Community Votes on Oil & Gas Fracking Bans

On election day, voters in four Colorado cities – Boulder, Lafayette, Fort Collins, and Broomfield – weighed in on whether or not to allow hydraulic fracturing in their communities.  Measures to ban “fracking” passed easily in the first three while the Broomfield proposition fell short by only a few votes and appears headed for a recount.  As is well known by now, the state regards the regulation of drilling activities as its sole domain and has filed suit over an earlier fracking restriction in Longmont.

It has been well documented that the state and nation as a whole have benefitted immensely from new oil and gas extraction technologies.  The U.S. is now the world’s largest producer of natural gas and, thanks to new production in shale oil and shale gas, is on a path to become a net energy exporter in a few short years – something that would have been unthinkable not long ago.  Moreover, reductions in greenhouse gas emissions from the electrical power sector are the result of the increase in natural gas fired power generation – a direct result of the decrease in price that has accompanied the increased supply due to fracking (the impact of renewables in achieving this reduction, in spite of receiving a disproportionate amount of press, has been negligible in this regard).  So, in spite of the economic and environmental benefits of hydraulic fracturing and horizontal drilling, why did these communities vote to ban them? 

First, there remains a widespread misunderstanding of the environmental concerns associated with hydraulic fracturing.  Fracking occurs thousands of feet below the surface, well below any source of potable water in the country.  And, in spite of some alarmist propaganda, there have been no demonstrable cases of fracking at depth contaminating ground water supplies.  But, with that said, there have been problems, virtually all of which emanate from poor well completions and other surface or near surface drilling contamination.  While these are not an issue with hydraulic fracturing per se (i.e. they could occur with conventional production as well) they are legitimate concerns.  To some extent, the industry is its own worst enemy, whether it is its own failure to adequately take preventive measures against spills or specious claims about the need for trade secret protection for the constituents of frac fluids.

There are some 50,000 oil and gas wells in Colorado with approximately 2,000 new wells drilled each year.  A check of the COGCC incident reporting database reveals that thus far in 2013, there were just over 100 spills that impacted surface or ground water, with about a quarter of those a result of the September floods.  Most others appear not related to drilling and completion activity but resulted from mechanical failures in collection and distribution systems.  Even though that incident rate is only a few percent, you would probably not get on an airplane if the airline industry’s incident rate was that high.  So, perhaps there is something to learn from the exemplary safety record of the airline industry and the transparency afforded by the Airline Safety Reporting System (ASRS) which allows everyone to share and learn from critical incidents that are voluntarily reported by pilots.  FYI, the same has been suggested for the medical community as well.

It is a fair question to ask why local communities should not have the same right to regulate this type of industrial activity within their borders as they do in regulating building permits, construction, transmission lines, or other industrial activities?  But, perhaps they should consider establishing systems to evaluate drilling activity on a well by well basis rather than enact outright bans.  It strikes me that the referenda on hydraulic fracturing are as much a statement on the state’s oversight of drilling as on concerns with fracking itself.  In other words, do the residents of these communities trust the state and its cognizant regulatory authority, the Colorado Oil and Gas Conservation Commission (COGCC), to protect their interests?  The answer, it seems, may be no. 

I have written in the past about the inconsistency in energy development regulation in Colorado noting that, while the state asserts primacy in the regulation of oil and gas drilling, it remains strangely disinterested in permitting electric generating facilities, be they renewable energy related or otherwise.  For instance, I would venture to say that most citizens are entirely unaware that neither the Public Utilities Commission nor the Colorado Energy Office requires even the most minimal registration of, or could provide data on, all of the electrical generating facilities in the state, the principal exception being the Department of Public Health and Environment which issues air quality permits for them.  Drillers, at least, must file a permit application for each well they seek to drill. 

The bottom line is that I would be no more in favor of having a drilling rig 500 feet from my back door than I am having a 400-foot wind turbine there.  And, before critics decry this as NIMBYism at its worst, consider that both drilling and renewable energy facilities represent industrial development that is not wholly compatible with residential neighborhoods.  The important point is not that these types of energy development do not belong anywhere, but rather that they do not belong everywhere.  And, until the supply of energy (be it liquid fuels or electricity) becomes so critically short, there is no reason to find that no land – be it residential or wilderness – should not be off limits.

Yes, the state and the oil and gas industry need to get their acts together and do a better job of understanding and responding to the legitimate concerns of the public.  Perhaps a reporting system analogous to the ASRS mentioned above would help.  Local communities that seek to ban hydraulic fracturing entirely, on the other hand, need to consider more flexible regulatory schemas that can be applied with more precision than a sledge hammer.  The nation, the economy, and the environment have benefitted from unconventional oil and gas development and we need to figure out how to keep this train rolling.

Renewable Energy Reality Check

Ordinarily, I don't devote too much space here to repost other writers' columns but I recently came across the One in a Billion blog by Schalk Cloete, a South African doctoral candidate currently studying in Norway.  He recently posted to his blog a column entitled the Renewable Energy Reality Check which I recommend to you. The theme is precisely as it sounds, that is, as a practical matter there is only so much we will be able to do with renewables to combat climate change. Cloete's column has also been reviewed by the Pittsburgh Tribune-Review which can be found here. Of course, there are others who contend that his argument lacks vision. To that I would caution that there is a fine line between vision and hallucination. As a pragmatic renewable energy professional, I find his thoughts worthy of consideration.  

Colorado's SB-252 Advisory Committee Falls Flat

Upon signing controversial Senate Bill 13-252 which increased the Renewable Energy Standard for Colorado rural electric cooperatives, Governor John Hickenlooper issued an executive order creating an advisory committee to “advise the Director of the Colorado Energy Office (CEO) on the effectiveness of SB13-252.” Specifically, the committee was charged with three goals:

1. To advise the Director on the feasibility of achieving the twenty percent renewable energy standard by the year 2020, as required by SB13-252;
2. To advise the Director on administrative and legal considerations related to the two percent consumer rate cap and the impact the rate cap will have on the ability for impacted utilities to comply with the twenty percent renewable energy standard; and
3. To advise the Director on related legislation for the 2014 session.

Unfortunately, for the reasons I will describe, this was a fool’s errand from the start. The advisory committee was composed of twelve voting and three ex-officio, non-voting members. But, most members of the committee were so poorly versed in the mechanics of Colorado’s renewable energy standard as to render them incapable of informed participation, a situation exacerbated by the CEO’s hiring of a facilitator equally unknowledgeable about any aspect of the RES.

From July through September, the committee met three times in open session. Under pressure from the facilitator, the committee decided that only those recommendations on which it would achieve consensus would be passed on to the CEO. Actually, there didn’t seem to be consensus on this either but given that no one was in charge, the facilitator simply adopted it. The committee’s (or should we say the facilitator’s) second mistake was that only members of the committee would be allowed to participate in the discussion. This left them struggling with understanding important aspects of RES implementation about which there were known and straight forward answers. One such question concerned how the rate cap and surcharge were being implemented by the investor owned utilities. This led to such uncertainty that on one occasion during the second meeting the committee ultimately agreed to allow an unnamed “observer” (yours truly) to explain to the group how the Renewable Energy Standard Adjustment worked.

On September 30, the committee published its final report. While the report describes discussions that took place concerning the feasibility of meeting the RES within the 2% rate cap and other implementation concerns, it is devoid of any consensus recommendations concerning 2014 clean-up legislation. Rather, the report presents five recommendations that were discussed but which failed to receive unanimous support. Only proposals to allow large hydro and energy efficiency to count toward RES compliance received majority support.

The committee did reach consensus in deciding that achieving the 20% by 2020 standard was feasible, but only insofar as the use of purchased RECs was permitted. Other areas in which the committee did reach agreement were that utilities would be allowed to decide for themselves how they would calculate the rate impact and that the rate cap did, in fact, absolve a utility from compliance. The problems with this should be obvious. An additional concern that was not discussed by the committee is the potential in SB-252 for double counting of RECs, which would go against conventionally accepted compliance practices.

Unfortunately, because the committee was isolated from outside input, it also failed to reach consensus on, or even discuss, some common sense changes that would facilitate coop compliance and ameliorate some of the cost impacts. So, I’ll present three of my recommendations which would benefit the distribution coops:

1. Permit thermal RECs to be used for at least 25% of RES compliance. Not only would solar thermal and geothermal heat pump systems facilitate RES compliance, but their inclusion in the list of eligible resources for coops would provide a source of clean energy while also increasing the load factor for the utilities.

2. Rescinding the 1.25 in-state multiplier for Colorado renewable energy systems essentially acknowledged legal concerns that it violated the dormant commerce clause of the U.S. Constitution. But, there would likely be no prohibition against requiring that energy used for compliance be delivered into Colorado (or perhaps even the respective utilities’ service territories). Given that the Colorado grid is, for the most part, an island system, this would provide an alternative way of ensuring that the economic benefits of increasing renewable energy development remain in Colorado. 

3. Focus on increasing hydro power from existing impoundments which would provide a source of clean energy without the environmental impact of building new dams.

These are just three modifications to the RES for coops that would facilitate compliance while making the standard more palatable to Colorado's rural electric utilities. There are ways for coop RES compliance to benefit rural Colorado, but SB-252 was rushed through the legislature without sufficient discussion to enable a complete exploration of the possibilities.

Local Sourcing of Renewables – Desirable? Legal? Inconsistent?

Colorado’s Senate Bill 13-252, which passed through the General Assembly strictly on a partly line vote and which will presumably be signed into law by Governor Hickenlooper, accomplishes three principal objectives:

1. It expands the renewable energy obligation of the state’s rural electric cooperatives and their wholesale provider, Tri-State G&T; 
2. Adds electrical generation fueled by captured coal mine methane and syngas from the pyrolysis of municipal solid waste to the eligible energy resources for compliance with the RES; and
3. Removes the in-state multiplier for compliance with the RES. 

In a column a few weeks ago (click here), I spoke about this bill when it was first introduced and how it was being shepherded through the legislature. One of my principal concerns was that it perpetuates the nonsensical, opaque, retail rate impact calculation in the Colorado RES that has been circumvented at every opportunity by Colorado’s two investor owned utilities with the complicity of legislators and regulators. Though this retail rate mythology persists, I am less concerned about the co-ops abusing it at the expense of their ratepayers than has been done by the IOUs. 

Today I would like to focus on the in-state multipliers which grant a preference to Colorado-based projects over those from out of state. The rationale for eliminating the in-state preference was an acknowledgment that it would likely be found to be an unconstitutional violation of the dormant commerce clause of the U.S. Constitution (Article I which expressly grants to Congress the power to regulate commerce among the states). OK, fair enough, though there are probably ways around that prohibition such as requiring that the project actually deliver energy into Colorado’s grid in order to be eligible for the RES. 

But today, out of Ontario, Canada comes word that the World Trade Organization has ruled against the province’s local content requirements for receipt of incentives paid to producers of renewable energy (click here). While not strictly the same as the in-state preference under Colorado’s RES, the parallels are obvious. Moreover, recall that there has been criticism of wind production tax credits that have been claimed by developers (domestic and foreign) because of the high foreign content of wind turbine generators (especially the generators and gear boxes). Hence, at a national level we find local preferences to be illegal and at an international level we now find local sourcing requirements to be equally problematic. So much for the argument about the economic development benefits of state renewable standards – they may exist but only if the lower transportation costs of local sourcing outweigh the lower costs of foreign produced goods. 

On the other hand, out in Nevada, the legislature is considering a bill to close certain loopholes in Nevada’s renewable standard – coincidentally, also Senate Bill 252 (see the report in the Las Vegas Sun). This bill would ratchet down the amount of energy efficiency credits that can be used toward RPS compliance. According to Nevada’s Governor, the law should not allow the utility “…to meet the portfolio standard by handing out energy-efficient light bulbs at Home Depot.” Seems reasonable. Ironically, Colorado’s Senate Bill 13-272, which would have required that 30 percent of gas-utility DSM funds be dedicated toward more substantive technologies such as solar thermal and ground source heat pumps was killed in committee (see my post on this topic here). Hence, our DSM programs remain focused on energy-efficient light bulbs handed out at Home Depot… and perhaps Lowes.

Comments on Colorado Senate Bill 272 Encouraging Greater Use of Renewable Thermal Technologies in DSM Programs

On April 18, the Colorado Senate Agricultural, Natural Resources and Energy Committee took up SB13-272 which encourages greater use of renewable thermal technologies in utility DSM programs.  I have been advocating such treatment, especially with respect to ground source heat pumps, for several years.  The hearing room was packed with both proponents and opponents and, unfortunately, time constraints did not allow me to testify in favor of the bill.  Below are the prepared remarks that I would have delivered if given the opportunity.

Comments on SB13-272

Richard P. Mignogna, Ph.D., P.E.

Madam Chairperson and members of the committee, thank you for this opportunity to testify in favor of SB13-272.  I am presently the principal in a small consulting firm, Renewable & Alternative Energy Management, LLC in Golden.  Prior to founding my business, I served for more than 6 years on the Staff of the Colorado Public Utilities Commission as a Professional Engineer and Senior Authority on Renewable Energy.  I was, essentially, the fiscal note attached to the legislation implementing Amendment 37.  I am testifying before you today not on behalf of any trade, industry, or advocacy group, but only as an independent, knowledgeable individual to help you evaluate this proposed legislation and act in the public interest.

While at the PUC, I spoke on numerous occasions about the potential for ground source heat pumps, in particular as part of DSM programs.  Hence, it is encouraging to see some of those concepts coming to fruition in this bill.  It has not been a surprise to me that what are termed highly energy efficient renewable thermal technologies have been underrepresented in utility DSM & energy efficiency programs.  Today, you may hear about the low price of natural gas as a contributing factor, but this was true even when natural gas prices were three times what they are now. 

The reasons for this are complex and have more to do with the difficulty in evaluating the benefit/cost ratio of renewable thermal technologies such as solar thermal and ground source (aka geothermal) heat pumps.  On the electric side, determining the energy savings of a new dishwasher or refrigerator, or even CFLs and LEDs is a relatively simple matter.  But, evaluating the energy savings and environmental benefits of thermal technologies used for space conditioning and water heating is more difficult.  No less real, just more difficult.

For example, one must consider whether the installation will be in a heating dominated climate or a cooling dominated climate.  On the heating side, what fuel is being displaced? Propane? Electricity? Natural gas?   On the cooling side, ground source heat pumps displace electricity used to power air conditioning, and naturally the environmental benefits will depend on what fuel would have been used to generate that electricity.  So they perform double duty.  But, while they are extraordinarily efficient, they do have a high first cost and retrofits can be especially challenging, which is why support through DSM programs is especially important.

I understand that the introduced version of SB13-272 has been significantly modified by a strike-below amendment which is presently under consideration.  Nonetheless, I still believe that even the current version of SB13-272 is a positive and welcome step forward in energy efficiency and in fostering consumer applications of renewable thermal energy technologies.

The introduced version of the bill did contain a few notable deficiencies, some of which have been remedied in the current amended version.  The first and most critical was removal of the apparent requirement for cost recovery of a portion of utility DSM expenditures in base rates where they could have been hidden from scrutiny by the ratepayers who are paying for these programs.  This has been one of the principal difficulties with RES funding, much of which is hidden in the Electric Commodity Adjustment (ECA) rider.  Also, present statute §40-3.2-103(2)(c)(I), created by HB07-1037, specifically anticipates cost recovery for DSM without the need to file a rate case, hence the present DSMCA.  With that said, current statute §40-3.2-103(2)(c)(II) and PUC rules already provide utilities with an option to file for base rate recovery of DSM expenditures, so it is not clear that this provision was needed in this bill.

Next, the cap on DSM expenditures of 4 percent of revenues is probably excessive.  Consider that the RESA for the RES is presently set at only 2 percent.  Current gas DSM rules require expenditures of the greater of 2 percent of base rate revenues or ½ percent of total revenues.

A useful provision in the introduced bill, which has been stricken in the amended version, called for utilities to devote 30 percent of their DSM expenditures to renewable thermal energy technologies such as ground source heat pumps and solar thermal systems.  Replacing the 30 percent provision is language that merely instructs the PUC to “give [its] fullest consideration to DSM plans that incorporate a diversity of DSM measures.” The deletion is unfortunate because I don’t believe that the remaining provisions of the bill (i.e., replacing the total resource cost test with a utility resource cost test) will provide sufficient support for these technologies to move the needle. 

The only problem with the 30 percent clause in the original bill was that it called for the PUC to direct utilities to “allocate at least thirty percent of [their] DSM program funding to the development of renewable thermal technologies.” This should merely have been reworded to deployment of renewable thermal technologies since we’re not talking about an R&D program but incentives to encourage consumers to adopt these technologies.  With present DSM programs, ratepayers are already making a substantial investment in energy efficiency.  This bill is needed to help direct that investment more effectively.

Both the introduced and amended versions of the bill instruct the PUC to direct such expenditures by 01 July 2013, but they do not require a rule making identifying the eligible technologies until 30 September 2013.  In my experience, the rule making needs to come first.

With these few, simple fixes, I believe that SB13-272 will be worthy of your support and I encourage its adoption.

A Controversial Bill to Expand Colorado's Renewable Energy Standard

An editorial in the 10 April 2013 issue of The Denver Post discusses a proposal recently introduced in the Colorado Senate to extend and expand Colorado's Renewable Energy Standard.  You can read the Post's editorial here.

Those who are interested can track the progress of Senate Bill 13-252 on the Colorado General Assembly website.  In expressing its concern with this bill, the Post states "A 2007 law requires the co-ops and their utility supplier, Tri-State Generation and Transmission Association, to meet a 10 percent renewable standard by 2020."  This is only partly true.  Co-ops are held to a 10-percent by 2020 standard in the RES, but Tri-State G&T, the wholesale supplier to 18 of them, has no compliance obligation at all.  SB13-252 would put Tri-State under a 25-percent standard.

While The Post argues that the legislature may be moving too fast on this bill -- and they may be right -- we have long held that it is fundamentally inequitable for approximately half the state's electricity consumers (the 55 percent who are served by Xcel or Black Hills) to fund the RES obligation while muni and co-op customers enjoy a free pass, or nearly so.  With that said, the 2-percent rate impact limitation crafted in this bill is even more byzantine than the so-called rate impact limitation in the RES for investor-owned utilities (Xcel and Black Hills) which has been treated as merely an inconvenience to be circumvented at every opportunity.  A totally different approach to rate protection and renewable energy funding is called for than what we now have.  If you don't believe that, ask why Xcel's RESA deferred account is tens of millions of dollars in the red -- and upon which you're paying interest.

One of the more beneficial aspects of SB-252, however, is the addition of electricity generation using vented coal mine methane to the list of eligible RES resources.  That provision is clearly worthy of support.

Last, SB-252 also eliminates in-state preferences such as the 1.25 REC multiplier for Colorado-based projects.  This provision, many feel, is an acknowledgement that the suit against Colorado's RES, at least on that point as a violation of the Interstate Commerce Act, is likely to be successful.  But, rather than simply removing the multiplier, the bill's proponents apply the multiplier to all projects regardless of location without limitation, at least through 2014.  That is hard to justify as there are other mechanisms for implementing various preferences that would not violate the Commerce Act.

As I write this piece, SB-252 was recently passed out of the Senate State, Veterans, and Military Affairs Committee (a questionable committee assignment) and on to the Senate floor.  It will be interesting to see what happens to it from there.