Let There be Coal
Touting the Environmental Protection Agency's (EPA) coal regulation plan around the world, Barack Obama recently told the press about “one of the most ambitious steps that any nation has taken to combat climate change.” Part of a broader effort to promote renewable energies in the US, the proposal calls for a 30 percent cut of carbon dioxide emissions in existing power plants by 2030. Although a federal goal has been set, the local implementation of the plan remains at the discretion of state governments, where utilities and industry lobbies are leading a ferocious battle to preserve the economic viability of their coal-fired plants.
By Léo Gack
Taking a peek at the data provided by the US Energy Information Administration (EIA), one can only notice the incredible growth of energy generated by renewable sources in the past ten years. Solar power alone has multiplied by over 50 in a decade. Under the heavy sun of Arizona, the American statewith the highest solar potential, solar-panels are spreading like wild fire. Thanks to federal and state financial incentives, average-income households are now able to install panels on their rooftops and reduce their electricity bills by $60 to $120 a year. But in Arizona, like elsewhere, the stimulus may soon disappear as a fiscal war by coal-industry lobbyists against clean energy advocates is taking its toll on the government's efforts to promote renewable energy.
Mr. Smith's Electricity Bill
Let's imagine Mr. Smith, an average-income ratepayer in Arizona, who plans on switching to solar. He would like to benefit from the state incentives, like the “net metering” program, in place since 1981, allowing customers to sell their energy surplus back to the grid, or to store it for future usage. He wouldalso be eligible for a 30 percent federal tax credit for solar customers, as well as for several state tax exemptions. Lately, Mr. Smith has seen in the news, as the Chamber of Commerce's projections, foreseeing that to absorb the EPA's reform, utilities would have to raise the price of electricity and charge their customers an additional $200 a year. He knows the cost of solar is going down (from $3.80/watt in 2008 to $0.86/watt in mid-2012) and that it might just be the right time to switch over.
However, Mr. Smith's neighbors advise him to think twice. Since last year, the State of Arizona hasbeen changing it’s fiscal policy regarding solar energy. In November 2013, the Arizona Corporation Commission voted on a $0,7/kW additional fee for new solar customers, bringing the average monthly payments up by $5. The reason? A concept know as ‘cross-subsidization.’ If Mr. Smith goes solar, he won't have to pay for the maintenance of the grid anymore, or the cost of it being transferred to his neighbors, traditional utility customers. But while Mr. Smith produces his own energy during the day,he still relies on the grid at night or on cloudy days to access electricity from the utility. Therefore, he benefits from an infrastructure his neighbors are paying for.
What's more, if Mr. Smith goes for solar panels on lease, like 85% of the customers, he may face another disappointment, as the Arizona Department of Revenues recently decided to charge a property tax on it. For an average individual installation, ratepayers will pay around $150 a year, with taxes decreasing year after year. The reason? The program previously described as ‘net metering.’ By selling his energy surplus back to the grid, Mr. Smith practices a commercial activity that is eligible for taxation.
Doing the math, Mr. Smith quickly understands that he has no financial reason to switch to solar anymore and that good old coal-generated electricity remains his cheapest option after all. Within a few months, with its overall $210 fee implementation ($5x12 + $150) the Arizona administration managed to suffocate long-established efforts to promote solar. But why?
The “War on Coal”
One could consider it a strange move from a state whose Governor calls herself ‘the Solar Queen’. A strange move from a state with two cities in top positions of the sunniest US cities ranking. And it’s a strange move from a state whose Republican-led legislature is inherently anti-tax.
In Arizona, where coal accounts for 40 percent of the electricity produced, existing plants have already undergone serious upgrades to meet with the EPA's evolving standards. The Arizona Public Service Co. (APS), the state’s largest utility, says it's been working on it for years and that, by 2008, it had already reduced its emissions by 2,1M tons. APS spokesperson Steven Gotfried claims that, since then, “the war on coal has intensified with even stricter regulations.” EPA administrator Gina McCarthy deplores that coal-industry leaders have “time after time (...) cried wolf to protect their own agenda.” Praising the generalization of solar, wind, and other types of distributed energies (DER), she declared: “from the light bulb to the locomotive; from photovoltaic cells to cellphones, America has always turned small steps into giant leaps.”
And herein lies the problem. Game-changing innovations, in any industrial sector, are never good news for companies that are not leading the revolution. Remember the telephone industry of 1978? I guess not. “They are not recognizable today, nor are the names of many of the players,” bemoans the Edison Electric Institute (EEI), an association that represents all US investor-owned electric companies, in a report recently published. The combination of new technologies and changing customer-usage trends led the telephone industry to poor financial market results.
The same is happening today with solar energy becoming cheaper and more autonomous, at the expense of coal-generated electricity that is continuously losing cost competitiveness. The conclusions of the EEI report? “Declining utility revenues, increasing costs, and lower profitability potential”. Its immediate recommendations? The creation of a monthly customer service charge to recover fixed costand “eliminate cross-subsidy biases.” Revising net metering programs so that “self-generated DERsales to utilities are treated as supply-side purchases.” Sounds familiar? Hmmm...
Shadow Forces
Indeed, there are odd similarities in the arguments presented by the EEI, representing U.S. investor- owned utilities, and the reasoning of the Arizona administration. But at this point, the relation between the two has yet to be proved.
For more than a year, ads have been running on local TV channels to promote the coal industry's take on the development of solar. Campaigns attempting to discredit distributed energy were funded by organizations like the EEI ($520,00 in a 10-days TV ad campaign), Prosper and60 Plus.
60 Plus calls itself “a non-partisan seniors advocacy group with a free enterprise, less government, less taxes approach to seniors issues.” Prosper is a free-market advocacy group created by former 80 Republican Representative and Speaker of the Arizona House, Kirk Adams. At first sight, little to dowith solar-panels.
However, investigations revealed that both organizations received money from the utility APS to run these campaigns: $3,7 million, eventually confessed APS spokesperson Jim McDonald. A contribution that hesays did not come from ratepayers money, but from profit destined for the shareholders of APS's parent company Pinnacle West Capital Corp. Articles mention spending up $9 million, which is difficult to track, since the investments were done through DC London, a company hired by Pinnacle West CC for its record of secrecy.
Now, how did this money showering turn into political influence? The answer ties APS, the EEI, Prosper, 60 Plus, Pinnacle West CC, DC London, and the Government of Arizona together, and it's called ALEC.
ALEC Exposed
The American Legislative Exchange Council (ALEC) is, in its own words, “a nonpartisan membership association for conservative state lawmakers who share a common belief in limited government, free markets, federalism, and individual liberty.” Created 40 years ago, the organization has had a tremendous influence on the policy-making process, with its name associated to controversial bills like Florida's pro-gun “Stand Your Ground”, Arizona's anti-immigration “Safe Neighborhood Act” and the 2012 wave of “Voter ID” laws. ALEC focuses its efforts on issues where states have a relative legislative autonomy vis-à-vis Washington: immigration, healthcare, education, voting rights, and environment.
ALEC brings corporate lobbyists and state legislators together to draft and vote, behind closed doors,on state-level legislations destined for national distribution. By way of financial contribution, companies can join the club and work on ‘model bills’, hand-in-hand with State officials who, in exchange for contribution to their campaigns and other benefits, will bring the ready-to-enact packagesback to their legislature.
Legally, the organization is a tax-exempt charity, just like the Red Cross. Donors get a tax write-off for their contributions, and ALEC only publishes its revenues once a year. Under the federal tax code, the organization is allowed to allocate 20 percent of its $7M annual budget to lobbying, but according to the liberal organization CommonCause, ALEC largely exceeds the limit.
In Arizona, ALEC has been playing a key role in discouraging utility customers like Mr. Smith to switch to solar. 60 Plus and Prosper, the two organizations in charge of the anti-DER campaigns, received contributions from the Koch Brothers, whose firm Koch Industries Inc. is among the principal donors of ALEC ($500.000 from 2005 to 2011). Exxon Mobil ($1,4M from 2004 to 2014), Peabody Energy, BP, Chevron and Shell are also important contributors from the energy industry.
The EEI, the group of utility owners, has been paying its $25.000 yearly membership to ALEC since at least 2011. Investigations revealed that the EEI's VP for political and external affairs, Bryan McCormick, has worked with ALEC on the model bill to reform net-metering. McCormick also cooperated with APS, recent buyer of a seat on ALEC's energy committee, to defend the bill before the Arizona Corporate Commission. Two members of this Commission, entirely Republican, have been identified by the Center For Media and Democracy as ALEC members.
In the Arizona Congress, 18 Representatives and 16 Senators, including the majority leader, are affiliated to ALEC. Nationally, the organization claims over 2,000 legislative members and some 300 private-sector members. In its broader battle to defy the EPA, ALEC's solar tax against net-metering in Arizona is only 1 in 131 bills currently being spread around the United States by the group's affiliates.
From State to National Warfare
Nationally, the vast majority of ALEC's anti-environment bills concern Renewable Portfolio Standards (RPS). In effect in 30 states, they set the minimum requirements for utilities to produce energy from renewable sources, with goals varying from 10% to 30% over the next 10 to 15 years.
The Kansas office of the conservative organization Americans for Prosperity claims that the RPS will cost the average household $660 a year, an argument based on studies led by the Beacon Hill Institute about the impact of these standards on the economy of each American state. Both organizations were funded by Koch Industries, as part of a national campaign against coal regulation. Despite the efforts deployed by ALEC and the industry to remove the standards, no state has yet repealed its RPS, lowered the required percentages or extended the implementation deadlines. As of today, 0/16 for ALEC.
On the federal front, ALEC-affiliated legislators also introduced a bill before the Congress to block the first draft of the EPA regulation in March 2014. The ‘Preventing Government Waste & Protecting Coal Mining Jobs in America Act’ passed the Republican-controlled House with the support of the majority.
Massive PR campaigns were launched to gain support for the bill. Peabody Energy, the world's largest private sector coal company, partnered with Burson-Marsteller, the world's largest PR firm, to create ‘Advanced Energy for Life’, a campaign calling on the EPA to drop its coal regulation plan, in the name of 3,5 billion people in the world, deprived from basic access to cheap coal-generated energy. Despite the efforts, the bill is unlikely to pass the Senate where the Democratic majority will be encouraged to vote in line, to avoid a potential veto from the White House.
ALEC's bills regarding net-metering policies, in place in 43 states, can then be regarded as the industry's plan C. Less ambitious than the other attempts, they represent the lobbyists' greatest success so far, to delay the inevitable loss of profitability of coal-generated energy.
Distributed energy today accounts for 1 percent of the nation's total power, but it is growing fast – last year alone, rates of home solar installations increased by 60 percent. Even though the utility market is not yet reacting to the energy revolution, electricity providers must think ahead to preserve the economic viability of their plants, most of them representing 30-year cost recovery investments.
Through cases like the Arizona solar debate, ALEC and the coal industry leaders demonstrated the realm of their influence on state legislatures, where the final battle of Obama's coal regulation plan will take place in the upcoming months. Based on the EPA's estimate of each state's energy mix, local governments are required to submit an implementation plan to reach their carbon reduction goal by June 2016. By then, the quickly declining cost of solar will have absorbed the newly created taxes and distributed energy will appear as an affordable alternative to the growing cost of carbon. However, ALEC and its allies still have two years ahead of them to come up with new legal twists to slow down the trend and let coal burn a little longer in the chimneys of America's power plants.
Léo Gack is a French freelance journalist, fond of cheese and US politics.
Phone credit to Uwe Hermann via Creative Commons.
