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What will 2017 Bring? Dramatic Change?

20 Dec 2016

edit_calendar_ssk_47433454In prior years, we knew that regulatory and environmental change was coming but we expected it to be slow and incremental.  With an unknown quantity like President Elect Trump, one thing is clear – no one really knows what may happen.  Here are a few possibilities:

1.  Coal/Cleaner Energy Generation – revitalizing the coal industry was part of Mr. Trump’s midwest stump speeches.  Will Mr. Trump be able to reverse Barack Obama’s Clean Power Plan? What about the Paris Climate Accord?  Certainly, his team is looking at both of those right now. The dispute in Michigan v. EPA, decided in June 2015, continues to rage.  In 2015, the US Supreme Court ruled that the EPA didn’t properly justify its rule governing mercury and toxic pollution (MATS) from power plants because it did not specifically address costs at the initial stage of the rulemaking process. In April, the EPA announced it was standing by its MATS rule and concluded that the benefits far outweighed the costs.  Petitioners continue to litigate whether the EPA properly evaluated costs.  Here in Michigan, new legislation has been passed (and is awaiting the Governor’s signature) intended to encourage additional investment in energy generation and transmission while balancing consumer choice and a greater percentage of renewable energy generation.  Will it work? At a reasonable cost?

2. Power Generation Subsidies/Oil/Gas Generation – Mr. Trump’s attacks on “crony capitalism” would seem to mean that he will stop financial incentives for solar and wind generation.  Will he also attack oil and natural gas supports in the tax code?  Will he open up ANWAR to oil/gas exploration?  Will he scale back attempts to regulate fracking?  This will be difficult in light of the December EPA Report  which concluded that fracking posed problems such as:  fracking water withdrawals compete with other water needs; spills of hydraulic fracturing fluids and chemicals or produced water may impair groundwater resources; injection of hydraulic fracturing fluids into wells may allow gases or liquids to move to groundwater resources; discharge of inadequately treated hydraulic fracturing wastewater to surface water resources; and contamination of groundwater due to disposal or storage of fracturing wastewater.

3. Pipelines – will Mr. Trump reverse the Obama administration’s dim view of oil and gas pipelines such as the Keystone XL and Dakota Access Pipelines?  How will this affect Michigan where public awareness of two 60+ year-old pipelines under the Mackinac Straits has galvanized both sides of the political spectrum into action.  In 2014, Michigan convened a pipeline task force which issued a report in 2015.  In September, 2015, the State entered into a written agreement with Enbridge to prevent the transport of heavy crude oil through the Straits Pipelines.  The task force also recommended that the pipelines be independently evaluated and that additional financial assurance be provided.  The State solicited Requests for Information and Proposals (RFPs) and Enbridge agreed to pay $3.6 Million for the evaluation of the Straits Pipelines.  An independent evaluation of alternatives to the Line 5 pipelines is also underway.  When those will be completed is not known.

4. Infrastructure – Mr. Trump campaigned on infrastructure (although to hear him tell it, that only encompasses airport quality), and Governor Snyder appointed a 21st Century Infrastructure Task Force which concluded that the State needed to be investing $4 Billion more than it was in infrastructure to address roads, bridges, internet, water, sewer and other infrastructure needs.  Given the recent nationally publicized Flint Water debacle, will Michigan find the intestinal fortitude to fully invest in infrastructure or will we continue to patch and delay?  Given the State’s recent fight against a federal judge’s order to deliver clean water, and Michigan legislators “default anti-tax setting,” the future does not bode well.

5. Brownfields – as previously reported, Michigan adopted legislation streamlining its brownfield funding laws and deferred action on Dan Gilbert’s “transformational” brownfield funding legislation.  Will that resurface in early 2017?  I expect it will.

6. Other issues – there are a number of other issues on the horizon including cleanup standards, the maturing of the Great Lakes Water Authority and its ability to deliver clean water and septic services at a reasonable price, Michigan’s effort to reimagine its solid waste program, water withdrawals and protection of the Great Lakes from invasive species and nutrients leading to algal blooms.

Michigan alternative electrical generation – Henry Ford is not a good analogy

5 Oct 2015

utility workA recent op ed in Crains Detroit Business argued that legislation pending in Lansing regarding Michigan’s electrical system is wrongheaded. The authors focus on the proposed elimination of the renewable portfolio standard (RPS requiring 10% of Michigan’s electricity be generated by renewables by this year) by the legislation and argue that the legislation will cost Michigan energy jobs. They argue that  Henry Ford wouldn’t have built his automobiles here if there wasn’t a legislative infrastructure to support buyers of his cars.  I think I agree with the authors that we should retain the RPS, but their argument doesn’t persuade me. I believe that the future will include a greater mix of sources of electricity. It will not be simply large power coal-fired plants owned by large utilities providing us electricity.

However, without any historical discussion, they suggest that Henry Ford located his operations in Michigan because somehow the regulatory climate supported buyers of his cars, because in their words Lansing didn’t “kowtow” to the horse and buggy industry and paved streets and put up traffic lights. That’s simply not true.  Detroit’s mayor Hazen Pingree began a push to pave streets in the 1890’s and Ford didn’t begin production of his Model T until 1908 (making over 10,000 of them in 1909).  The traffic light wasn’t patented until 1918 and reportedly the first one was installed in Detroit in 1920 – again, well after Mr. Ford had begun his operations (in 1920, Ford reportedly manufactured 1 Million cars worldwide).

As most students of Detroit history know, the automobile industry focused on Detroit because Henry Ford was from here, there was a history of manufacturing, and there was easy access to raw materials. There was no amazing roadway system which led Ford to conclude “this is the place to build the automobile.”  In short, it was an accident of luck, history, geography and economics. I think a better analogy is the railroads, which required a dedicated infrastructure as Congress wanted to open the western United States to commerce and did so by granting rights, privileges and land so that the railroads could establish their “grid” at a lower cost.

The authors of the op ed pay short shrift to the discussion of the legislation’s other major change – elimination of net metering, but it appears that they view this as problematic also. Net metering is the current system whereby individuals and small businesses that generate their own electricity can sell it back to the grid.  The net metering issue is not over whether individual electricity generators can or should sell power back to the grid – rather, it’s what should be the price of that sale. Currently, individual generators can sell power back to the grid at the retail price of electricity charged by the utilities. This has been a boon for encouraging individuals and others to put up wind turbines and solar cells. The ability to sell excess electricity at the same price that the utility charges certainly means a faster payback which means more people will invest in it.

Utilities argue that this is a subsidy and they’re right.  Individual generators do not have to meet regulatory requirements relating to the power that they generate, nor do they have the costs of ensuring long-term reliability or the overhead costs of delivering power to consumers.  If you took your home-grown tomatoes to Kroger or Meijer, would you expect the law to require the store to buy them from you and at the same price the store sells tomatoes? Of course not.  In my view, the question is not whether there should be an incentive for individuals to create distributed power but, rather, how much of an incentive is fair to incentivize distributed power generation and fair to those who will continue to depend on the existing grid that will need upkeep.

We have an infrastructure in place that requires maintenance and upgrading for the 21st-century.  This is not a problem with a simple one-size-fits all-solution. The Legislature needs a more nuanced approach than simply blowing up the current system, but let’s get the arguments right.