Energy Markets and Energy Policy in Tennessee Matthew N. Murray, Director Howard H. Baker Jr. Center for Public Policy September 2015 Presentation to State Energy Policy Taskforce September 17, 2015

General Assembly’s Mandate “…to perform a study on the economic feasibility of creating and utilizing a statewide comprehensive energy plan. The study shall examine the state’s current and future energy supply and demand needs, existing energy policies, and emerging energy challenges and opportunities.” Howard Baker Jr. Center for Public Policy 4/8/2019

Baker Center’s Report Intended as a foundation for policy by providing detail on TN’s energy sector, broadly defined The ever-changing environment within which TN’s markets operate TN reacts to rather than sets market outcomes Markets and technologies are changing rapidly Big picture of energy flows in TN Sankey diagram for TN (see next page) Electricity generation State’s natural resource base for power generation and potentially export Environmental and health considerations Howard Baker Jr. Center for Public Policy 4/8/2019

Sankey Diagram for Tennessee: Energy Sources and Uses Howard Baker Jr. Center for Public Policy 4/8/2019

Baker Center Report (cont.) Identification of external influences that are beyond the control of policymakers in TN, including market considerations, technological developments and policy factors Federal policy, including laws and regulatory policy TVA’s presence limits what the state can achieve from the perspective of electricity generation, distribution and retailing Markets will generally drive energy market outcomes, including supplies and prices Pace of technological change is potentially disruptive and raises concerns regarding investment—past, present and future Broad areas of policy influence and policy levers Howard Baker Jr. Center for Public Policy 4/8/2019

Purposes of a State Energy Plan Pursue agreed upon goals that will improve the wellbeing of Tennesseans Coordinate engagement of stakeholder groups Coordinate state policy across agencies and provide umbrella and framework for local government action Provide some degree of certainty and direction on policy to support informed private sector decisionmaking and investment Affect energy market outcomes that might otherwise evolve with little or no government influence Howard Baker Jr. Center for Public Policy 4/8/2019

Development and Implementation Should Be Built Around Formal Goals Candidate goals (see NASEO reports) Sustainability Economic development and competitiveness Renewable portfolio standards (a means, not an end) Energy efficiency and conservation System resiliency and security Price stability and affordability The state should establish its own goals based on informed stakeholder interaction Howard Baker Jr. Center for Public Policy 4/8/2019

Some Key Findings State’s role circumscribed by TVA as noted above More energy is wasted in TN than is consumed Petroleum is the largest energy source for the state, with most consumed in the transportation sector Coal production has a dismal outlook given low natural gas prices and global concerns over public health consequences of coal use; fewer than 400 workers are employed by the industry in TN today The state has limited reserves of fossil fuels aside from coal Residential energy usage ranks second to Alabama among bordering states Additional opportunities for solar and biofuels development in TN Fossil fuels are a major source of energy-related pollution Howard Baker Jr. Center for Public Policy 4/8/2019

State Policy Policy must drill down from the 60,000 foot view of the report to highly-specific policy goals and initiatives Rural economic development and diversification Further development of biomass and solar assets in TN Economic impacts are likely modest and regional in nature Promote energy conservation and efficiency improvements, freeing up purchasing power to drive the state economy Benefits of traditional programs accrue disproportionately to higher income households but still help with efficiency/conservation Develop policies that can provide benefits to lower income households, including renters Weatherization programs have been shown to improve health outcomes and wellbeing Generally reduce pollution and promote public health Howard Baker Jr. Center for Public Policy 4/8/2019

State Policy (cont.) “Positioning the State as a Leader in the U.S and World Energy Markets” Include strategic industries in state targeted recruitment group, potentially including R&D firms and firms producing energy related-inputs/technologies and energy efficient products Incentive programs for targeted industries Build around existing strengths (UT, ORNL, auto manufacturers, small modular reactors) rather than try to create something from nothing Institutions versus technologies System benefit charges as a mechanism to fund efficiency, conservation, economic development and other gains that accrue broadly to Tennesseans Uses of funds should be carefully determined before such a fund is put in place Howard Baker Jr. Center for Public Policy 4/8/2019

A Few Basic Policy Issues to Keep In Mind Policy should be able to pass a cost-benefit test to ensure accountability in the use of state resources Recognize TN’s limited resources and balance noble goals like reducing global greenhouse emissions against policies that offer greater assurance of direct benefits to TN businesses and households Regional ozone and particulate matter Stakeholders and policymakers must stay informed in a rapidly changing policy environment Annual Energy Outlook for Tennessee to provide timely information to policymakers and stakeholders A statewide champion and coordinator for state energy policy? Howard Baker Jr. Center for Public Policy 4/8/2019