Obama Evicerates Regulations for Warren Buffett’s Coal

The Obama Adminitration’s announcement a while back to “streamline” the permitting process for 7 major electricity transmission lines in an effort to “create jobs” and promote wind energy is problematic. While the projects would benefit proposed wind farms, the fact is that existing coal-fired and nuclear power plant infrastructure appear to be the big winners. And at least two of the projects get to charge consumers hundreds of millions of dollars in rate incentives authorized by the Energy Policy Act of 2005 under the expectation that investors needed the extra money because of the implicit difficulty in getting the necessary approval to build.

A recent analysis by Roger Bezdek in the February 2012 issue of Public Utilities Fortnightly argues that new transmission needs to link proposed new large scale, centralized renewable energy projects (mandated through a proposed federal Renewable Energy Standard, under Bezdek’s assumptions) “could enable expansion of coal-fired generation by the equivalent of about 30 new coal plants by 2020,” mainly because the added transmission, coupled with coal’s continued price advantage, will make more existing coal capacity available, since “utilization of the existing coal fleet is currently about 72 to 74 percent. However, this can be increased to about 85 percent if there’s enough transmission to transmit the added coal generation to the load at nights and weekends.” Now, Bezdek’s analysis is not specifically applied to the “fast-tracked” 7 transmission projects, but you get the idea.

For a swirling debate that often pits the Chamber of Commerce and multinational corporations against Obama on regulations, it seems strange that Obama’s proposed gutting of transmission siting regulations has received a collective yawn from environmentalists and many in the pro-regulation community. These days it appears as though Obama governs through press release, wrapping any initiative with “jobs” or “green energy” no matter how tenuous the claim. Touting transmission line projects as vehicles to “create jobs” is not efficient, and a close analysis of the transmission lines clearly show that coal-burning power plants will be the big winners.

Siting towering, multi-state transmission lines has been the traditional job of states. But with NIMBYism giving rise to NOPE (Not on Planet Earth) – due mainly to millions of new people now living in broad swaths of These United States where once only cows and tumbleweeds reigned, as evidenced by an increase of population density of 105% between 1950 and 2010 (from 42.6 people per sq mile to 87.4), it can get awfully difficult for corporations to build large projects sometimes. Not that that’s a bad thing. Unlike China, which can forcibly remove 1.3 million people to make way for giant energy projects at the drop of a hat, here in America we have the 5th Amendment protecting us.

In contrast, we ought to be focusing on YIMBY (Yes In My Backyard!) microgrid projects serving rooftop solar.

The Energy Policy Act of 2005 supposedly granted the Federal Energy Regulatory Commisison (FERC) new “backstop” authority to site transmission lines, in Section 1221, but only if states “withheld approval for more than one year.” But in 2009 the 4th Circuit rejected FERC’s interpretation of this authority. Courts also struck down FERC’s Section 368 authority to establish National Interest Electric Transmission Corridors that would have usurped existing state authority. However futile FERC’s efforts have been, Section 1221 of EPAct 2005 designated the Department of Energy as the “lead agency for purposes of coordinating” transmission projects on Federal lands. And it is this Section 1221 authority that Obama is utilizing with these 7 projects, as all cross major chunks of the public’s land.

One thing the courts haven’t challenged is the Section 1241  “Transmission Rate Reform” incentives, where FERC has approved potentially billions of dollars in added consumer costs to the owners of proposed monopoly transmission lines. Indeed, US Rep. Ed Markey wrote that he “feared that these incentive transmission rates would amount to a naked giveaway to the utility industry at ratepayers’ expense.” The common rate of return for transmission projects is 10.9%.

Here’s what these Obama-fast-tracked projects stand to earn:

* Warren Buffet’s Gateway West: FERC approved a 200 basis point adder, for a 12.9% rate of return on a $6 billion project, including recovery of costs if the thing never gets completed. You do the math what that means for Mr. Buffett, and the added costs households and businesses will pay. With massive, guaranteed profits from a monopoly business, no wonder Buffet supports Obama’s proposed surtax on millionaires.

* Montana-price-gouger PPL and New Jersey-based PSE&G get a 12.65% rate of return for their Susquehanna-Roseland project: that’s a base of 10.9%+1.25 incentive rate+0.5% “bonus” for staying in PJM (!?)+100% cost recovery for Construction Work in Progress. And why on earth are federal regulators forcing customers to pay extra for corporations’ continued participation in PJM – a private organization that itselft price-gouges working families?

Which brings us to the Obama Administration announcement. These are 7 private, for-profit ventures seeking expedited regulatory treatment to build their projects on land owned by the American people, and the justification for the rush is a) they will create jobs and b) they will bring needed wind energy into the grid. So let’s examine first that these transmission lines deserve expedited permitting treatment in order to get wind power to the grid. An examination of each reveals that they will be serving to transport significant amounts of electricity from coal.

1. TransWest Express is controlled by conservative billionaire Philip Anschutz, and links Utah coal power plants (Buffet’s 5,200 MW of coal generation with the Hunter, Huntington, Naughton, Carbon & Jim Bridger units; the 2 Intermountain plants and the giant Laramie coal station) and potential new plants served by the huge coal mines on the line’s path, including  Sufco, Arch’s Dugout Canyon & Black Thunder and the recently-approved Coal Hollow mine.  The transmission line proposal includes a free corridor for a new optical fiber link, which Anschutz (founder of Qwest) I’m sure has ideas how to use for his expanding media and telecom interests.

2. Portland General Electric’s Cascade Crossing is linked to the Boardman-to-Hemingway line (with the slated-for-retirement-by-2020 Boardman 550MW coal power plant as the anchor), which in turn is linked to Buffet’s Gateway West (and the above-mentioned 5,200 MW of coal + Buffet’s Dave Johnson coal facility). Remember, in 2009 Buffet made a $34 billion bet that coal would remain king when he acquired Burlington Northern, posting revenues of over $5 billion hauling the most coal of any railroad in 2011.

3. The SunZia line which would connect potential renewable energy projects in New Mexico and Arizona, as well as coal and natural gas, including the 1,000 MW proposed natural gas Bowie plant, and the existing 570MW natural gas Luna Energy plant co-owned by PNM, Tucson Electric and Freeport-McMoRan.

4. Idaho Power’s Broadway-Hemingway, which would connect with Buffett’s Gateway West. From their own documents, the proponents boast that “generation sources in this area [of the proposed transmission] include natural gas, wind, hydropower, and nuclear“, and community groups have raised concerns.

-Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on twitter @tysonslocum