Beyond coal … winners and losers: Local utilities support efforts to reduce greenhouse gases but differ on how to do it fairly
By Chris Hubbuch / email@example.com | Posted: Sunday, November 22, 2009 12:15 am
CASSVILLE, Wis. – The future of Wisconsin’s energy is piled high on the south lot of the E.J. Stoneman plant.
Gone is the coal that fueled the boilers for six decades. Now 40,000 tons of wood chips and railroad ties tower over construction workers building an apparatus to grind that wood into fuel.
With its yellow tile walls and dusty turbines, Stoneman hardly looks futuristic. La Crosse-based Dairyland Power built the plant in 1950 and shuttered it in 1993 for economic reasons.
But with a push to limit carbon dioxide released into the atmosphere, utilities are scrambling for new sources of renewable energy to replace fossil fuels. Stoneman again is viable.
DTE Energy Systems bought the plant in 2008, stripped out the boilers and began a two-year project to convert it to biomass. Starting this summer, they expect the turbines to spin again with steam generated primarily by construction and demolition debris.
Even with a cost in the tens of millions – they don’t disclose the exact amount – DTE expects to make money because of the premium price for green energy.
On the other side of town, Alliant Energy burns wood pellets along with coal at its Nelson Dewey station as part of a yearlong test. Though Madison-based Alliant has no plans to convert the plant, the company will use the data as it examines ways to reduce its carbon footprint, spokesman Steve Schultz said.
With Congress poised for the first time to limit carbon emissions, power utilities are ramping up efforts to replace coal, a cheap and plentiful resource that long has been the major source of electricity, particularly in the Midwest.
Environmental advocates say it’s a start to slowing global climate change, and even utilities favor the principle of limiting greenhouse gases.
But not all utilities are created equal. Xcel Energy, which supplies urban households and industries, has a diverse energy portfolio bolstered by investments in renewable sources and nuclear power, which produces no greenhouse gases. Dairyland Power, which through its member cooperatives provides power for most of the Coulee Region’s rural and small town residents, relies almost exclusively on coal.
Both utilities support a congressional approach to cutting carbon emissions but differ on the details of how it should be done.
"Now is the time to push for it," said Brian Rude, vice president of external relations for Dairyland. "All of us need some certainty in planning."
What it will cost consumers is a matter of speculation, but most agree families will see their bills climb by $100 a year or more.
Cap and trade
The plan is to limit carbon dioxide and other greenhouse gas emissions starting in 2012 and gradually lower them over the next four decades.
The government would distribute carbon credits, which would allow utilities to continue emitting – for a price. Those allocations then could be traded on an open market.
Companies able to cut emissions – by switching to nuclear or renewable sources – could sell excess credits to those needing more time to wean off fossil fuels.
The Pew Center on Global Climate Change says that cap-and-trade system will put a price on carbon, spurring markets to invest in low-carbon technologies like biomass.
Although burning wood does release carbon, it’s considered cleaner than fossil fuels because the carbon recently was part of the natural cycle. Coal, on the other hand, contains carbon that has been underground for millions of years.
The bill passed by the House of Representatives would give companies such as Dairyland three years to bring their carbon emissions to 3 percent below where they were in 2005. By 2050, emissions would have to be cut 83 percent. A bill making its way through the Senate has even stricter limits.
Though Dairyland has an aggressive plan to add renewable sources like wind and biomass to its mix, the nonprofit cooperative gets more than 95 percent of its power from coal and has to meet a demand that historically has grown 1 percent to 3 percent a year.
After years of state and federal policy that pushed Midwestern utilities toward coal, the recognition of carbon as a threat to global climate has precipitated a turn in the last several years. That presents challenges for a slow-moving industry.
"The tables have turned," said Dairyland spokeswoman Deb Mirasola. "(But) you can’t change generation on a dime. You need to have time."
The end of coal?
Coal is abundant, cheap and reliable, and for years was the fuel of choice for Midwestern utilities and their government regulators. The problem: it produces a lot of carbon dioxide. Scientists say it accounts for about a third of U.S. greenhouse gas emissions.
Wisconsin gets more than 60 percent of its electricity from coal, more than the national average, according to the state’s Public Service Commission. A little more than half the capacity added between 2008 and 2014 will come from coal, the rest coming mostly from wind and natural gas.
But the PSC hasn’t approved a new coal plant since 2004.
Xcel identified no new coal plants in its 25-year plan released at the end of 2007, noting that economic and environmental factors now favor renewable resources and natural gas. Dairyland has no new coal in its plan, and the only fossil fuel in consideration is a natural gas plant that might be necessary in 2017.
Xcel recently converted two Twin Cities coal plants to natural gas, a fossil fuel that produces the same energy as coal with about half the carbon. But with no natural gas supply at Genoa or Alma, Dairyland isn’t poised to take advantage of that efficiency.
For Dairyland, there are few immediate alternatives to coal.
The addition of the Stoneman plant will bring renewables to about 10 percent of the company’s energy portfolio. Dairyland is exploring kinetic hydroelectric projects and pursing contracts for wind energy.
But for now, there’s a scarcity of renewable energy on the market, said Don Huff, director of environmental affairs. And new power plants are expensive and take time to build.
"We know we’re going to have to dramatically reduce our carbon output," Rude said. "And that’s going to cost a lot."
Two utilities, different concerns
The biggest concern for Dairyland and other small Midwestern utilities is how carbon credits will be distributed.
Dairyland argues that credits should be allocated solely on emissions, but formulas in both House and Senate bills would allocate credits based half on a utility’s emissions and half on its sales. That would benefit companies that already have nuclear, hydro and wind resources.
"We see it as a direct transfer of wealth from coal burning states to the coasts," Rude said. "We’re not asking for a free ride, but out of the starting gate there should be a level playing field."
Historically, state and federal regulators approved and financed "least-cost" energy resources. In the Midwest, that meant coal, Mirasola said.
Xcel endorses the 50/50 formula, which it says would reward prior investments in clean energy.
"We’re mostly interested in making sure we get credit for early action," said Jim Turnure, the company’s environmental policy manager. "Steps taken before a climate bill is signed and implemented can still be very important."
A recent industry analysis suggests Xcel actually stands to gain about $27 million a year under the proposed cap-and-trade system, nothing close to the estimated $1.7 billion that Chicago-based Exelon Corp., considered one of the nation’s largest electric utilities, could reap. Other companies, such as Duke Power and AEP, are expected to lose money because of their carbon exposure.
A spokesman for the Edison Electric Institute, the utility industry’s lobbying group, would only say "the EEI stands behind that formula."
The cost of action and inaction
Dairyland estimates that under the House bill, its average household customer would pay an additional $216 to $544 a year over the next two decades, with the steepest rise coming in 2020.
But a Congressional Budget Office report issued last summer determined that with rebates and other offsets, the net impact would be $235 a year for families making $39,000 to $62,000. Those earning more would see higher costs, while the poorest fifth of the population actually would come out ahead.
What utilities don’t know is what carbon credits will cost, or how they will be distributed. The CBO predicts a price of $28 a ton; the utility industry expects it will be closer to $50. With annual carbon emissions of 6.8 million tons, that could be a nearly $150 million question for Dairyland.
Thanks to Xcel’s diversified energy portfolio – more than 46 percent of its Midwestern electricity comes from renewable and nuclear sources – its customers should be protected regardless of the scenario, Turnure said.
"It’s not likely to be dramatic cost increases (for consumers)," he said. "We’re not talking about doubling anything."
Clean Wisconsin supports the standards of the Senate bill, if not more aggressive carbon limits, and argues that climate change will adversely affect the state’s economy – particularly agriculture, forestry and tourism sectors.
"The costs of inaction far outweigh the costs of action," said Ryan Schryver, an advocate for the nonprofit environmental advocacy group.
Staff scientist Peter Taglia said efforts to promote and fund end-user energy efficiency could offset increases in the cost of electricity if the state follows Clean Wisconsin’s recommendation to triple funding for efficiency programs.
"People pay bills, not rates," Taglia said. "We can achieve these goals without having (bills) go up."
Wisconsin stands to benefit from the creation of green jobs, Taglia said, while not suffering the losses that will hit states with fossil fuel resources. As it is, the state has an energy deficit, spending more than $20 billion a year on imported fuel.
"Wisconsin has no fossil fuels," he said. "We’re not going to lose any coal mining jobs."
A balancing act
In crafting effective climate legislation, lawmakers said they must balance climate and consumer protection.
Wisconsin and Minnesota’s senators – all Democrats – signed on to a letter last week from Iowa Sen. Tom Harkin arguing against the current allocation formula and urging Senate leaders find a way to distribute credits equitably.
Wisconsin Sen. Herb Kohl provided a written statement in which he said Congress needs to address climate change "in a way that doesn’t hurt small businesses or increase consumers’ energy costs." Kohl did not offer specific ideas but said he is "hopeful that (the bill) will include provisions that will allow utilities time to phase in clean power generating technologies."
The state’s other senator, Russ Feingold, said he is "concerned some draft climate change bills may put unfair burdens on Wisconsin."
Though he also provided no specifics, Feingold said he will work with colleagues "to produce legislation that addresses climate change and does not unfairly impact Wisconsin