Here you go…
Power costs are stable. Gas prices decreased markedly in 2014 Oil futures are low compared to 2013 and earlier. . Production is constant. Low energy likely is fueling an economic expansion. Gas economy in vehicles is at an all-time high. Fuel efficiency lowers GHGs and cuts oil imports. America is less reliant on foreign oil. We have more money in our pockets. Utility power costs and vehicle costs are lower. Generator operations are lower. Life is great. Or is it?
Well, that depends on who you talk to. Politicians in states with in oil and gas based economies are scrambling to deal with large deficits in their budgets. The railroads are not happy over the Keystone pipeline vote. Green energy manufacturer are unhappy. Environmentalists are unhappy. Heck even the Koch brothers are probably not completely happy
The first issue is methane gas. Pipelines and fracking operations lose about 6% of the gas. A Washington Post article estimates 8 million metric tons of methane is lost each year. That is where we are trying to capture and transport it. The Bakken fields lack pipelines for gas, so much if it may be flared. The amount of fracking will continue (Florida Power and Light has said it will get into the business – but outside of Florida), so more exploration will likely lead to more methane escaping. Why do we care? Methane is 22 to 80 times the greenhouse gas that carbon dioxide it (depending on who you talk to). It accounts for 9% of GHG emission in the US – a third of that from the oil and gas industry. That gas is concentrated in the western US which makes them ripe for regulation.
Enter cap and trade. The cap and trade “industry” has been opposed by the oil and gas industry for years. However there are a number of groups –from Indian tribes to NextEra Energy are posed to benefit from cap and trade (C&T) rules. They have reduced their carbon footprint enough that they can sell carbon credits. It is doubtful that this Congress with pass C&T legislation, but much of the regulatory focus could be shifted if C&T was in place. C&T could accelerate green energy efforts.
Green energy folks want continued subsides or policies that encourage increased green power supplies, improve technology and reduce prices – all at the same time. Rolling out a major change in the energy picture is a huge investment that will not gain traction without policies to encourage it At least for now, green energy creates more jobs per KW-hr than conventional oil and gas, primarily in research and development and product manufacturing. Sewing up the patents would portend positively for America in the 21st century, much as sewing up the car, gas engine, and nuclear patents did for the 20th century. He who owns the technology should benefit. Unfortunately that isn’t the Koch brothers who are unhappy with green energy but are happy that lower oil prices might decrease the competition in the future when oil prices inevitably rise. But America would be better off in a non-oil based economy in 50 years if we developed an energy policy to address these issues with a long-term view.
However, that would take a lot of business and political leadership to overcome some of those who do not want change. These are people who have more money than the Concord coach makers who could not fight the technology change to automobiles in the early 20th century. It also takes a vision of what America should look like in 50 years. We might be short on those visionaries. And how will utilities be a part of it.
So what does this mean for water and sewer utilities. First, we’d love to stay out of the fray. Water and sewer utilities recognize that they are the “peak” power supply for electric utilities. The means to expand power supplies is made difficult by the rules for capital recovery for power utilities that penalizes peak and redundant power supply construction. It must be used and useful to qualify for a return. Hence NextEra builds inexpensive, small increment renewable wind systems to be made whole and encourages residents to reduce demands so they do not need to build more large scale capacity. That works as long as access to renewables or increases in efficiency are available. The use of federal subsidies encourages the used of new technology but without the subsidies, expect the construction to slow.
The European Union is looking to phase out renewable power subsidies by 2017, which may have fairly significant consequences for the European renewable market. The Koch brothers and the Tea Party operatives they fund through many organizations like the Institute for Energy Research, Americans for Prosperity and the Heritage Foundation, are fighting federal tax credits for wind, while backing tax credits for oil and gas. Why do the Koch brothers keep showing up? Because as we noted in a prior blog – they stand to lose profits if the US depends less on oil and gas IT si a problem with big money interests using that money for self preservation as opposed to progression of technology and ideas.
Think what would have happened 100 years ago if big money was allowed to control progress. And I have just the perfect scenario pitting two sides of my family. My mother’s great uncle made Concord coaches. As long as horse drawn carriages and coaches were the primary transportation options, they made money. OF course many cities and towns found that they spend much of their tax money cleaning up after the horses, one of the all-time yuckiest jobs. Tons of horse poop was cleaned up nightly on the streets on many cities. Images are available on line. Of course there was also the stench, disease, vectors, etc associated with all that poop.
Then came Henry Ford. My Dad’s side of the family were Detroiters. They got jobs in the Ford factories, and made money from services to autoworkers as well. The cities loved having cars – less poop. In fact Henry’s cars worked so well, that very quickly cities didn’t have to pick up poop. And the stench and disease decreased. Of course back then, my mothers’ family did not have the same means to buy influence to prevent Henry Ford from producing cars. My uncle went broke, but America and my father’s family in Detroit, benefitted greatly as a result of the new technology. I think we all benefitted from the automobile. Thankfully the coachmakers didn’t have money.
Using politics and influence to resist new technology seems unAmerican. Using subsidies to encourage is seems far more beneficial to society as long as those subsidies actually benefit society. Subsidies have long been a means for governments to alter consumer and corporate behavior and encourage new technologies. Subsidies for recycling steel, aluminum, glass, paper and other materials remained in place until the technology was cost effective to compete with new materials. Now recovered steel is cheaper than new steel materials. The subsidies had their effect. The same is true with aluminum and glass. Subsidies in the form of grants encouraged water and sewer utilities to upgrade treatment and install pipes to serve new customers. Now those are low interest loans because most of the cost effective connections have been made. It benefitted society.
Subsides have been used for years in the US and Europe to encourage renewable power use. The result is a reduction in renewable costs as more people invested in the technology. Greater supply means lower costs (economy of scale, and, theory of economic supply and demand), and subsides are designed to reduce purchase prices sooner than the market might otherwise. Otherwise most of these industries never get off the ground because they cannot get to cost effective production levels. Stay tuned.
In a prior blog we talked about the difference between urban and rural counties and the impact of the differences between incomes and how that would affect utilities. Keep in mind that the 40 largest urban counties in the US contain nearly half the US population as do the 50 largest utilities. So in a recent article in Governing, the focus was on the few counties where income was higher than average. In fact, in looking at counties, within the top 20 in per capita income are 10 counties in North and South Dakota. Interesting until you review why. All are in areas where fracking is ongoing and corporate farming is prevelant. It is no surprise that the fracking boom has created wealth in rural areas that have limited populations, limited regulations and state and local officials who are desperate to reduce unemployment and stimulate laggard economies. We noted before that rural counties are often desperate for jobs, so they often ignore what could possibly go wrong when jobs and development are the only priorities for a community. Governing used the example of Wells County, ND where the per capita income has doubled since 1997 and is 75% above the national average. Yet the local governments are looking at which roads they will allow to go back to gravel. How is this possible?
The issue is not relegated to just Wells, ND. Despite the fact that many rural communities in areas with intensive farming or fracking have grown 10-15% since 2007, local officials are finding it difficult to raise taxes to pay for infrastructure. Roads are the most obvious and pressing issue because of the impact from fracking traffic. As new wells are constructed, the frackers build new dirt roads and use the existing roadways. Some believe the need to fix many of the roads is temporary so why bother, but it neglects the need to infrastructure improvements in general. The same argument could be used for water and sewer infrastructure as well, but these wealthy rural communities do not want to increase governmental spending to improve any infrastructure, so the opportunity to address the community needs is being lost.
What is more interesting is that the states where these rural counties exist, including the Dakotas, along with Montana, Wyoming, New Mexico, and most of the southeastern states are among the states that rely most heavily on federal funding. So when incomes increase, the dependency remains. These are the same states that tax residents the least, spend the least on education, have the poorest health care (and the fewest people signed up for the Affordable Care Act and few have state exchanges) and have the most people in poverty. The dichotomy between reality and the political perception is interesting in these states, which leads one to wonder if the residents of these states like their situation and keep electing representatives that reflect this desire, or they have fallen victim to political interests that cause them to vote consistently against their better interests, or for the interests of a limited few that deny them access to the education, infrastructure, medical care and other benefits their urban and wealthier neighbors enjoy.
That is a tough question but the bigger question is how to infrastructure agencies like utilities attempt to overcome either of these perceptions? Neglecting infrastructure, education, medical and the like does not promote local economies, does not create jobs and more likely causes the migration of the best and brightest young people out of the community in search of better prospects, which further imperils their rural situation. Keep in mind that most cities are relatively permanent, but fracking, like mining, oil and timber before them, have been booms and busts. The situation if far more dire after the boomtown than it was before. After all, what could possibly go wrong when 50,000 miners, or frackers, descend upon a community of 1,500 people? They will consume all the resources, then leave. Locally those well paying jobs are imported due to the lack of skills and education, and then they leave with the bust. This has played out many times in the past. It is not sustainable. We need to learn from the past – when the boom hits, make the investments you need in infrastructure, education, medicine, etc. so that the future is better after the bust.
I recently spent time in Denali National Park and surrounding area. 60 in the day, 45 at night, and this time of year, rain. Lots of rain. Denali creates its own weather, so precipitation and clouds are common for much of the year. But it was not all the water in the Denali area that interested me as much as some local discussions about methane release from the permafrost. I was told that many of the native populations rely on storage below ground in the permafrost to freeze winter provisions. But a curious thing has occurred in recent years – some of the provisions spoiled. It seems the permafrost relied upon for generations as a natural freezer is no longer permanent in some areas and the soil, frozen for generations, is now suddenly soggy. Once unfrozen, the soil appears to release copious amounts of methane that has been trapped for years (no smoking on the tunda!). The issue is further complicated by the fact that some of the methane could potentially get into surface water supplies and without power, and with limited funds, the treatment becomes far more difficult.