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5.5 ERMUSR 03-17-2015 2015 FEDERAL POSITION STATEMENTS filik 1 a c ;; �.,, k„ � s..t=HT. � y5am�, .mod. " ,L,, �t �'� i+ --j�, j 't E � ir- z # i + . ' l t ttintigt d ! T _- _ if ,will rti ti i� + . 1 Iii IL . ' ' - Llr I� 1, r DMDMIJJ Table of Contents The EPA Clean Power Plan — Minnesota Needs Major Changes in the Final Rule 3-6 Preserve and Protect Tax-Exempt Financing 7 Grid Security 8 Captive Rail Shippers Need Reform 9 Why Public Power? 10 Municipal Electric and Gas Utilities of Minnesota 11 Photo/graphic credits: All photos,graphics and tables by MMUA,except for: Cover: U.S. Government Photo Page 4, bottom photo, courtesy of MMPA Page 6, National Renewable Energy Lab Page 10,courtesy of Owatonna People's Press Back cover,Architect of the Capitol, public images larrigivie am:1 0 Position Statement The EPA Clean Power Plan — Minnesota Needs Major Changes in the Final Rule The electric utility industry is suddenly facing more /7--- - than a dozen environmental regulations over the next few years on a host of issues, including air pollutants, greenhouse gases, water, and coal combustion residuals. Several regulatory programs could transform the entire electricity industry,causing major concerns over reliability of the grid and possible significant increases / in consumer rates.The most problematic regulatory ii effort for Minnesota is EPA's Clean Power Plan, a major undertaking that seeks significant nationwide / reductions in carbon dioxide emissions from existing power plants. r` / f On June 18, 2014, the U.S. Environmental Protection r ' Agency(EPA)published a proposed rule known as the Clean Power Plan(CPP).The CPP would establish r emission guidelines for existing electric generating units t (EGUs)under section 111(d) of the Clean Air Act(CAA). EPA is expected to issue the final version of the CPP in mid-summer 2015.MMUA filed extensive comments on the proposed rule.The final rule will likely contain ' significant changes and clarifications. a=/, Legal Issues The CPP is very different from clean air regulations developed by EPA in the past. It is subject to numerous legal challenges and is probably more susceptible to ,' being overturned than most new regulations. A. Section 111(d)of the CAA is intended to regulate f stationary sources of air pollution,but the CPP doesn't regulate individual sources, such as power plants. It regulates states.The law intends that states develop ! / plans which establish standards of performance for 1j,it power plants. But the CPP turns this process on its head and makes states the regulated entities rather than the The CapX2020 transmission lines will serve Minnesota's regulators that the law intends them to be. expected growth and help begin to meet Minnesota's Of the nearly 100 New Source Performance Standards Renewable Energy Standard (RES). The Brookings County (NSPS) and emission guidelines EPA has developed Hampton 345 kV line (pictured) will expand access to wind resources by adding about 700 MW of capacity to the since 1970,every one has been based on a"system of transmission grid.This line,along with other projects recently emission reduction"that is incorporated into the design completed or currently under construction or in the planning or operation of individual sources.The CPP instead stages, has the potential to add nearly 2,000 MW of wind uses a series of"building blocks"that go well beyond the capacity to the transmission grid. It's estimated Minnesota operational characteristics of the power plant that is needs about 5,000 MW of renewable energy to meet the RES, the source of the CO2 emissions that the EPA wants to one of the nation's most aggressive renewable energy laws. reduce. Unfortunately, early actions to reduce greenhouse gases are not recognized under the Clean Power Plan as proposed. The EPA would replace the Federal Energy Regulatory Commission and the states to become the primary 2015 Federal Position Statements/3 DMDMIL regulator of electric power within the United States, including regulating(i)the dispatch of electric generation, (ii)the amount of renewable power to be built, and(iii) the electricity consumption of customers. This is an enormous and transformative expansion in EPA's regulatory authority without clear congressional authorization, which is precisely what the Supreme Court recently invalidated in UARG v. EPA, 573 U.S. at 2431 (2014). CPP treatment of early action Under EPA's methodology, states are assumed to achieve minimal reductions in CO2 emissions from the electric utility industry during the 15-year period from 2005 to 2020. States are then required to achieve their entire assigned reduction(41 percent for Minnesota)during the 10-year period from 2020 to 2030. This construct not only flies in the face of reality in early adopter states such as Minnesota,it also ignores the incremental pace of change that occurs in the highly regulated and capital- intensive electric utility industry. Although the goal of the CPP is to achieve a 30 percent reduction in 2005 carbon dioxide emissions,the actual it base year for the plan is 2012. Reductions in CO2 :<, t emissions achieved during the seven-year period from 1/ 2005 to 2012 are completely ignored by EPA's formula. ' ! rz "` $ �� Further, any CO2 reductions during the eight-year period from 2013 through 2020 beyond EPA's modest Minnesota utilities have been diligently adding renewable assumptions should count toward achieving the state's resources for years.These two wind turbines south of Fairmont goal. were dedicated in 2003.They are owned by SMMPA and feed directly into the Fairmont Public Utilities distribution system. Minnesota Greenhouse Gas Reduction Efforts Minnesota has been a leader in the Upper Midwest in developing state energy policy to reduce greenhouse gas emissions. Minnesota has established a goal of reducing greenhouse gas emissions from 2005 levels by 15 percent by 2015, 30 percent by 2025 and 80 percent by 2050. Our RES requires power suppliers in the state other than Xcel to achieve 25 percent renewable energy - "' �•• '" ""` by 2025.Xcel, which accounts for about 46 percent of 4°'_ — - _ _ total sales,is required to achieve 30 percent renewable energy by 2020. Minnesota has banned the construction The Hometown BioEnergy plant near LeSueur, owned by the of or purchase from large new coal-fired power plants Minnesota Municipal Power Agency,produces fuel made from and imposed one of the most stringent energy efficiency refined food and agricultural processing wastes. The eight- requirements in the country. megawatt plant entered service in 2014. The Sustainable Building 2030 program requires least 1.5 percent of retail electric sales made by investor- performance standards for new and substantially owned utilities must come from solar energy. reconstructed buildings to reduce their CO2 emissions by 60 percent in 2010; 70 percent in 2015; 80 percent in Greenhouse Gas Reduction Program Results 2020; and 90 percent in 2025. It is an energy goal of the A review of Minnesota data clearly shows both how state that by 2030, 10 percent of the retail electric sales effective Minnesota's efforts have been, and how severe in Minnesota be generated by solar energy. By 2020, at the penalty can be for an early adopter state. 2015 Federal Position Statements/4 DMDMIL(( ,,,Iv,wV Figure 1 Annual Minnesota Generation from Selected Sectors,Sales,and Electric Industry CO2 Emissions 2005-2012 Electricity Net Electricity Net Electric Power Total Electricity Net Generation Generation Electricity Net Minnesota Industry Carbon Generation From From Nuclear Generation Total Retail Carbon Dioxide Dioxide From Coal Natural Gas Electric Power From Wind Sales Emissions Emission 1,000 Metric Rate Year mWh mWh mWh mWh mWh Tons lbs/mWh 2005 32,949,845 2,707,267 12,835,219 1,582,477 66,019,053 39,516 1,640 2006 33,070,451 2,560,797 13,183,418 2,054,947 66,769,931 38,183 1,578 2007 32,190,373 3,842,477 13,103,000 2,638,812 68,231,182 38,321 1,548 2008 31,755,253 2,865,846 12,996,838 4,354,620 68,791,615 36,821 1,479 2009 29,327,226 2,846,483 12,393,425 5,053,022 64,004,463 33,689 1,412 2010 28,082,550 4,340,847 13,478,046 4,791,723 67,799,706 32,946 1,350 2011 28,258,626 3,350,773 11,958,525 6,725,695 68,532,708 32,618 1,351 2012 22,722.774 7,088,205 11,943,790 7,615,408 67,988,535 28,494 1,201 Change -31% 162% -7% 381% 3% -28% -27% Source: EM Minnesota Electricity Profile, Tables 5, 7,and 8 2005—2012 Unfair treatment of early adopter states Figure 1 shows a 27 percent reduction in Minnesota's Minnesota is on track to achieve reductions in CO2 annual power sector CO2 emissions from 2005 to 2012. emissions from electric generation of perhaps 30 percent As we point out below, Minnesota's newest'and most during the fifteen year period from 2005 to 2020. These efficient coal plant was off line during all of 2012, reductions need to count toward achieving our goal which makes Minnesota's CO2 emissions for that year under the CPP. The EPA plan disregards substantial abnormally low. If we assume that half of the reduction reductions in CO2 that are being achieved in Minnesota from 2011 to 2012 is due to the Sherco 3 outage and and other early adopter states. Minnesota would be half due to the impact of Minnesota energy policy, the forced to achieve a 41 percent reduction in CO2 emissions reduction is still 21 percent. The Great Recession had by 2030 after reducing emissions by perhaps 30 percent an impact on electricity sales, but total retail sales in the years leading up to 2020. have returned to pre-recession levels, so any recession impact on CO2 reduction in the 2012 data is minimal. Minnesota's electric utilities are making substantial To be conservative,we can state with confidence that investments to achieve today's greenhouse gas emissions Minnesota achieved a genuine greenhouse gas reduction reductions.And the reductions achieved from 2005 to of 15 percent to 20 percent from 2005 to 2012. 2020 will make further mandated reductions that much more difficult and expensive to achieve. Our consumers 2013—2020 will have to bear the huge cost of reducing CO2 emissions Minnesota will continue its aggressive greenhouse by as much as 70 percent by 2030. EPA must recognize gas reduction policy during the eight-year period from the pre-2020 emission reductions achieved by Minnesota 2013 through 2020. In 2020 Xcel will be at 30 percent and other early adopter states in the final rule. renewable and all other power suppliers will be at 20 percent renewable(on the way to 25 percent in 2025), Choice of baseline period for a statewide renewable portfolio of 24.6 percent. Sherco 3,Minnesota's newest and most efficient coal Minnesota's aggressive energy efficiency requirements plant(jointly owned by Xcel Energy and Southern and energy efficiency performance standards for Minnesota Municipal Power Agency(SMMPA)) was buildings will provide increasing levels of greenhouse off-line during all of 2012, the year used by EPA as the gas reductions with each passing year. Minnesota energy baseline in the CPP.As a result, Minnesota's mandated policy will provide additional greenhouse gas reductions CO2 reduction in the plan is substantially larger than it from 2013 through 2020 of 10 percent to 15 percent. would be if EPA had used typical Minnesota annual coal generation in the plan. EPA needs to allow Minnesota to 2015 Federal Position Statements/5 I,,I,IwV select a baseline period that provides an accurate picture MMUA Position of our coal generation in a typical year. As proposed, EPA's Clean Power Plan presents very serious problems for Minnesota. In the final rule EPA Cross-state ownership of renewables must recognize and take into account the very real The CPP treats all renewables located in a state as greenhouse gas emission reductions that Minnesota essentially"belonging"to that state. But ownership of and other early adopter states have achieved and will renewable energy projects isn't that simple.Minnesota continue to achieve prior to 2020. Minnesota must be power suppliers have developed or contracted with allowed to select a base period that provides an accurate renewable projects in other states in order to meet picture of our coal generation in a typical year. EPA the requirements of our renewable energy standard. must exercise great care in determining how renewable Conversely, utilities from other states have developed energy projects are to be allocated among states that renewable projects in Minnesota. EPA will have to have legitimate reasons to claim the output under the clarify how renewable energy projects are to be allocated CPP. among states that have legitimate reasons to claim the output under the CPP.Any decision the EPA makes will We urge the members of Minnesota's Congressional produce winners and losers, and will have a significant delegation to tell EPA that Minnesota needs relief in impact on Minnesota's ultimate obligations under the the final rule from these troublesome and ill-designed CPP. aspects of the proposed CPP. ,,,,,,... ..,,,,,4-„,...,,* 'N*...• ` - -. *:;,:wirs 4 r .' i- or alp y - -ate A �1 '�' '/- 4,„... to ./ . .„..:. ,.„,.q s - r•i 4: "a' S. > F- ,, ,ems !+r it ;r } t *fi r.-' 14. A? ? , r,iky 7,„ `�3-i:r._ ' - ti•4 '"' fib' { 2' it* ''.5 .y is' °.? ` ... *IA f il'4 #6. Y st . 'r , � _'._ -'r- r- Wind Speed ti. w :i rills toe:410a ,....os .t . ' .0,,_,.,..., '''C w-.4-' t t+ate ;;ii 5.0 4.0 . cd0 Source:Wind resource estimates devetoped by AWS True r, f LLC for windNain atorg.Web.hlt alwwwwlndnavr ator.00m ' ° NREL ht1p:/A vw aws1ruepower.cam.Spatial resolution or wind resource •:;" data:2-5 km.Projection:Albers Equal Area VUGS84. - Recognizing the greater wind resource to the west,Minnesota utilities have built significant wind resources there.However, the Clean Power Plan credits those resources to North and South Dakota,not Minnesota. 2015 Federal Position Statements/6 hiffiffA r ir 0 iffirliffig Position Statement Preserve and Protect Tax-Exempt Financing Tax-exempt municipal bonds are critical financing tools 4' ___:2i for all public power utilities, which are entities of state ��" and local governments. These bonds help build utility �` and community infrastructure;indeed, nearly three- "te quarters of the infrastructure built in the U.S., including -t t roads,bridges, schools,hospitals,water and wastewater .a;. = / � �,,, /,:�' treatment plants, and publicly-owned electric utility r q' �"`k facilities are financed with muni bonds. These bonds are - .- &l desirable to investors because the earned interest is not ff7/ !''. X4 -----' r' r` ,n subject to federal income tax. (cs �, _ ,..,, The federal tax exemption on municipal bond interest '� '� r' has been in place since enactment of the very first . •. . i r" ► P federal tax code in 1913. It has allowed state and local ['.rs 1 q..-r. ' �.• +�AIII governments to save,on average, an estimated two ' r. 1,,.......... _ .,. j percentage points on their borrowing,which translates ,tip ' ' - :,.; into a 25 percent savings in public infrastructure costs ' - r "" over time. Over the past few decades,tax-exempt ' ' i financing has generated trillions of dollars of investment ! in vital public infrastructure, saving state and local Ai -- , 00. , / II governments hundreds of billions of dollars in interest , ` 1 , ii / _ . Ai costs. ; '� � , ' ,:, ,.... But muni bonds are under assault from all quarters, 1 a„ , jLL� ° 4,ii including recent White House budget proposals that ' r ��._ F ii seek to cap the tax value of the exclusion on muni bonds; — { ` .v this amounts to a surtax on the interest of those bonds =- `— :, - -- and would increase borrowing costs by 32 to 35 percent. - - - - Further,this proposal would apply retroactively to$3.7 ;., _ -- = trillion of existing bonds, imposing a significant financial Nearly three-quarters of the infrastructure built In the U.S. is burden on public power communities. financed with municipal bonds. Proposals to tax municipal bonds would impose higher borrowing costs on cities and other local governments and higher rates for municipal services such as electric, and discourage investment in critical infrastructure. water, and wastewater service. Increased borrowing costs would lead to higher taxes It seems ironic that in this era of ever more costly environmental regulations, Congress and the White House are looking to limit the one tool that local governments have to control costs as they make - (! the investments necessary to comply with one new ri 1)--,,, J,_ =- ' ,j 1 I regulation after another. ,,,,* _II' 1 ! Y_ ' ...... MMUA Position 1"' -- We urge Congress to preserve the traditional tax exempt financing tools used by local governments since the development of the federal tax code more than a hundred years ago, and to reject all proposals that would '"` limit or eliminate the tax exempt status for municipal Tax-exempt bonds were a vital financing vehicle for the U.S. bonds,including replacing muni bonds with tax credits Highway 10 reconstruction project through Staples,including or"direct payment bonds." the overpass visible in the background. 2015 Federal Position Statements/7 11DMDML 11117110,11 Position Statement Grid Security Public power utilities, along with the rest of the electric industry, take seriously their responsibility to maintain the very __ high degree of electric grid security that r is absolutely essential to the welfare and security of the nation. That is why the industry worked together to reach consensus on a mandatory reliability plan in the Energy Policy Act of 2005 (EPAct05). ^ The electric utility industry is the only critical infrastructure sector, along with nuclear power plants, that adheres to federal - - mandatory and enforceable reliability and t cyber security standards;this is known as the FERC-NERC process (Federal Energy - I Regulatory Commission and North American Electric Reliability Corporation),which - oversees the standards as prescribed in the The electric utility industry adheres to federal reliability and cyber security EPAct 05. standards.We take threats to the electric system very seriously. We take threats to the electric system very seriously.We know that we need to MMUA Position be on constant guard against cyber-attacks.We also We recognize that grid security legislation is coming. understand how critical it is to protect our physical We support enhanced information sharing between the assets—our power plants, transmission lines, and federal government and electricity industry. We also substations. support narrowly crafted and targeted legislation to address grid security emergencies. We don't support Electric utilities are working diligently with regulators legislation that would place an unnecessary burden to develop the necessary standards and make sure that on Minnesota's relatively small public power systems, they are upgraded to ensure that our defenses are up to duplicates existing systems, and would deliver little in date. Critical Infrastructure Protection(CIP)Version the way of additional results. 3 cybersecurity standards are currently in effect and enforceable.Version 5 has been approved by FERC and will be enforceable on April 1, 2016. FERC has also approved a new physical security standard to protect our most critical substations which becomes enforceable beginning on October 1, 2015. l - 4 The public power community supports NERC's Critical Infrastructure Protection standards, as well as efforts "f.:4107‘ g, by the Electricity Sub-sector Coordinating Council to " . improve cyber standards throughout the industry. We '1'1,4+ 4,° also encourage our local utilities to adopt the cyber g P Y l Ml � security framework outlined in the White Houses 1 * Executive Order in 2013, and support FERC's new "-` < physical standards that go into effect later this year. However, we do not support legislation that would place an unnecesary burden on small public power systems and deliver little In the way of additional results. 2015 Federal Position Statements/8 Position Statement Captive Rail Shippers Need Reform Nearly 40 percent of total US electricity comes from coal.About 46%of the electricity generated in Minnesota came from coal-fired Prpt electric power plants in 2013. That _ coal is typically shipped by rail, often by a single railroad,with „,.. ' no transportation alternatives, making the utility coal customer "captive"to the railroad. Over the past year electric utility captive shippers have experienced ¢. unprecedented delays in delivery • of coal. Coal stocks at many power plants have often dwindled to 4 dangerously low levels, potentially threatening the reliability of the I electric system.And despite the poor service, costs remain very = . high. The rail transport costs are often far higher than the cost The Willmar Municipal Utilities combined heat and power plant is adjacent to railroad of the delivered product itself. tracks,and relies on the railroad for fuel deliveries.The utility is among those who have This also occurs in other key had frustrations with what appears to be a straightforward issue: delivering fuel to sectors of the economy, including power plants.Pictured is Wes Hompe,now the utility's general manager. agriculture, chemicals, pa er , steel, and many more. customers to enhance rail competition and improve Two public power communities, Hibbing and Virginia, customer protection provisions.We also support are trucking coal from Superior, Wisc., because they removing exemptions from antitrust law long enjoyed by can't arrange for rail delivery of coal to their power the rail industry. plants at a reasonable cost.As a result,Virginia pays $58.77 per ton for delivered coal, and only $13.30, or 23 percent,is for the coal itself. The Surface Transportation Board has shown an increasing level of interest in the concerns of shippers in recent years,but overall it has had little or no effect on the dominance of the railroad industry.We appreciate the fact that the STB recently required BNSF to submit "*,, plans to deal with dwindling coal supplies at utilities. But the STB lacks both the authority and the will to try take the steps necessary to force railroads to provide _ --, adequate service at fair prices. MMUA Position Legislation is necessary. Lack of competition in the rail -, ; _ ts, industry,coupled with the lack of access to regulatory relief, threatens electric reliability in Minnesota and Agricultural interests are also keenly aware of the need for rail throughout the coal-dependent Midwest.We support reform.Agriculture is important economically to many MMUA the STB reform initiatives endorsed by freight rail member communities,including Warren(pictured here). 2015 Federal Position Statements/9 IMDML FAs,, Position Statement Why Public Power? ,, i ,;, V 4q, ,..„ 4.4 -''' .1 111:L ,i ,^, -..- te. \4 i 4 b \ . ,,- \ 1 iA i , photo courtesy of the Owatonna People's Press One hundred twenty-five Minnesota cities benefit from • We're owned by our customers.There is no tension having a locally owned and locally operated municipal between the interests of customers and the interests of electric utility. Thirty-one cities have a municipal stockholders. Our focus is Main Street, not Wall Street. natural gas system. Fifty of our eighty-seven county We work for you. seats are served by a municipal electric or gas system. A not-for-profit municipal electric or gas utility is a • We're not in it for the money.Municipal utilities tremendous asset in these uncertain times. Here are are not-for-profit and operated in the public interest. some of the reasons why: Our goal is long-term community benefit, not short-term gain. We work hard to save you money. • We have great service.We're part of the community and our policy makers, managers and workers are part • We're the yardstick for the industry. For of the community. Our crews are always on hand in generations, public power systems have set standards the event of emergency.You don't need to call an 800 for rates and service that other utilities have had to number to talk to us. meet. • We're locally regulated.Members of the community • We'll be there.Most Minnesota's municipal electric who live in the community set rates and service utilities have served their communities for more than practices. If you have a problem,you know who to talk a hundred years. In an era when new competitors come to. and go faster than we can learn their names, you can count on us. We will be there when you need us. • We're Public Power. We're here for you! 2015 Federal Position Statements/10 IWIVIWt jimaimp,fp - Roseau 'Ylarroad ,Hallack. • -,Gaudette iept?en Argyle Newtalden _ Alvarado �t 'Warren ;thief River Falls ,y"f--4. 1 .East Grand Forks Ely, a % •Cleartxvok Mountain Iron *Grand Marais Poston •Bnwatnk ' • 9 Ffibhrn Buhl. ,'irgina Sa ley G • •Gilttert .Shelly Malsi l Keewat n Ada Cohassat • hlashwauk Grand Rapids g 'Two Harbors - Halley Lake Pail hitnorhead -Detroit Lakes Proctor. puluth Bamesvilte Perham • ,New York M,Is Aitkira Wtadena Moose Lake, Henneng •Staples .Brainerd *Breckenridge .Goitre Lake Eagte Bend • .Ctarissa .Randall M u n i ci pa low Lake pierz Alexandria- Mora. Electric Sauk Centre & .Melrose Princeton Norlh Bianchi Natural Gas ,0rtonville Poison Elk River Buffalo Anoka Utilities of Kandiy i crave City • .Circe Pines Madison Willmar Litchfield Delan Nort St.Paul Minnesota Hutchinson Granite Fa s Glencoe Chaska,Shakopee Olivia' Brownian Vlrinihrop ArI ton Marshall. Redwood Falls Le Sueur•New Prague Lake City Mairiax Goodhue Net. Morgan` r�rrw Ulm Saint Peter ,Kenyon. 'S1eep'y Eye ,Saint Westbrook Springfield Lake Crystal Janesvige Owatonna a Mountain Lake •Madera Yrasera Rochester Qundet+ 'Saint James Kassnn •Saint Charles *Windom Tnanran •Blooming Prairie Peterson Rushtord Brewster, Lakefield 4USpring Valley ••" alan Luveme, Adrian Worthington .Alpha .Fairmont •Blue Earth J+usrn Preston Lanesbora Caledonia I Rushmore __- . Jackson . .S;nng Grove •Ge Ion Hemn y Bigelo_w_Round-E--®unnali ' Maw Eitzen IIIElectric ■ Electric and natural gas II Natural gas only Note:Many of these utilities also provide water service, and may provide other services as well. 2015 Federal Position Statements/11 a a i II “0 s'1 gr.:ter- g ..-t`a #. ` �- _ ii 1111/ t — — { 4 r 4 C 'VIA.iiron.# sati44i .A4 U.S.i.jP'1#4t4. hM1MIII Iv,I,,wg Minnesota Municipal Utilities Association 3025 Harbor Lane N., Suite 400, Plymouth, MN 55447 www.mmua.org