House GOP set to debate wind incentives, dependency on gas and EPA rules

Source: Hannah Northey, E&E reporter • Posted: Tuesday, May 7, 2013

House Republicans this week are poised to step into several prickly debates over how the grid and power prices are being affected by an increasing amount of renewables that require natural gas backup, the effect of production tax credits for wind and looming U.S. EPA rules.

The GOP-led House Energy and Commerce Subcommittee on Energy and Power will likely delve into the issue of whether incentives for wind are skewing market prices when it hears from the American Wind Energy Association and Jonathan Lesser, president of Continental Economics Inc.

AWEA has defended the need for tax incentives to bolster the wind industry in the face of critics like Exelon Corp. The wind industry recently won a major victory when Congress extended wind production tax credits — for projects being constructed this year — in a deal to avert the “fiscal cliff” (Greenwire, Jan. 2).

But Lesser, an economist, argued last year that incentives for wind are creating negative prices in the market and triggering distortions that will crowd new sources of electricity out of the marketplace and drive up costs over the long term (E&ENews PM, Nov. 27, 2012).

Lesser has also argued that wind is not an ideal source to subsidize because it is most prevalent at night or in the spring and fall, when electricity demand is the lowest, while it is least prevalent during times of peak demand, such as hot and humid summer afternoons.

Subcommittee Chairman Ed Whitfield (R), who hails from coal-rich Kentucky, is likely to raise concerns that the Obama administration is pushing out fossil generation in favor of wind and also bring up reliability concerns stemming from looming EPA rules.

The subpanel will also once again assess whether grid operators can guarantee reliability as the power sector shifts from coal to natural gas. Gary Sypolt, CEO of Dominion’s business unit, and John Shelk, president and CEO of the Electric Power Supply Association, are expected to address the challenges when they testify.

At issue is the need for merchant electric power plants to tap large quantities of gas quickly — demand that’s growing as companies take advantage of massive shale plays and take old coal plants offline to comply with federal clean air rules.

But merchant power plants — represented by groups like EPSA — say they cannot afford to secure gas through long-term contracts because they typically are called on to run a day or less in advance. Pipeline companies like Dominion, on the other hand, say multiyear purchase agreements are needed for new infrastructure to be built.

The same House subcommittee in March heard testimony on the issue from members of the Federal Energy Regulatory Commission, state regulators from Colorado and Ohio, and grid operators in the Midwest and New England — two regions that are focused on potential future supply shortages for gas-fired generators during peak winter weather (E&E Daily, March 18).

Philip Moeller, a Republican member of FERC, said after the hearing that a shortage of pipeline infrastructure in the Northeast has left the gas-reliant region vulnerable to reliability problems, and urged local officials there to take heed.

Moeller said he was concerned that two consecutive unseasonably warm winters may be masking system vulnerabilities that would be exposed when more normal colder weather patterns occur. The onset of severe winter weather in New England and the Midwest could arrive faster than market solutions, he said.

Shelk said he also plans to discuss concerns he has with demand response, namely that the supplies promised by some market participants may not materialize in future years when needed.

Schedule: The hearing is Thursday, May 9, at 9:30 a.m. 2123 Rayburn.

Witnesses: Gary Sypolt, CEO of Dominion’s business unit; John Shelk, president and CEO of the Electric Power Supply Association; Daniel Weiss, director of climate strategy for the Center for American Progress; Robert Gramlich, the American Wind Energy Association’s interim CEO; and Jonathan Lesser, president of Continental Economics Inc.