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OCTOBER 7, 2010

I?ve been asked to give my views on electric co-ops and energy efficiency. As I do anytime I am asked to speak, let me begin with full disclosure, so that you can appropriately discount anything that I might say thereafter.

I am Director of the Kentucky Resources Council, a nonprofit environmental advocacy organization providing legal and technical assistance without charge to low-income individuals, to community organizations, and to local governments concerning air, waste, water, land use and resource extraction issues. My perspective on energy issues has been forged by 33 years of representing those who live downhill, downwind and downstream of mining operations. In that time, I have buried one friend and client who was crushed to death by slurry from a coal waste dam collapse, and I have seen the lives and peace of mind of countless others subject to avoidable injury and damage from coal extraction.

Those costs - premature death due to occupational illness and avoidable workplace accidents, damage to roads from coal trucks overloaded by the producers, loss of security for individuals whose homes have been damaged by blasting, or been made unlivable by loss of water supplies, and whose peace of mind has been taken by fear of flooding made more likely and more severe by denuding of the forested watersheds up stream, and the costs of the loss of ecological integrity of land and water resources of a region blessed by a significant and diverse forest ecosystems – are costs borne on the backs of the residents of coal-producing regions and are not currently accounted for in the utility regulatory policy. And unfortunately, while we have developed mechanisms to belatedly incorporate, and pass on to ratepayers, the add-on costs of controlling pollution that were considered to be externalities: controls on particulates, So2, NOx and other air pollutants from the combustion of coal, there remain substantial and enduring costs in human and ecological terms that remain off-budget in the ratesetting process, skewing the identification and analysis of what energy option is truly “least-cost” for ratepayers over the long term.

My representation takes me across the Commonwealth, and beyond coal-producing regions as well. Since KRC represents those who cannot otherwise afford representation on environmental issues, our clients are among those most vulnerable to the dramatic and sharp increases in the cost of electricity that is predicted as regulated electric utilities propose construction of new generating capacity and continue to retrofit existing capacity to better internalize pollution impacts and to lighten the footprint of coal-fired utilities on the environment.

I appreciate the invitation to be with you here today, because we share something in common - just as KRC represents the most economically vulnerable of Kentuckians, the member-owned rural electric cooperatives represent those customers – rural residents that the IOUs didn’t want to serve. Your members are among the most vulnerable to the rate shocks that will attend the inevitable monetization of carbon dioxide, and many of them are ill-equipped to pay higher bills as those costs are internalized.

So when one asks me “why energy efficiency makes economic and environmental sense for Kentucky” I have a thousand reasons – one for each person I’ve represented over the years; who have paid dearly for our cheap power. One thing that I think we can all agree on is that the real cost of coal - the cost paid in lives cut short, in occupational illness and injury, in communities damaged and lives ruined by radical mining methods, is too dear a cost to waste 70% or more of the energy potential of the fuel as waste heat going up the stack.

I believe that we owe it to our children, whom we have short-changed in budgetary and ecological terms to pay for our ecological binge, and to each other to look before we leap into another round of power plant construction, to inject some honesty and some reason into the equation.

An old friend who was the spokesman for the coal industry, was fond of saying that “we can’t conserve our way to prosperity.” I could not disagree more.

Many of the problems we have seen, both in economic instability and in geopolitical instability that are associated with energy are a result of short-sighted policies that have resulted in imbalances between supply and demand for energy. Increasing supply is expensive, time-consuming, and environmentally damaging.

You have done well what was asked of you – producing highly reliable energy at a low cost, as “cost” was defined by the utility commissions. As we move forward, the shape of the electric power system will and must change away from dependence on fossil fuels. The current power model of building to meet unrestricted demand for electricity will change to a new model where both supply and demand are controlled and managed, and where the traditional approach of assuming uncontrolled demand and meeting it through large, centralized plants, will give way to a new model - an integrated network of advanced technologies that include efficiency, demand response, renewables and distributed generation. But for this to succeed, technical and economic hurdles must be overcome to assure that electricity can be delivered reliably and cost-effectively through the transition. (These observations are liberally borrowed from “Keeping the Lights On While Transforming Electric Utilities,” Hansen, Lena and Lovins, Amory, originally published in Solutions Journal 2010.)

Investment in cost-effective energy efficiency – in generation, the transmission, and in consumption within the residential, commercial, manufacturing and institutional sectors, is our greatest untapped energy resource and is the key element to a more stable energy and economic environment for Kentucky and for the nation as we make that transition. Investments in energy efficiency have the potential to displace a significant amount of the projected future load growth, flattening peak demand and allowing us to delay or avoid entirely the construction of new generating capacity as these issues are addressed, and empowering customers to better control their energy costs.

Those investments that have been made to date have contributed significantly to our current situation – our total primary energy use per capita in 2000 was identical to that in 1973, a period in which the GDP increased 74%. But, as commentators have suggested, there is still an enormous potential for additional cost-effective energy savings. Increasing the efficiency of our homes, appliances, vehicles, businesses and industries should be the cornerstone of our national energy policy and of your energy policies, since it is a win-win for economic growth, national security, reliability and environmental protection.

What impediments exist to improving efficiency in the generation, transmission, and utilization of energy, and where should we focus our energies?

* Utility rate-setting policies, including the failure to fully cost the energy options, and rate formulae that couple volume of sale of electricity with revenue.

The current rate-setting formulas for utility companies favor the sale of power, not responsibility in the choice of supply or efficiency in the conversion and use of power. The formula favors the cheapest purchased fuel, which is typically coal, not the energy source that is most ecologically sound, nor even coal that is mined by the most responsible and least-impact methods. Utilities drive fuel cost margins down, and operators respond by shedding costs – replacing labor with larger machines, substituting constructed compacted fills with end dumped fills, availing themselves of bankruptcy laws as a shield against responsibility to labor and neighbor.

Changes in the rate-setting formula for electric and gas utilities that more fully cost and account for anticipated environmental and social costs will help to end the artificial subsidies that skew the market by allowing those costs to be excluded from consideration, impede the deployment of and investment in sustainable, renewable energy sources and in efficiency, and make fuel choices that cost the environment and public dearly, seem inexpensive. The cost of coal-fired generation is understated by ignoring full fuel cycle costs, including environmental compliance costs now imposed by surcharge. In considering what option for meeting energy needs is “least cost,” and “least cost” must be include anticipated regulatory changes that will add costs to the generation over the anticipated useful life of the facility – otherwise, we will repeat at greater cost the pattern for the current fleet of facilities – ignoring ecological costs only to add them on by surcharge as the regulatory mandates required new controls that could readily have been anticipated (and which may have led to different fuel choices).

Investment in energy efficiency, particularly investment in end-use efficiency in those sectors that consume the most significant portion of the utility output, must be placed on the same footing as investments in new generation and transmission. We need to better define what is “fair, just and reasonable” in our utility rate setting process, and better align the interests of consumers in reliable, affordable energy with ecological and social responsibility, rewarding efficiency and prudence rather than artificially maintaining low rates through shedding ecological costs. As we do, programs now at the fringes of utility policy, such as weatherization, appliance efficiency, CHP and cogeneration, increasing efficiency in new and remodeled construction, will move to the center of utility energy policies.

* Promoting not only the deployment of new efficient appliances, but also the replacement of existing inefficient major appliances through rebate programs. While tax credits are of some use, they miss those in the residential sector most in need of improvement in home heating and cooling and major appliance efficiency improvements; those low- and fixed-income individuals who are often also most vulnerable to the sticker shock that will accompany major investment in new coal-fired capacity because their utility costs are a higher percentage of income and the housing stock that the own or rent is often least efficient in utilizing energy.

* Another issue is that of building and housing energy efficiency. There is a huge potential for improvements in energy efficiency and cost-savings to consumers in the existing commercial, institutional, and residential rental and owner-occupied housing sector, as well as in new construction. We need integrated programs that retrofit structures for efficiency and to reduce load, increase efficiency of existing lighting, heating and cooling and other systems, and which increase occupant awareness of and involvement in managing energy use.

I left New York City before the two trade center towers were built. For me, the Empire State Building was the iconic image of what was New York City. So it was with particular interest that I read of their effort to prove that enhanced energy efficiency is a cost-effective means of controlling expenses and to create a model approach that was replicable elsewhere. On an investment of $13.4 million, they are saving $4.4 million each year off an $11 million dollar annual energy bill. (Popular Science, 2020-10, “How the Empires State Building Is Pioneering the Future of Energy Efficiency”).

For low-income ratepayers, weatherization funds are available for basic weatherization. For working families above 200% of poverty, little help in capitalizing the costs of needed improvements is available. Creating on-bill financing programs coupled with audits before and inspections afterward, is a creative and much-needed way to improve end-use efficiencies. For many co-ops, low and fixed-income ratepayer members live in substandard housing stock using inefficient radiant electric heating, and those housing units should be replaced rather than retrofitted.

Our failure to incorporate energy principles into new housing, to assure adequate inspections and enforcement of building code requirements statewide, and to invest meaningfully in improving energy efficiency in existing housing stock is a lost opportunity to date. Our state’s new housing stock, increasingly unaffordable to many of our state’s citizens, continues to be built and sold with little concern over the costs to homeowners of heating and cooling, and less consideration of efficiency in choice of materials and design. Outside of the innovative work of relatively few architects and contractors, the norm is far below what is appropriate.

* Finally, communicating success and harnessing the significant abilities of our research and educational institutions is essential in identifying, promoting, and creating “best practices” in energy efficiency. Amory Lovins tells the joke about the economist who was walking down the street and saw a $20 bill on the pavement. He didn't pick it up because he assumed it didn't exist; if it did, he reasoned, someone would have already picked it up!

We make a mistake if we assume that the way we do things is the best and most efficient, and that if an idea or new approach were better, someone would have already implemented it.

All energy sources have a footprint, and as we look at the array of options available to meeting our needs, the first principle that must inform our discussion is honesty. We have got to stop cooking the books by ignoring costs that flow directly from our energy source production, transportation, conversion and waste disposal decisions and choices. Full-cost accounting – the so-called triple bottom line – is a first step.

Dialogue is the second. Thanks for letting me be a part of today’s dialogue.
By Kentucky Resources Council on 10/08/2010 5:32 PM
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