Abraham Energy Report

When the House Transportation and Infrastructure Committee approved the $10 billion Coast Guard Reauthorization bill on Sept. 24, it also adopted a critical provision that has received little attention but could have enormous impact on U.S. energy markets.

Buried in the legislation was language that could, ultimately, block construction of some new U.S. maritime terminals for “especially hazardous materials,” which includes liquefied natural gas (LNG) and some agricultural chemicals.

The language was proposed by U.S. Rep. Elijah Cummings, D-Md., who has expressed reservations about the security of LNG tankers and terminals along urban waterfronts. Cummings’s district includes part of the Baltimore port.

LNG terminals and tankers have an exemplary safety record over the last 40 years.  But environmental groups and other critics contend that LNG can be a volatile resource to transport and store.

Cummings and his allies acknowledge the sterling safety record, but say they’re worried about terrorists choosing to assault tankers and terminals in heavily populated port cities. As a result, they have supported a number of initiatives to give the U.S. Coast Guard additional responsibility and dollars to monitor the comings and goings of LNG tankers.

The latest Cummings amendment would require the Coast Guard to guarantee the security of vessels and facilities handling LNG and agricultural resources before any such facility is even built. Like all shore-side U.S. facilities, these terminals are already required to operate in strict compliance with current safety standards, including local and state regulations, before tankers carrying hazardous materials can use a facility. The rule, if enacted, would prevent terminals from being used if the Coast Guard says it doesn’t have enough resources to guarantee the security of a facility.

“My amendment would not stop LNG terminals, or anything else, from being built,” said Cummings. “The only thing my amendment does is ensure that especially hazardous materials are protected with security measures meeting standards set by the Coast Guard for these materials. These are chemicals that can do massive, catastrophic damage if they are not properly secured. I believe my amendment ensures that they are.”

Part of the bill’s proposed language reads:

“Sect. 17_Part (c), Determination Required for New Terminals. The Secretary of the department in which the Coast Guard is operating, acting through the Commandant of the Coast Guard, may not approve a facility security plan under section 70103 of title 46, United States Code, for a new especially hazardous material terminal the construction of which is begun after the date of enactment of this Act unless the Secretary determines that the Coast Guard sector in which the terminal is located has available the resources, including State and local government resources in accordance with subjection (b), to carry out the navigation and maritime security risk management measures identified by the Coast Guard pursuant to the Ports and Waterways Safety Act.”

The legislation defines “especially hazardous materials” as “anhydrous ammonia, ammonium nitrate, chlorine, liquefied natural gas, liquefied petroleum gas, and any other substance identified by the Secretary as an especially hazardous material.”

Republicans and Democrats alike expressed concerns about the provisions. “The amendment creates unnecessary and duplicative requirements that will be impossible to implement, and may simply seek to prevent the construction of new facilities to handle important energy and agricultural resources,” said Rep. Frank LoBiondo, R-N.J., the ranking member of the Coast Guard and Maritime Transportation Subcommittee. “I hope we can address these concerns as this legislation progresses.”

The reauthorization bill is pending in the House, and a number of members have vowed to eliminate the provision before the bill is signed into law.

“As our nation’s energy needs are expected to grow by 50 percent over the next two decades, it is imperative that we pursue an ‘all of the above’ approach,” said Rep. Fred Upton, the top Republican on the House Energy and Environment Subcommittee.  “Natural gas is of critical importance as we seek to meet our energy demands of tomorrow. However, the shortsighted provision tucked into the Coast Guard bill has the potential to derail all new liquefied natural gas terminals with unlimited government red tape. Such an effort defies common sense, especially with such stringent laws already on the books.”

The legislation comes on the heels of a Coast Guard rule that would set steep notice requirements for operators looking to construct LNG or liquefied hazardous gas (LHG) facilities in U.S. ports.

In April 2009, the Coast Guard proposed a rule requiring prospective operators to notify the Coast Guard at least one year before the start of any construction. The operators would be required to submit a preliminary Waterway Suitability Assessment (WSA) to outline the type of facility, tanker route, risk assessment for maritime safety and security, and resource needs for security.

When the rule was submitted, the Coast Guard explained its rationale by noting, “U.S. natural gas consumption is projected to increase by 40 percent, and our domestic gas production is not expected to meet this need,” explained the Coast Guard in a written statement. “Therefore, this likely shortfall may be resolved by increasing marine LNG imports.”

Currently operators need only give a 60-day notice. The Coast Guard estimates that it could cost between $80,000 and $1.2 million to prepare and submit a single WSA. The comment period on the rule closed June 29, and the Coast Guard is reviewing comments before submitting a final rule.

There are 11 LNG facilities in the U.S., according to the Federal Energy Regulatory Commission (FERC). Twenty new LNG terminals have been approved and are under construction (four) or awaiting construction (16), as of Sept. 15, 2009, and another nine have been proposed.

Over the objections of Cummings and other Maryland lawmakers, the FERC approved in January 2009, with some conditions, a new liquefied natural gas (LNG) import terminal and connecting interstate pipeline proposed at Sparrows Point, located southeast of Baltimore in Baltimore County. FERC estimates the number of ships going to and from the Sparrows Point terminal will increase commercial marine traffic in the Chesapeake Bay by 5 to 7 percent. In addition, the Cove Point LNG facility, owned by Dominion Resources, is located nearby in Calvert County, Maryland also on the Chesapeake Bay.

The Energy Information Administration in its Annual Energy Outlook 2009 estimates that natural gas demand in the United States could be 24.36 Tcf by the year 2030. That is an increase of 6 percent over 2007 demand levels, as compared to an expected total energy consumption increase (from all sources) of 12 percent (from 101.89 quadrillion British thermal units to 113.56 by 2030). The EIA predicts an annual demand increase of 0.5 percent over the next 21 years. It is important to note that this steady climb in demand for natural gas could increase even more as climate change legislation grows demand for low-carbon fuels such as clean natural gas. These projections illustrate that demand for natural gas will increase steadily for the foreseeable future, which makes LNG imports a crucial component to U.S. energy security.

Key concepts:

• The Coast Guard Reauthorization bill contains language that could, in effect, block construction of some new U.S. maritime terminals for “especially hazardous materials,” which includes liquefied natural gas (LNG) and some agricultural chemicals.
• The amendment’s supporters contend that tankers and terminals in heavily populated port cities are terrorist targets, and have supported a number of initiatives to give the U.S. Coast Guard additional responsibility and dollars to secure these especially hazardous materials.
• Republicans and Democrats of the committee expressed concerns about the provisions, saying they are “unnecessary and duplicative requirements that will be impossible to implement, and may simply seek to prevent the construction of new facilities.”

More headlines from this issue:

» Climate Change Law “Not Going to Happen” in 2009
» Drill Baby Drill! The Moratorium’s End—One Year Later
» Russia: “End of the World” Gas Fields May be Open to the West
» Obama Administration Commits to Powering Up Batter Technology Development
» Outcome of the OPEC Meeting: Production Quotas Unchanged; Actual Output Likely to Fall
» U.S.-Russia Energy and Environment Working Group Update

For reprint information click here.

The benefits of investing in the construction of a national Smart Grid, in terms of energy efficiency, green energy development and the long-term viability of the power sector, have always outweighed its costs. Still, the nation has been surprisingly slow to embrace the much-needed overhaul.

Certainly, there are some who view the enterprise as little more than corporate welfare for the nation’s power companies, or who think it’s main goal is some misguided and costly effort to speed the transmission of renewable energy from distant wind and solar resources.

Yet for a majority of private and public sector leaders, repairing the nation’s antiquated electricity transmission system is viewed as a necessity. And after years of debate, there are finally signs that the momentum is now moving toward a nationwide renovation of the power grid.

A sign that Smart Grid development is on a fast track can be found at the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability, which announced in April that it would award $3.4 billion in matching grants for projects that “verify smart grid technology viability, quantify smart grid costs and benefits, and validate new smart grid business models.”

By the August deadline for applications, requests had been filed for $9.4 billion in grants, and “DOE is extremely pleased with the level of quality” in the project proposals, John Jimison, majority counsel for the House Energy and Commerce Committee, told a Sept. 24 conference sponsored by the GridWise Alliance, a public-private consortium advocating for the Smart Grid.

The grant program funded by the American Recovery and Reinvestment Act may be one of the least controversial components of the $787 billion stimulus package, Jimison said. “I have a great deal of confidence that in the long run the Smart Grid portion of that investment is going to be seen as extremely important,” Jimison said.

“The stimulus has stimulated the Smart Grid, no doubt about it,” added Rich Senado, director of the Regulatory Assistance Project, a non-profit that helps public officials with electric utility regulation. “A lot of people are trying to navigate this exciting technology.”

Steps toward modernization of the power grid are being taken across the country:

In June, a group of companies, including Xcel Energy and software company GridPoint Inc., launched the first Smart Grid City in Boulder, Colo. The system, which took about 18 months to build, includes 200 miles of fiber optic cable, 4,600 residential and small business transformers and 16,000 smart meters. “We can now read customer meters remotely, identify and reduce outages and false power outage calls more quickly,” said Jay Herrmann, Xcel Energy regional vice president.

Pacific Gas & Electric Co. has set a goal of installing nearly 10 million smart meters for its California customers by the end of 2011, and is one of the first utilities to seek Federal Energy Regulatory Commission (FERC) approval of its cost-recovery and interoperability plans under a new FERC policy issued in July. “We’re excited about that project, but we have not yet entered our decision on it,” said FERC Commissioner Suedeen Kelly.

More than 30 electric cooperatives in Minnesota have begun coordinating development of communications systems and advanced metering technology to enhance the grid statewide. “While many are talking about smart Grids, Minnesota is actually doing them,” said Ed Solar, CEO of Arcadian Networks, which is providing the two-way broadband network.

Minnesota Sen. Ellen Anderson, who chairs the state Senate’s Environment, Energy and Natural Resources Budget Division, said the goal of grid development in the state is to maximize the use of local and regional power sources, promote clean energy and increase efficiency in electricity delivery.

“No one is more excited than utility regulators,” said Rick Morgan, commissioner of the Washington, D.C., Public Service Commission, at the conference. “State PSCs are already rolling out projects.”

Energy Secretary Steven Chu announced at the conference that DOE would facilitate those efforts with $44 million from the stimulus program so states can hire new staff and retrain current employees so they can quickly review Smart Grid projects. Another $100 million will go to utilities for workforce development, he said.

Chu’s announcement followed DOE’s release of more than $57 million in July for Smart Grid projects, including a national information clearinghouse being developed by Virginia Tech with $1.3 million.

But the big push will come later this year when DOE announces recipients of the $3.4 billion in matching grants for Smart Grid investments and demonstration projects. The maximum investment grants will be $200 million and top awards for demonstrations will be $100 million.

FERC Commissioner Kelly lauded DOE’s decision to require open architecture for all projects that receive grants. “We think open architecture will facilitate Smart Grid development and will allow a large number of vendors to be involved,” she said. FERC has also provided input to DOE on how it should spend the stimulus money, Kelly said.

Morgan, of the D.C. Public Service Commission, voiced a word of caution on the pace of grid development. “We have to evaluate utility investments to ensure they’re in the public interest, and not “gold-plated” or “dead end” projects,” he said. “Federal funding could be helpful as a nudge, but we have to be sure we’re not getting pushed off the cliff in the process.”

Morgan also said PSCs will oppose the idea suggested by some in Washington that federal agencies should be able to override state regulations to speed grid development. But the states don’t want to hinder the Smart Grid, and most look forward to the benefits that will come in the way electricity is priced, Morgan said.

“Most utilities still use the legacy dumb meters that just measure kilowatt usage,” he said. “It’s like going to the grocery store and taking what you want and just getting a total bill each month. Customers will be much better off if they are given a choice of how and when to use electricity.  For example, they can decide how much they want to pay to stay cool on a hot day.”

Dynamic pricing can also help eliminate hidden charges for utility customers, he said. For example, most utilities use blending to keep rates stable while wholesale prices fluctuate, but these “hedge premiums” can add 15 percent or more to monthly bills, he said. “There’s no point in having smart meters if you’re going to have dumb rates,” Morgan said.

Alicia Jackson, a staffer on the Senate Energy and Natural Resources Committee, also warned states and utilities not to become too reliant on the federal gravy train. “There’s not going to be much more legislation after this because we just spent the money to jump-start the Smart Grid,” she told conference attendees.

The decision by the Administration and Congress to invest in Smart Grid research and development bodes well for both businesses and consumers. The Smart Grid is expected to cost an estimated $75 billion to develop, but it could save the nation trillions of dollars by more efficiently operating the grid, eliminating blackouts and possibly reducing the need to build additional power plants helping to meet growing U.S. electricity demand. More importantly, it will be a transformational technology, a so-called “energy Internet,” that could likely spark a revolution in energy-related technology development and deployment.

More headlines from this issue:

» Climate Change Law “Not Going to Happen” in 2009
» Drill Baby Drill! The Moratorium’s End—One Year Later
» Russia: “End of the World” Gas Fields May be Open to the West
» Obama Administration Commits to Powering Up Batter Technology Development
» Outcome of the OPEC Meeting: Production Quotas Unchanged; Actual Output Likely to Fall
» U.S.-Russia Energy and Environment Working Group Update

For reprint information click here.