Legislature and Coal and Renewable Energy and Environment and Utilities and Government & Economic Development and Economic Development

Bills would require utilities to reduce reliance on coal

January 21, 2008

Two bills in the Indiana Legislature would require utilities that operate here to supply up to 25 percent of their electricity from renewable resources such as wind, landfill gas, and plant and animal waste.

Backers say utilities need more incentive to diversify from coal-based power generation, which is expected to soar in cost with anticipated federal caps on carbon dioxide emissions.

They also say a renewable energy standard, which 25 states now have, is a prerequisite to attracting significant investment in Indiana by companies that make or operate wind turbines and other renewable technologies.

Nearly 80 percent of money invested in renewable energy "is going to states that have these policies in place," said Dave Menzer, utilities coordinator at Citizens Action Coalition.

"If you want to attract economic development to the state, this is the way to do it."

But an industry trade group, noting that Indiana has among the lowest electric rates in the nation, said a renewable energy mandate would amount to subsidizing forms of generation that are more expensive than coal.

The Indiana Energy Association estimates it costs 3 to 3.5 cents per kilowatt-hour for coal versus 7 to 8 cents for wind power. Renewable power tends to make more sense in states such as California, which already have high electric rates, said Ed Simcox, president of the IEA.

It calculates that the 10-percent renewable standard, proposed by House Bill 1102, would boost average electric rates up to 5 percent--more than double the 2-percent rate impact Citizens Action said would be caused by mandating the 10-percent standard.

Connecting rural windmills and other renewable plants to the grid is a significant cost alone, Simcox said.

"There's a lot about this that is impactful to the ratepayer."

Simcox also said the cost of complying with the proposed renewable energy mandate would be on top of a 20-percent rise in Indiana electricity rates over the next five years projected by the State Utility Forecasting Group at Purdue University.

The forecast, which was released this month, blames the anticipated rate hikes on new federal air pollution standards, rising construction costs for power plant modifications, and increased costs for coal and natural gas fuel.

Citizens Action counters that the standard would reduce demand for more expensive coal-based generation.

"Ratepayers need a break, and the mechanism for financial relief for ratepayers is a state renewable electricity standard," Grant Smith, Citizens Action's executive director, said earlier this month.

Simcox said utilities see other technologies, such as coal gasification plants, as a more cost-effective way to use coal and yet reduce pollutants. Duke Energy plans to build a $2 billion coal gasification plant in Edwardsport.

Citizens Action and other opponents of the plant argue that its cost will rise 67 percent once Duke is forced by federal mandates to capture carbon emissions. The sponsor of HB 1102, David Crooks, D-Washington, said a renewable energy standard also will "drive significant new investment" in renewable projects, "creating good jobs, additional income for farmers, and tax revenue for counties."

Co-sponsor John Ulmer, a Republican from Goshen, noted that northern Indiana particularly stands to gain, given its higher wind levels than downstate.

Indeed, what little wind generation already is under way in Indiana is in the northern counties. Duke Energy plans to buy up to 100 megawatts of electricity over 20 years from a wind farm in Benton County, for example.

Indianapolis Power & Light, meanwhile, has invited proposals from renewable energy contractors, although it is still evaluating the proposals, said spokeswoman Crystal Livers Powers.

Still, Simcox said Indiana lacks the reliable supply of wind--currently the least-expensive renewable source--to make it a big chunk of total electric generating capacity.

Citizens Action disagrees, pointing to data by the National Renewable Energy Laboratory that lists Indiana as a "high priority" state for wind.

The NREL estimates that Indiana has a wind capacity to produce 40,000 megawatts, roughly double the state's coal-fired generating capacity.

State Rep. Dale Grubb, D-Covington, during last year's session introduced a bill that would have required 10-percent renewable energy. In its final form, it had been hacked to a renewable standard of about 6 percent, "which would have made us the laughing stock of the country," Menzer said.

The bill perished in the final hours of that session.

Menzer said HB 1102 may have more chance than a renewable bill CAC supported last year because it offers a carrot to utilities: allowing them to recover from ratepayers some costs of connecting to renewable energy facilities.

"Nothing is as renewable as coal, [if] you can wait 500 million years," Menzer added.

The most ambitious renewable energy bill filed in this session is SB 295, by State Rep. Tim Lanane, D-Anderson, which requires 25 percent of a utility's supply come from renewable energy by 2025.

An electricity supplier failing to hit the mark would be required to pay $50 per megawatt hour it failed to supply under the percentage.

Utilities could dodge the financial penalty if the state utility regulatory commission determined the cost of compliance "would result in an unreasonable increase in the basic rates and charges for electricity supplied to customers."

Utilities would be able to recover "reasonable and necessary costs" of building, operating or maintaining renewable-generation facilities or of buying renewable-resource electricity from another supplier.

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