The Western Interstate Energy Board appreciates the opportunity to comment on the draft Comprehensive National Energy Strategy (January 30, 1998). The Board is an association of 11 western states and three western Canadian provinces. Members of the Board are appointed by the governor or premier. The Board has responsibility for all energy-related issues affecting the West. The Board also serves as the energy arm of the Western Governors' Association.
The Board agrees with the draft Strategy that energy policy must rely on markets to allocate resources with government intervention limited to selective, well thought through initiatives. The Board also agrees with the five proposed goals of the Strategy:
I. Improve the efficiency of the energy system;
II. Ensure against energy disruptions;
III. Promote energy production and use in ways that reflect human health and environmental values;
IV. Expand future energy choices; and
V. Cooperate internationally on energy issues.
To enhance the understanding of the energy policy of the federal government, the Board suggests that the Department provide a cross-walk between the energy policy goals and objectives and the agency's budget.
We offer the following observations on national policy goals and DOE initiatives to achieve these goals. (The appropriate goal from the draft Strategy is noted in parentheses). The Board also notes that there are many other important elements of the draft Strategy, such as advanced natural gas recovery technologies, increased efficiency of fossil-fuel-fired and hydro generation, accelerated development of cost-effective biomass liquid fuels and fuel cells, reduced energy use by federal agencies, development of more efficient vehicles, and the diversification of foreign oil supplies, which should be retained as part of the final Strategy.
Electric Industry Restructuring (Goals I, II, III, IV)
Efficient and Reliable Electricity Markets: The transformation of the electric power industry from one characterized by centralization to one characterized by customer control is one of the largest changes in energy policy in the last century. Implementation of national policies to promote a reliable and competitive electric industry will necessarily require concurrence and cooperative action between the federal government and the states and among states within an electric power grid. Federal one-size-fits-all mandates for retail choice probably do not enjoy sufficient political support to be adopted and, more importantly, fail to recognize the complexities and potential unintended consequences involved in restructuring this $200 billion per year industry.
Achieving a reliable and competitive electric power system requires rethinking nearly all the historical underpinnings of an industry dominated by vertically-integrated regulated monopolies. For example, our existing voluntary cooperative effort among transmission-owning utilities cannot be expected to continue to protect system reliability in a competitive market because (1) the competition for power sales will skew the decisions of transmission owners and (2) transmission owners will no longer be willing to absorb reliability costs which their competitors can avoid. A new system needs to be devised to establish economically justifiable reliability standards, enforce such standards, and hold responsible parties accountable for system failures. The geography and organization of such a system must reflect the realities of the three electrically distinct grids operating in the lower 48 states.
Competitive electricity markets require that transmission owners not be able to block power transactions of their competitors. The Federal Energy Regulatory Commission, through Orders 888 and 889, has taken a major step forward by requiring the unbundling of transmission and merchant functions. However, short of a significant expansion of FERC enforcement activities, functional unbundling is unlikely to be sufficient to ensure the evolution of competitive markets. At a minimum, efficient markets will require: independent operation of the transmission system; large market areas not subject to pancaked transmission rates or market power; an efficient transmission pricing system that sends appropriate price signals to market participants; and the ability of all market participants to participate, including public power.
The Strategy should support federal tax policies that allow public power to participate in independent system operators without jeopardizing the tax status of the bonds used to build the transmission facilities that would be leased to the independent system operator. In addition, the Strategy should ensure that federal power marketing administrations actively contribute to the independent operation of the transmission system.
The key to the successful transition to a reliable and competitive electricity market is to develop processes and institutions which can incorporate the public interest and which are organized geographically in a way that reflects the electric realities of the transmission grid. A national energy strategy should foster the development of such processes and institutions and serve as guidance for federal budgeting decisions. Specifically, the national energy strategy should provide the policy underpinning for federal assistance to states and regions which are actively engaged with the industry in the development of reliable and competitive regional electricity markets.
Environmental Implications: The positive and negative environmental impacts from the restructuring of the electric power industry will vary from region to region. Policies to address such impacts need to reflect the conditions in each region.
We are concerned that federal initiatives to address potential increases in emissions from Midwest coal-fired powerplants which drift over the Northeast will result in a one-size-fits-all federal policy which will cripple the innovation underway in the West. The conditions in the Western Interconnection are clearly different from the conditions in the Midwest and Northeast. Since (1) emissions from nearly all coal-fired power plants in the West are controlled, (2) most existing major western coal-fired power plants are running near capacity, and (3) the low cost incremental generation addition in the West is likely to be gas-fired, we do not anticipate the same type of potential negative environmental consequences from the development of a competitive electricity market in the West that are being discussed in the East. The Board believes that potential increases in emissions in the Eastern Interconnection associated with the evolution of a competitive market should not drive federal electric industry restructuring policies.
New Technologies: The federal government has an appropriate role in advancing new generation, transmission, and efficiency technologies with or without restructuring of the electric power industry. However, a National Energy Strategy needs to recognize that the restructuring of the electricity industry may unleash a host of new technology options, particularly distributed technologies. Competition in the electric power industry is also likely to reduce industry-sponsored R&D where the benefits of such R&D cannot be captured by the company funding it. A decline in privately-sponsored "public good" R&D may require a rethinking of the federal government's role in R&D.
Consumer Protection: While restructuring of the electric power industry has major energy policy implications which are appropriately incorporated into a National Energy Strategy, the federal government also needs to be cognizant of important related public policy issues, particularly ensuring consumer protection in a competitive market.
Renewable Energy Resources (Goals I, III, IV)
The Board supports the draft Strategy's goal of doubling nonhydroelectric renewable generation capacity to a total of 25,000 Mw by the year 2010. Expanding the use of cost-effective renewable generation has been a priority in the West. For example, in 1996, the Grand Canyon Visibility Transport Commission,1 which included the governors of eight states, recommended that renewable energy generation contribute ten percent of the region's power needs by 2005 and 20 percent by 2015. Individual western states have adopted aggressive programs to expand the use of renewable energy, often in conjunction with federal agencies, including the National Park Service. Some western states, such as California, have adopted nonbypassable wires charges and others, such as Arizona, have opted for a solar portfolio standard to support expanded use of renewables. Western industry, in collaboration with western states, is developing new transmission pricing systems that will improve the economics for intermittent, remotely-located renewable energy generation. As a result, the use of renewable energy in western electricity markets will expand.
Energy Policy and Climate Change (Goals III, IV, V)
The Board supports intensified research on climate change and management of the carbon cycle. In addition, the Board believes that many of the initiatives designed to reduce greenhouse gas emissions (e.g., capturing greater energy efficiencies) have numerous other benefits (e.g., lowering the cost of energy services and reducing emissions of traditional pollutants such as nitrogen oxides, volatile organic compounds, carbon monoxide, particulates).
While the Board agrees with the draft Strategy that expanded use of energy efficiency, renewable energy, and nuclear power will reduce greenhouse gas emissions, we believe that federal investment decisions should be based on the ability of the investment to achieve public policy objectives such as economic efficiency and clean air, as well as the impact on greenhouse gas emissions. For example, energy efficiency and renewable energy offer significant opportunities to reduce traditional air pollutants — reductions which should be accounted for in State Implementation Plans that are required under the Clean Air Act.
The Board urges DOE to justify its technology investment decisions based primarily on direct economic benefits and only secondarily on greenhouse gas impacts. Using greenhouse gas emissions as the acid test for an investment choice could shortchange some investments with major societal benefits. Furthermore, relying solely upon greenhouse gas emission reductions arguments will limit support for otherwise popular and cost-effective investments among parties that do not share the Administration's conclusions regarding the science of climate change.
Community-Based Growth Decisions (Goal III)
In its discussion of energy technology, the draft Strategy correctly notes that "...the long times associated with significant change in our energy infrastructure" is a cogent rationale for embarking on a strong technology program. We urge the Department to take this analysis a step further to examine what drives the demand for a specific energy infrastructure. Much of the energy we use is a byproduct of community development decisions. For example, urban development patterns help determine the demand for transportation services as well as the options (e.g., single occupancy vehicles, transit) available to meet the transportation demand.
The public and private infrastructure (e.g., industrial base, road layouts, housing stock) being put in place today will establish our energy service needs for decades to come. Community decision-makers need to understand the linkage between today's infrastructure decisions and the community's future energy service needs and related environmental impacts.
The Board believes that the Department, in collaboration with western states, should develop the tools and associated technical assistance which will allow communities to assess the energy and related economic and environmental consequences of different development decisions before decisions are made.
Transportation, Energy and Air Quality (Goals I, III)
The Board supports the draft Strategy's objective of developing more efficient and fuel-flexible technologies. This is particularly needed in the transportation sector, which is 97 percent dependent on petroleum.
There are significant energy policy benefits to the deployment of more efficient vehicles and the diversification of fuels used in the transportation sector. While there is no single technology that is clearly preferable today, the Board believes there are many promising technologies. The Strategy should continue to support R&D on the development of new vehicles and fuel technologies. In addition, we believe the science of transportation demand and congestion management should receive a significant emphasis.
We would caution, however, that investments in the transportation sector should lead to the deployment of technologies which also reduce traditional air pollutants (e.g., carbon monoxide, volatile organic compounds, nitrogen oxides and particulates). In the West, transportation-related emissions are the largest air quality challenge and these emissions are expected to grow as the population in the region grows.
Some past efforts by the federal government and the states to diversify fuel supplies by introducing alternative transportation fuels have actually aggravated vehicle emissions (e.g., increased emissions from some after-factory retrofits of dual fuel CNG-gasoline vehicles). We must avoid these pitfalls in the future. A corollary concern is that the alternative fuel infrastructure must be developed at the same time alternative fuel capable vehicles are being introduced. Clearly, involving auto manufacturers and the fuel industry is necessary to the successful entry of new vehicles and fuel technologies.
Collaborative R&D (all Goals)
The Board recommends that, wherever possible, federal energy research and energy-related programs be conducted in collaboration with states, industry, and public-private partnerships.
Energy Information
Although not directly addressed in the draft, the Board believes that the Strategy should explicitly recognize the importance of the independent collection, analysis and reporting of energy information. Accurate information on energy consumption, production and prices are requisites for efficient energy markets. Such information also forms the basis of federal and state energy policy decisions. Specifically, the importance of the Energy Information Administration's role in the collection and analysis of electricity-related data is likely to grow as competitive regional electricity markets emerge and the ability and willingness of traditional utilities to supply needed information diminishes.
Nuclear Waste
The Board and western governors2 remain concerned that the Department has not adequately prepared for the shipment of spent nuclear fuel to interim or permanent storage facilities. While we understand the Department's position that no fuel will be moved until 2010, at the earliest, we are concerned that forces outside the Department's control will accelerate that schedule. If the schedule is accelerated, the Department will be faced with the distasteful alternatives of either not shipping or shipping without adequate preparations. Western corridor communities will not acquiesce to such shipments unless the safest routes and modes of shipment have been chosen and adequate preparations have been made. We encourage the Department to recognize the possibility of shipments prior to 2010 and to take the necessary preparatory steps, beginning with the development of a sound route and modal selection methodology and the implementation of Section 180(c) of the Nuclear Waste Policy Act.
The Board appreciates this opportunity to comment on the draft Comprehensive National Energy Strategy.
1 Recommendations for Improving Western Vistas, The Grand Canyon Visibility Transport Commission, June 10, 1996.
2 The Western Governors' Association has adopted the following resolutions addressing DOE's nuclear waste transportation activities: Fulfilling a Federal Obligation to Fund Preparations For Shipment of Spent Nuclear Fuel and High-Level Radioactive Waste 97-015; Private Storage of Commercial Spent Nuclear Fuel, 97-007; Funding for Emergency Preparedness for Spent Nuclear Fuel and High-level Radioactive Waste Transportation 96-019; Transportation of Spent Nuclear Fuel and High-level Radioactive Waste 95-020; A Transportation Program for Shipment of Spent Fuel under the Nuclear Waste Policy Act 93-003 (Modified and Readopted in 1996); U.S. Department of Energy Transport of Nuclear Waste 92-004 (Modified and Readopted in 1995) (Revision 1).