Critical Policy Issues for On-Site Generators An End-User’s Viewpoint Al Musur Chairman, Industrial Energy Consumers of America

Energy – This Country’s Biggest Policy Problem

Because energy is where economy, geology and ecology collide.

Policy Areas Natural Gas Power Generation Clear Skies Electricity Electrical Transmission

Natural Gas Policy Natural Gas is the Fuel of Choice

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad –That Causes Price Increases –No CHP Projects with 5¢ electricity being displaced by $5 Natural Gas –70% of Known Reserves on Unavailable Federal Lands –Prohibitions on Lateral Drilling Coal Bed Fractionation –2800 Drilling Applications Back-logged at DOI

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets –Commodity Futures Trading Commission (CFTC) –Lost Oversight of Natural Gas & Electricity Trading –No Standard for Determining Undue Market Influence

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers –Eg. BP – Amoco –Loss of Investment Capital –Midsize Companies Purchasing Assets v. Exploring –Small Exploration Companies Quitting the Business

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers Lack of Federal Regulatory Authority

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers Lack of Federal Regulatory Authority –Reporting Injections

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers Lack of Federal Regulatory Authority –Reporting Injections Full Storage = 3.2 TCF Inadequate Storage = 2.8 TCF Delta 0.4 TCF < 2% of Annual Demand

Natural Gas Policy Natural Gas is the Fuel of Choice Exploration for Natural Gas is Bad Lack of Oversight of Natural Gas Markets Approval of Oil/Gas Mega-Mergers Lack of Federal Regulatory Authority –Reporting Injections –Reporting Transactions for Price Formation –Ordering Construction Storage Pipelines

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation –Natural Gas is the only fuel available to most industry and is also a feedstock –Natural Gas is growing as the fuel of choice for residential use –For this there is no substitute –Utility generators can burn everything from garbage to nuclear fuel

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation Burn Coal

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation Burn Coal –Illinois alone has more coal that Saudi Arabia and Kuwait combined have oil –Developed technologies can burn coal cleanly

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation Burn Coal Burn Nuclear Fuels

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation Burn Coal Burn Nuclear Fuels Spend Federal Funds on Developing and Commercializing Technologies rather than picking winners and losers in energy

Power Generation Crime to Burn Natural Gas in Non-CHP Power Generation Burn Coal Burn Nuclear Fuels Spend Federal Funds on Developing and Commercializing Technologies rather than picking winners and losers in energy –No Renewable Portfolio Standard

Clear Skies New Source Review Reform

Clear Skies New Source Review Reform –Trade new CO 2, NO x, Hg standards for NSR changes –Utilities trying to include CHP in Clear Skies NSR Reform –CHP projects should be exempt or there should be an output efficiency standard for inclusion

Clear Skies New Source Review Reform Greenhouse Gas Issues

Clear Skies New Source Review Reform Greenhouse Gas Issues –Energy Policy focused on GHG intensity –Clear Skies called for the DOE to revamp the 1605(b) Greenhouse Gas Registry to reward absolute reductions of Greenhouse Gasses –First step to the establishment of a Greenhouse Gas Emission Trading Program in the U.S.

Clear Skies New Source Review Reform Greenhouse Gas Issues Greenhouse Gas Emission Credits for CHP

Clear Skies New Source Review Reform Greenhouse Gas Issues Greenhouse Gas Emission Credits for CHP –Industrial installs a CHP facility for steam and electric generation –Gross Greenhouse Gas emissions for site go up –Net Greenhouse Gas emissions go down netting out the reduction at the utility stack for displaced generation –Utilities are claiming that the emission reduction at their stack is their reduction regardless how achieved –Utility view is generally accepted among White House staff

Electricity PURPA Repeal

Electricity PURPA Repeal PUHCA Repeal

Electricity PURPA Repeal PUHCA Repeal FERC authority to enforce NERC operating rules

Electricity PURPA Repeal PUHCA Repeal FERC authority to enforce NERC operating rules Net Metering Issues

Electricity PURPA Repeal PUHCA Repeal FERC authority to enforce NERC operating rules Net Metering Issues –California ISO OATT –Illinois MISO may yield different result due to “regional differences”

Electrical Transmission FERC Authority

Electrical Transmission FERC Authority –Utilities have learned at the State level: if one doesn’t like what a commission decides, have the Legislature fix it. –Push on the part of Utilities to limit FERC’s authority: Operating rules RTO formation Siting Authority Utilities stirring up State Commissions & Governors to push States rights issues

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues Federal Authority for Transmission Design

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues Federal Authority for Transmission Design –No current authority to order transmission interconnection construction –No centralized siting authority –Suggestion – socialize the cost of upgrading the transmission system

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues Federal Authority for Transmission Design Distributed Generation v Transmission Upgrade Issues

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues Federal Authority for Transmission Design Distributed Generation v Transmission Upgrade Issues –USCHPA proposal for distributed generation instead of transmission upgrade

Electrical Transmission FERC Authority Regional Transmission Organization (RTO) / Standard Market Design Issues Standardized CHP Interconnection Issues Federal Authority for Transmission Design Distributed Generation v Transmission Upgrade Issues August 14, 2003 Issues

What Can I Do?

Become conversant with all of the issues Resist the urge to pursue only your narrow interests Join with other consumer groups to achieve enough mass to be effective