Same thing but pumps and pipes instead of capacitors and conductors so it still applies. Still no clue where I read it though.

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    1. Glad to have your thoughts. You and Mary always manage to bring depth to the issues.

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    2. Here's the article on water supply and delivery from American Rivers. Very interesting. The similarities between water and electricity (and gas) is important given the proposed economic model discussed in your post. It all comes down to who's going to pay for all the upgrades, assuming not investors and private equity.

      Drinking Water Infrastructure: Who Pays and How (And For What) - See more at: http://www.americanrivers.org/newsroom/resources/drinking-water-infrastructure.html#sthash.nTJaXO4R.dpuf

      Here's the article on how old utilities want to put more of the capital costs (building things like generating plants and transmission and delivery upgrades and modifications)
      http://www.forbes.com/sites/williampentland/2013/07/05/duke-energys-new-ceo-focuses-on-fixing-regulation/

      This way if an expensive gas or nuclear plant is built costing many millions or several billions and I finally sell my perpetual motion machine to the utilities, rendering those expensive plants obsolete - the tax and rate payers are left holding the bag for useless built monuments to 20th century power generation - not the utility and its investors.

      Here's my guess. Modification cost for New York electricity delivery gets funded by tax and rate payers. It gets done. It gets blown down or submerged under water. The investors aren't out any money and don't need to come up with more money to rebuild again and again. Until New York City is moved upland and to the west.

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    3. Thanks for the links and analogies. (Note this is specific to New Jersey, but New York faces the same fundamental global warming-related infrastructure issues.) You are correct that rate payers have a major share in equity. Here is some more on AARP's objections to the program:

      www.njbiz.com/article/20130515/NJBIZ01/130519889/Advocacy-groups-unite-to-fight-higher-energy-bills&template=art

      "...the problem isn’t just the dollar amount, but also the means by which utilities are seeking to receive the money. The utilities are seeking special proposal-specific approvals from the BPU, rather than asking for the money as part of a normal base rate case. The latter involves a comprehensive look at how a utility is spending its money."

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    4. New York, New Jersey, what's the difference? Sorry, I should know better. Here in the Midwest, we (me and others in and near Chicago) tend to see the region as Chicagoland. It really upsets Northwest Indiana, Southeastern Wisconsin, and of course the entire state of Illinois except Chicagoland called downstate.

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    5. Interesting article from njbiz. Here's a essential take away (besides the fact I'm old enough now for AARP membership):

      "“Each of the member companies that I represent would literally have a field day if they could guarantee their stockholders a guaranteed 10.3 percent return,” he said.

      Jennings said the 10.3 percent figure applies only to the equity portion of PSE&G’s investment, which is about 51.5 percent of the total cost. For the debt portion, PSE&G will simply pass its financing costs directly through to ratepayers."

      It looks like AARP and American Rivers are talking pretty much the same thing: utility deregulation and how to cost out efficiency and use reduction by fixed fees.

      ComEd here in Chicago(land) is already doing something just as nefarious. They're allowing wealthy suburbs to lock into low rates for McMansions and Mansions, while applying higher fixed fees and rates to Chicago and close in suburbs where the average square footage of homes is around 1,200 square feet. From Crain's Chicago Business:

      "How ComEd's rate design benefits suburbs over the city"

      Read more: http://www.chicagobusiness.com/article/20130615/ISSUE01/306159979/how-comeds-rate-design-benefits-suburbs-over-the-city#ixzz2Zh4PSppH
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