Calculating that Obama administration bureaucrats and Washington elected officials will sooner or later ratchet up regulations and legislation that will make the operation of coal-fired power plants prohibitively expensive, executives at NV Energy have decided to bailout early on its remaining coal operations.
This would entail shutting down generating units years ahead of schedule at the Reid Gardner power plant near the Moapa Indian reservation in northern Clark County and the North Valmy power plant between Winnemucca and Battle Mountain. The company also would end some power purchase contracts.
To replace these, the company plans to build 2,000 megawatts of natural gas-fired power plants as well as 150 megawatts of renewable energy — which could include wind, solar, geothermal or biomass — and contract out for another 450 megawatts of “green” power.
Reid Gardner power plant. (Sun photo)
To cut its risks and cover its assets the company has submitted Senate Bill 123 to the state Legislature. The bill would saddle the ratepayers with every dime of the cost of the decision to mothball the coal plants early — including any undepreciated balance, decommissioning and remediation, contract termination costs and even the value of any unused coal left lying around.
In testimony to a state Senate committee, company spokesman Pete Ernaut estimated the plan, which carries the cute title of NVision, would add no more than 4 percent to power bills over the next 20 years. Instead of rising by 32 percent in that timeframe, as current cost projections indicate, rates would climb 36 percent, plus inflation. Such long-term projections are tenuous at best and rely on myriad assumptions.
All those new power plants would result in 4,800 construction jobs at one time or the other over the coming years and a couple of hundred permanent jobs, Ernaut said. That hardly puts a dent in Nevada’s 132,000 unemployed workers.
You could almost hear the patriotic Sousa music in the background as Ernaut evangelized, “The plan represents a significant environmental statement. It creates a robust industry of renewable energy. It makes available renewable energy built in Nevada for Nevadans and by Nevadans. And, again, it’s hopefully a very bold step in the total energy independence for our state.”
One small improvement to SB123 from the way it was originally introduced is that a section that would have made “green” energy contract pricing information a trade secret has been deleted.
While the impact on ratepayers appears relatively minor, left unsaid was what the impact of adding 600 megawatts of renewable power might have on federal, state and local taxes.
SB123 takes nearly $300 million of ratepayer money and gives it those who build solar and wind generating facilities at homes, businesses and government agencies, covering as much as 50 percent of the cost of construction. In some cases a federal grant would cover about 30 percent of cost of such solar panel installations. It is unclear whether one could qualify for both handouts.
Additionally, smaller solar panel projects are exempt from both sales and property taxes.
Larger facilities are eligible for various tax abatements, too, as well as millions in federal Energy Department grants and production tax credits. Larger utility-scale wind and solar projects are slated to be built on federally controlled public land that will be provided to the builders at pennies on the dollar instead of being sold at market value, another cost to the taxpayers.
Such hidden costs are not so easily rounded up and quantified.
Additionally, some are already warning that California, which also relies heavily on renewable energy for its power supply, could face spiking electricity prices and rolling “green-outs” when the summer heat arrives this year.
Once these renewable energy projects are built the price per kilowatt-hour of electricity will be locked in with 20-year contracts with annual price increases, no matter what happens to the price of natural gas or coal or even whether someone actually builds John Galt’s engine that runs off static electricity, as envisioned (pun intended) in Ayn Rand’s novel “Atlas Shrugged.”
The “levelized” cost of power, which includes penalizing fossil-fuel sources for greenhouse gas output, of different sources of electricity in the year 2016, predicts the U.S. Energy Information Administration, should be: coal 10 cents a kilowatt-hour, gas 6.5 cents, nuclear 11 cents, wind 10 cents, solar photovoltaic 21 cents, solar thermal 32 cents, geothermal 10 cents and biomass 11 cents.
But no one predicted the price of natural gas sold to power plants would fall from $9.26 per thousand cubic feet in 2008 to $3.52 in 2012.
According to calculations provided to Public Utilities Commission commissioners at a recent meeting, various renewable energy and power efficiency programs dictated by law already account for nearly 12 percent of the cost of electricity in northern Nevada and about 8 percent in southern Nevada. The company also projects that it will sell 2.1 percent less power in 2013 than in 2012.
Another concern was expressed to the Senate committee by Dan Jacobsen of the attorney general’s Bureau of Consumer Protection, which represents ratepayer interests at the PUC, which regulates NV Energy’s rates and energy planning. He said, “In addition to replacing about 1,000 megawatts of coal capacity, the bill also would be replacing a very large amount of power purchase agreements right now that ratepayers don’t have to provide a return on.”
NV Energy’s profits come from a rate of return on equity, which is currently about 10 percent, but the more equity in power plants, power lines and gas pipelines the greater the return.
“There are power purchase agreements that are pretty helpful in covering peak load but not having to be purchased at times when there isn’t a peak load,” Jacobsen noted. “That’s a pretty good mix at times for Nevada with extreme heat in the summer that doesn’t last more than about three months.”
Then Jacobsen addressed the most glaring flaw in the bill: It’s decades-long, Soviet-style central planning. “I hope you have an appreciation for the difficult, long-range decision you are being asked to make in this bill,” Jacobsen said. “Step back and think about it for a minute, you’re being asked right now, based on information you have right now, to make a decision that, for example, in the year 2025 the right thing to do is to build a 500-megawatt natural gas plant.
“That’s 12 years from now. Technology can change a lot in 12 years. The demand projection can change a lot. The wholesale market can change a lot. Efficiency options can change a lot. But this bill says to you: Please mandate the right thing to do 12 years from now is to build a 500-megawatt natural gas plant. That’s quite a challenge for you as a policy makers to make.”
The consumer advocate also noted that some of the language in the bill would tie the hands of the PUC commissioners. One part dictates the “Commission shall approve” costs and emissions reduction “shall be deemed to be a prudent investment. The electric utility may recover all just and reasonable costs …”
Jacobsen commented, “That phrase ‘deemed prudent’ carries a lot of legal weight with it.”
The bill also would allow NV Energy to immediately increase rates once a new power plant goes online, and the PUC could later review the rates and could roll them back if excessive.
The last time the power company was given carte blanche to build power plants and begin to recover costs immediately, even before any review by state regulators, was in the 1980s. That was because the company needed new power supplies — from coal-fired plants.
F.A. Hayek wrote in “Fatal Conceit”:
“At least before the obvious economic failure of Eastern European socialism, it was widely thought by such rationalists that a centrally planned economy would deliver not only `social justice,’ but also a more efficient use of economic resources. This notion appears eminently sensible at first glance. But it proves to overlook the facts …: that the totality of resources that one could employ in such a plan is simply not knowable to anybody, and therefore can hardly be centrally controlled.”