Posts for June 2, 2010

CLIMATE BILL COULD DOUBLE CAPEX FOR POWER SECTOR

June 2, 2010 – Utah Association of Energy Users

Industry analysts and experts are starting to grasp exactly what the re-cently proposed American Power Act will cost the power sector in total dol-lars, and how it compares to previous climate proposals.

Sens. John Kerry, D-Mass., and Jo-seph Lieberman, I-Conn., released the bill May 12; on May 20, the Peterson Institute for International Economics provided one of the first comprehensive studies of the draft legis-lation, predicting the bill would prompt $41.1 billion in annual electric sector investment from 2011 to 2030.

That level of investment is $22.5 billion more per year than under a business-as-usual case, the institute said, meaning the bill will essentially drive the power sector to dou-ble its capital expenditures in the next two decades.

While $822 billion of investment over 20 years is no small mountain for the industry to climb, Point Carbon in a May 19 report said increased emphasis on reducing costs of the bill for consumers means reduced subsidies for clean energy and energy efficiency com-pared to previous climate bills.

Point Carbon's allowance price predic-tion for the period was down $5/ton from its previous estimate based on Kerry-Lieberman's proposed price cap of $25/ton in 2013, growing at the same rate as the con-sumer price index plus 5%.

Emilie Mazzacurati, head of Point Car-bon's North American Research division, said it is realistic to assume that the electric sector may have to buy 100 million to 150 million CO2 allowances and offsets in 2013.

The Peterson Institute report also predicted the Kerry-Lieberman bill will result in a CO2 allow-ance price starting at $16.47/ton in 2013 — when its carbon market is scheduled to begin regulating the power sector — and rise to $55.44/ton by 2030, the final year in which CO2 allowances are freely distributed to emitters after a steady phase-out period. Filling in some of the years between 2013 and 2030, Point Carbon projected an aver-age carbon allowance price of about $26/ton from 2013 to 2020.

ClearView Energy Partners in a May 12 re-port predicted that the Kerry-Lieberman cap-and-trade system would result in 2,372 million free al-lowances being distributed to the electric sector. Assuming electric sector CO2 emissions rise from 2,400 million tons of CO2 in 2008 to 2,500 million tons of CO2 by 2013, ClearView's estimate of free allowances for the electric sector would result in the sector needing to acquire about 128 million CO2 allowances.

Using the Peterson Institute's prediction of $16.47/ton of CO2 in 2013, the electric sector would have to pay $2.11 billion in the first year of the cap to comply.

By comparison, Sanford C. Bernstein & Co. LLC analyst Hugh Wynne in a May 14 report pre-dicted 2,408 million free allowances will be distrib-uted to the electric sector in 2013, which would cre-ate a need for the sector to acquire 92 million al-lowances and offsets if sector emissions are 2,500 million tons of CO2.

Wynne said the first three years of the cap-and-trade system, from 2013 through 2015, will be much easier on the power sector, but compliance becomes tougher when free allowances to the sec-tor take a major drop, from 51% to 35%, as other sectors are brought into the carbon market.

Compared to the House-passed Waxman-Markey climate bill, Wynne predicted that regulated utilities will need to seek much smaller rate in-creases in the early years of Kerry-Lieberman, but the needed rate increases eventually balance out by 2030. Wynne said the regulated utility of AES Corp. will need to seek the biggest percentage rate increase of any regulated utility as a result of the bill, at 3%, but that is only half of the 6% rate in-crease AES would have needed to recover costs to comply with Waxman-Markey.

DOE STUDY SHOWS WIND AND SOLAR COULD GENERATE 35% OF POWER

June 2, 2010 – Utah Association of Energy Users

The U.S. Department of Energy's National Renewable Energy Laboratory released an initial study finding that it is technically feasible to integrate enough wind and solar energy capacity into the Western grid to pro-duce 35% of its electricity by 2017.

The Western Wind and Solar Integration Study, released May 20, concluded that the 35% target does not require extensive additional infrastructure but does call for significant changes in current operational practice. ―If key changes can be made to standard operating procedures, our research shows that large amounts of wind and solar can be incorporated onto the grid without a lot of backup generation," NREL's project man-ager for the study, Debra Lew, said in a news release.

"When you coordinate the operations between utilities across a large geographic area, you decrease the effect of the variability of wind and solar energy sources, mitigating the unpredictability of Mother Nature."

The study, released in draft form earlier this year, focuses on the impacts of wind, photovoltaics and concentrating solar power on the electricity system operated by the WestConnect group of utilities in Arizona, Colorado, Nevada, New Mexico and Wyoming.

WestConnect also includes utilities in California, but those were not included because California had already completed a renewable energy integration study, NREL noted.

It is expected to help utilities across the region plan how to ramp up their production of renewable energy as they incorporate more wind and solar energy plants into the power grid.

The study also found that using wind and solar forecasts in utility operations to predict when and where it will be windy and sunny is essential for integrating the renewable energy sources in a cost-effective manner. In addition, the study recommended that transmission be built, as appropriate, to accommodate renewable energy expansion.

The study was undertaken by a team of wind, solar and power systems experts across the private and public sectors.

DOE said the Western Wind and Solar Integration Study is an important first step in assessing the impact of solar and wind energy on the electrical grid. Under the American Recovery and Rein-vestment Act of 2009, DOE is investing more than $26 million to further study the Western Interconnection.

CLIMATE: EPA 'TAILORING' RULE CREATES CHALLENGE FOR STATE REGULATORS

June 2, 2010 - Robin Bravender, E&E reporter

State regulators are scrambling to figure out how they will comply with a new U.S. EPA rule aimed at shielding small facilities from looming greenhouse gas regulations.

In Arkansas, for example, where state legislators have imposed a rule blocking the regulation of carbon dioxide as an air pollutant, regulators anticipate challenges meeting EPA's January deadline for compliance with the so-called "tailoring" rule.

"We'll have to amend it through our state process first," said Teresa Marks, director of the Arkansas Department of Environmental Quality. Because that process will require a public comment period and legislative approval, she said it's doubtful it can be done by Jan. 2, when EPA says permitting requirements will kick in.

And Montana's state air quality law includes lower emission thresholds than EPA's so-called "tailoring" rule.

"We don't have a threshold built in that would exclude very small emissions," Richard Opper, director of Montana's Department of Environmental Quality, said last week. It's unclear, he said, whether Montana will need to revise its rules to avoid regulating smaller sources. For now, his agency is consulting with attorneys to determine whether the state rules will automatically align with EPA's final tailoring rule.

EPA's tailoring rule seeks to substantially raise the Clean Air Act's permitting thresholds for greenhouse gases from the current limits of 100 or 250 tons per year. Without the rule, even small facilities would be required to obtain greenhouse gas permits once the agency officially begins to regulate tailpipes' greenhouse gas emissions in January (Greenwire, May 13).

Under its phased-in approach, EPA next year will begin regulating existing sources that increase their emissions by more than 75,000 tons of greenhouse gases and new sources that emit at least 100,000 tons of greenhouse gases.

Bill Becker, executive director of the National Association of Clean Air Agencies, expects that "most states will likely be able to meet the January 2 deadline" or will meet it soon after that.

And EPA air Chief Gina McCarthy said the final tailoring rule was written to allow states to avoid regulating except in the way her agency intended.

"We wrote it after talking to the states and realizing that some of the rulemaking uses the same exact language, and if we interpreted that language at the federal level to mean that you don't need to regulate, except the way in which the tailoring rule has designed it, that you can simply decide when to use our interpretation and move forward," she said. "And we know that many of the states are perfectly comfortable doing that."

In Washington state, regulators expect to be able to comply with EPA's rule with minor tweaks to existing permitting programs, said Stuart Clark, air quality program manager at the Washington Department of Ecology.

Revisions to an industrial permitting rule are already under way and ought to be complete by the end of the year, Clark said. Washington will also need to revise an air operating permit rule, Clark added, a process that regulators hope to complete early next year. The actual changes aren't that difficult, he said, but the state has a lengthy administrative process for developing rules that includes time for public comment and review periods.

EPA officials say they don't know exactly how each state will need to align its permitting program to comply with the tailoring rule. The agency has asked states to tell EPA within 60 days after the rule is published in the Federal Register whether they will need to undergo regulatory or legislative changes to adopt EPA's rule. The rule has not yet been published.

"Within 60 days we'll be letting EPA know if we do have to make some changes in Montana," Opper said.

For states that need more time, McCarthy said, EPA will look for ways to use federal authority to help them get that time. "But clearly, legislatures have the authority to meet, they have the authority to make changes, and we'll work with the states to see what needs to be done both in regulation and in the law, so that we can make sure we're aligned on this."

One way EPA could bring states into alignment with the federal program is by issuing a federal implementation plan (FIP) to curb emissions or by issuing sanctions.

"I think it's very evident that if a state is unwilling to comply, that EPA will move forward with some kind of backstop, whether it's a FIP or whether it's sanctions," Becker said. "We hope it will never get to that."

Marks of the Arkansas DEQ also said she hopes it doesn't reach that stage. "We hope that they will give us sufficient time to comply," she said. "We feel like the local government really is the best regulatory authority to know how we can handle our air planning in our state."

'Huge mess'
Some industry officials are concerned that EPA hasn't offered enough certainty for businesses.

"It's still not at all clear how states that don't line up with EPA's view of the world will be pushed into line with EPA's approach," said an oil industry source who spoke on background.

"They put the onus on the states to identify themselves within 60 days, and I'm not sure each state's going to have a chance to do that, so that's problematic," that person said. "In this whole process, the biggest negative repercussion that we're facing is delays in permitting."

Unless Congress steps in, there will likely be an effective moratorium on construction for a few years because of EPA's new permitting rules, said Jeff Holmstead, an industry attorney who served as EPA's air chief during the George W. Bush administration.

"It's going to be a huge mess," he said.

Even states that don't have to change their laws are still facing uncertainty about how to satisfy EPA's requirement that regulated sources install "best available control technology" to curb their emissions, said Jeff Holmstead, an industry attorney who served as EPA's air chief during the George W. Bush administration.

EPA is planning to issue guidance for states in the late summer or early fall about what constitutes BACT for various industry sectors, McCarthy said.

Becker says concerns about state compliance are overblown. "It is a certainty that there will be some bumps in the road; there will be some growing pains," he said, adding that every other major Clean Air Act rule has faced similar challenges.

For now, he said, "No one seems to be panicking."

HEALTH-CARE BILL SURPRISE 1099 NIGHTMARE

June 2, 2010 - Bloomberg Business Week- John Tozzi

A clause buried in the bill requires more tax forms—and small business will bear the brunt

Anyone who makes it to page 737 of the massive health-care bill approved by Congress in March will find a three-paragraph section that has nothing to do with hospitals, doctors, or drugs. The provision, inserted by Democrats on the Senate Finance Committee to help offset the cost of the bill, requires companies to report to the IRS payments of more than $600 a year to any vendor.

The intent is noble: to capture $2 billion or more a year in taxes on income that currently goes unreported by contractors and small businesses.

Business advocates fear it could generate a flood of paperwork. While the provision affects all companies, small businesses will be slammed the hardest because they often lack the compliance departments and legions of accountants that corporations retain on staff.

Today, businesses must file 1099-MISC forms only for freelancers and other service providers that aren't incorporated. The form is meant to make sure these workers pay taxes that the business would withhold if they were regular employees. The new rule, set to take effect in 2012, will expand such reporting to include payments to companies, and for goods as well as services. That means businesses will need to get tax ID numbers and file forms for almost all suppliers—and track all their small expenses to see which vendors meet the threshold. Spend $600 on cell-phone service, at FedEx, or fueling up at the local gas station? Better get their tax ID number. Buy new computers? File a 1099. "It's going to be a compliance nightmare," says Rob Seltzer, an accountant in Beverly Hills, Calif. He figures he would go from filing two 1099s to 15.

Seltzer is on the low end. The IRS says about 85 million 1099-MISC forms are filed each year, and that could jump significantly under the new law. The National Small Business Assn. estimates that the average company will have to file 95 of the forms under the measure, up from fewer than 20 today.

Representative Dan Lungren (R-Calif.), with the support of small business advocates, has introduced a bill to roll back the provision. He says it imposes extra costs on business owners who pay their taxes to help the government catch those who don't. "This paperwork burden is only justifiable if you assume that nearly all businesses are cheaters," says Lungren. The bill would force "every single businessperson to become an IRS agent."

MANUFACTURING SECTOR FILES PETITION CHALLENGING EPA'S "JOHNSON MEMO."

June 2, 2010 – National Association of Manufacturers

The National Association Of Manufacturers stated in a press release that they, along with 19 other business organizations, "have filed a petition in federal appeals court challenging the US Environmental Protection Agency's (EPA) latest interpretation of the so-called "Johnson Memo," where the Agency stated for the first time that it will apply controls on greenhouse gas emissions on a wide range of manufacturing and other stationary sources in approximately seven months from today -- January 2, 2011."

The Manufacturers' president John Engler stated, "Today's challenge is yet another step we are taking to stop EPA from its overreach in regulating greenhouse gas emissions under the Clean Air Act." Engler added, "EPA's power grab creates uncertainty and adds costly new burdens on manufacturers" and "will stifle job creation and harm our competiveness in a global economy by adding compliance, administrative and legal costs."

UNEMPLOYMENT FALLS IN MOST METRO AREAS

June 2, 2010 – Late Wire from Manufacturing.net
Unemployment rates eased in April for more than 90 percent of the nation's 372 largest metro areas as hiring picked up around the country ... continue


US MANUFACTURING EXPANDING

June 2, 2010 – Bloomberg News

The Institute of Supply Management has released its monthly manufacturing index, showing the gauge was down to 59.7 from 60.4 in April. A reading of 50 or higher shows expansion. This is the tenth straight month that U.S. manufacturing has expanded.

Economists suggest the reports help dispel concern industrial slowdowns from China to Europe means the global rebound is stalling. Orders from major equipment companies appear to increasing as customers update equipment and rebuild inventories. Zach Pandl, an economist at Nomura Securities International Inc. in New York, said "It's really difficult to find pockets of weakness in the economy and some sectors, like manufacturing, are growing robustly. The recovery is quite durable at this point."