Support electric power that is reliable and affordable

For whatever reason, there has been a tendency in Delaware (and elsewhere) to impose substantially higher taxes, user charges, or restrictions on electric power than on other economic goods or services. Such measures should be closely scrutinized, particularly if there are associated benefits for (a) special business interests (e.g., wind and solar power companies), or (b) government agencies seeking to expand their operations and influence.

Dubious energy policies can arise at any level of government, including the United Nations, national governments, and state & local governments. Furthermore, such policies may be initiated by legislators, administrative officials, or regulators. Keeping tabs on the action can be challenging because bad ideas keep popping up like moles in a game of “whack-a-mole.” Multiple attacks on use of fossil fuels,

Herewith an update on two Delaware cases in which SAFE and others have attempted to play a constructive role. In one case, our side has lost every battle but not given up hope; in the other, we’ve held our own so far but a new development bears watching.

A. Bloom Energy – Let’s begin with a previously reported development (SAFE Newsletter, Fall 2019, and then fill in the back story.

Did DNREC appreciate the appeal of its approval of a permit for Bloom Energy to upgrade the fuel cells at two sites for utility scale generation of electric power? Probably not, given the agency’s all-out efforts to get John Nichols’ appeal dismissed without responding to the asserted errors on the merits. The Environmental Appeals Board voted to dismiss the appeal at a hearing on September 24, and will now have 90 days to issue a written order explaining its decision.

Bloom Energy (Bloom) fuel cells are typically powered by natural gas. They produce electric power that is reliable, provided they are properly maintained, giving them an advantage over intermittent wind and solar power. The cost involved is quite high, however, versus other reliable energy sources (e.g., coal, natural gas, or nuclear). Furthermore, they don’t offer the purported environmental benefits of wind and solar power in that the fuel cells emit about the same amount of CO2 per unit of electric power as state-of-the-art gas power plants. So while these fuel cells may be suitable for some applications, they are not a sensible choice for utility scale power generation.

Nevertheless, as part of an incentives package to induce Bloom to locate a fuel cell production plant in Delaware, the state’s political leaders in 2011 saw fit to support legislation that classified electric power produced from Bloom’s fuel cells as “renewable energy” and set the stage for Bloom and Delmarva Power Company (Delmarva) to enter into a long-term arrangement for the utility scale generation (30MW) of electric power at two sites in Delaware. The “excess cost” involved was to be covered by a “Qualified Fuel Cell Provider” tariff (payable by Delmarva ratepayers in Delaware), thus funding a lucrative subsidy for Bloom that wouldn’t show up in the state government’s annual budget.

It was initially estimated that the cost of the QFCP venture would be relatively modest, e.g., 70¢ per month for an average household, but the actual cost has been considerably higher. The aggregate QFCP tariff is currently running some $3 million per month, and as matters stand Delmarva customers will be bearing this burden until 2033.

Bloom critics (notably including civic activist John Nichols, who is also a SAFE director) have filed a series of legal challenges to the QFCP venture, so far without success. One of the most recent efforts was a petition that Nichols filed with the Delaware Public Service Commission last fall for a review to see if there were any options to reduce the cost being borne by Delmarva ratepayers.

It was contemplated that Bloom and Delmarva would be invited to participate in the review based on their presumed concern for the interests of Delmarva ratepayers, but this didn’t happen because the PSC dismissed the petition without action.

The grounds for dismissal were that the PSC had been faced with a “binary choice” in 2011 – either approve or reject the proposed tariff, which was based on a long-term arrangement between Bloom and Delmarva that had previously been approved by the Department of Natural Resources and Environmental Control (DNREC). Having approved the tariff, the PSC perceived itself as having no remaining responsibility or authority other than to check the accuracy of the monthly calculations of the QFCP tariff charges.

After the PSC’s action, Bloom applied to DNREC for a construction permit to upgrade all of the fuel cells at the two QFCP sites – in effect renegotiating its arrangement with Delmarva and thereby opening the door to a de novo review. The application provided a general description of the project and forecast reductions in various air-borne emissions (no solid waste issues were mentioned). The business reasons for the project were not explained, nor was there any discussion of how Delmarva ratepayers would be affected.

A public hearing was held on January 10, following ground rules that ensured there would be no serious discussion of the proposal, e.g., speakers were strictly limited to 3 minutes, and questions could not be addressed to other hearing participants. There was also a period for the submission of public comments after the hearing. Bloom Energy proposes to replace fuel cell at QFCP facilities,

On 4/22/19, DNREC approved a construction permit for the project. In so doing, the agency seemingly ignored several substantial objections to the project that had been raised at the hearing or in the ensuing public comment period:

•As the proposed reconstruction of the Red Lion and Brookside fuel cell facilities constituted a de facto amendment of the existing business arrangement between Bloom Energy and Delmarva Power, DNREC erred by not inviting the PSC to reopen the QFCP tariff and seek adjustments for the benefit of Delmarva Power ratepayers;

•DNREC failed to review disposal plans for the old fuel cells, potentially representing some 6 million pounds of electronic waste;

•DNREC failed to review disposal procedures for toxic sulfur canisters, the majority of which are created in the Coastal Zone at the Red Lion facility and disposed of in a manner that was not disclosed in the original Coastal Zone application;

•DNREC failed to review air quality issues associated with decoking of the Bloom fuel cells.

Based on these points, civic activist (and SAFE director) John Nichols filed an appeal of DNREC’s order with the Environmental Appeals Board (EAB). Appeal of DNREC’s approval of Bloom Energy construction permit,

The appeal was accepted by the EAB, which although ostensibly independent of DNREC is housed in DNREC facilities, and a September 24 hearing was scheduled to be preceded by a pre-hearing conference on August 29. The purpose of such a conference, according to the EAB’s regulations, is to resolve
all procedural issues before the hearing. In essence, the ensuing action went something like this:

•DNREC filed a motion to dismiss the appeal based on (a) Nichols’ purported lack of standing, and (b) the supposed lack of merit of all of his claims (which boiled down to the fact that DNREC had failed to address a series of relevant public comments on the Bloom application).

•The parties filed their respective witness lists and schedules of exhibits. Nichols listed nine witnesses that he proposed to call, including rebuttal witnesses. DNREC listed one witness, the principal reviewer on air quality issues, and reserved the right to call rebuttal witnesses without previously revealing their identities.

•Nichols responded to the motion to dismiss and urged that the pre-hearing conference on August 29 be conducted in person because a telephone conference call was not likely to resolve the procedural issues that had been raised or were anticipated. The EAB sided with DNREC, ruling that an in-person meeting would be “inconvenient and unnecessary.”

•A 45-minute conference call didn’t resolve
any of the procedural issues (notably DNREC’s motion to dismiss). However, the EAB established a timetable for subsequent submissions: evidentiary motions and responses; motion to bifurcate the Sept. 24 hearing (meaning that this session would be exclusively devoted to procedural issues with the hearing of evidence to be scheduled later if necessary); and the parties’ respective statements of the case or memoranda of law.

•DNREC filed an omnibus motion on evidentiary matters and a motion for bifurcation. To a large extent, these pleadings repeated the objections to the Nichols appeal that had been expressed in the still pending motion to dismiss, but sought alternative relief, i.e., if the appeal was not to be dismissed then Nichols’ witnesses and exhibits should be so severely limited that he wouldn’t be able to present a coherent case.

•Nichols reiterated his arguments against the motion to dismiss, urged that the evidentiary motions be denied given the interest of all concerned in an informed review of the issues raised by his appeal, and expressed reluctant acceptance of the bifurcation of the Sept. 24 hearing in order to spare witnesses who had been asked to appear from sitting around with nothing to do while a long list of procedural issues were being hashed out.

•The EAB issued an order directing that statements of the case/ memoranda of law filings were to be suspended pending further notice from the Board. The tone of this communication was curt, and Nichols was designated as the primary recipient of the e-mail while DNREC was merely copied, creating the impression that he was being reprimanded for some reason.

On Sept. 24, the parties gathered in an auditorium-sized hearing room. There were four EAB board members present, an attorney representing the EAB, a court reporter, DNREC’s attorney, and Nichols. In the audience there were two SAFE observers, John Greer and your faithful scribe on one side of the room, and a handful of people on the other side of the room.

The first order of business was the motion to dismiss, which had been filed over a month earlier. DNREC’s attorney basically recited the arguments that were set forth in the written document; Nichols presented his case; there were several questions from EAB members; DNREC’s attorney and Nichols presented their closing arguments.

EAB then went into executive session, while everyone else was asked to leave the room. After about half an hour, we were advised to return and the EAB voted (4-0) to dismiss the appeal. This decision rendered the evidentiary motions moot, so the hearing was over. Stay tuned for a written order from the EAB, to be issued within 90 days.

At the Sept. 24 hearing, as had been true throughout the appeal process, DNREC was able to duck all of Nichols’ substantive points:

•In closing argument, DNREC’s attorney complained about Nichols mentioning matters that had not previously been raised during the appeals process. Had he forgotten the EAB order that statements of the case/ memoranda of law not be filed until further notice?

•Nichols questioned the primary DNREC citation for a three-prong test of standing, noting a DE Supreme Court opinion that recited the procedural history and indicated DNREC had lost the case. DNREC’s attorney brushed this point off as an obvious error on Nichols’ part without asking for further particulars about the Supreme Court opinion, and none of the EAB members displayed any curiosity about the matter.

•Further re standing, Nichols asked (not once but twice) who would have had standing to appeal the DNREC order if he – as both a Delaware citizen and a Delmarva Power ratepayer – was not deemed to have been “substantially affected” thereby.

The EAB members did not state the grounds (substantive merit or standing?) for their decision at the hearing, and no firm conclusions can be drawn until this void is filled. But it will be interesting to learn what their rationale was.

B. Offshore wind power – A few months after taking office in 2017, Delaware Governor John Carney appointed an offshore wind work group (WG) to “study opportunities in the industry.” The group was given a December 15 reporting deadline, and the governor’s order implied that a positive recommendation was desired by putting the emphasis on “how” rather than “whether” Delaware should get involved in one of the offshore wind projects that were being planned at the time.

In our view, the idea was an obvious non-starter. Sure, the wind itself is “free,” but offshore wind projects are expensive and involve some notable minuses. Even if one buys into the Manmade Global Warming Theory, and so far the scientific proof of this theory is quite thin, wind power is not reliable enough to run the electric grid, Offshore wind: a case study in how bad decisions get made,

Heavy capital investment in comparison to conventional power plants, e.g., combined cycle natural gas - large environmental footprint (seabird kills, etc.) – power produced is intermittent so it doesn’t add to grid capacity and must be backed up by reliable power sources (the same goes for other “renewable energy” projects, i.e., onshore wind or solar power).

Furthermore, government estimates indicated that offshore wind power would be considerably more expensive than onshore wind power.

Offshore wind power is prohibitively expensive, and solar power is pricey (although considerably less so if the currently available 30% investment tax credit is taken into account). Onshore wind is competitive with combined cycle natural gas (even before tax credits), but it provides intermittent output (lower capacity factor) and would therefore need to be backed up by more reliable power sources.

Having observed several meetings of the WG and weighed in during periods allowed for public comments, we weren’t sure what the group might do. First, there were some offshore wind fans in the WG as well as skeptics. Second, members might not be anxious to tell the governor that he had appointed them to study a bad idea. And if the WG sessions were somewhat disheartening, a public comment session on the idea of getting Delaware involved in offshore wind power suggested that public sentiment was even less reliable. In sum, we were inclined to be pessimistic about the outcome.

Time will tell what the WG concludes about offshore wind power, but we have a feeling that some sort of Delaware participation in this activity will be recommended. If so, there will almost surely be extra costs involved, to be borne in some manner by Delaware electric power consumers and/or taxpayers. This would be on top of the Bloom Energy fiasco, which is already costing Delmarva Power ratepayers some $30 million per year for no good purpose.

For once, things went better than expected. Submitted shortly before the reporting deadline, the WG report clearly said “no.” DE offshore wind power, SAFE newsletter,
Winter 2017.

Surpassing our expectations, the WG report rejected the idea of piggybacking on the MD projects while committing to further study of other options including “procurement of other renewable resources in lieu of offshore wind.” Points to be considered in the further study would include “how should an offshore wind subsidy be paid for” and “what effect would higher electric power costs have on economic development and jobs throughout the state?” Fingers crossed, here’s one bad idea for government action that may be dead!

There were further instructions for the WG in the new year and a number of additional meetings. The final report was considerably less clear-cut than the initial report, and called for further research. Still, Delaware did apparently steer clear of the two offshore wind projects that were being considered in the Delmarva peninsula area at the time – as we had hoped it would.

Last week, there was a report that Delaware may derive a tangible benefit from an offshore wind project in the form of payments for leasing state park land for an “interconnection” facility. Offshore wind company eyes park, Maddy Lauria, News Journal,

[DNREC] has signed an initial memorandum of understanding with Orsted, an offshore wind company based in Denmark, to discuss leasing up to 1.5 acres in Fenwick Island State Park where Orsted could build an interconnection facility to bring power generated by the yet-to-be-built Skipjack Wind Farm to the electric power grid. In return, Orsted would fund improvements at the park, such as a two-level parking garage, pedestrian overpass, etc., costing in the range of $15-18 million. No state money would be required, said Delaware State Parks Director Ray Bivens.

On its face, there is no apparent reason why Delaware shouldn’t accept this “windfall” – while leaving Maryland residents to cover the “excess cost” of the Skipjack project. But is there a catch involved, in that acceptance of the facility upgrades will be viewed as committing Delaware to participate in offshore wind power development as well?

Several statements in the story (
Ibid) suggest that the fans of Delaware participation in offshore wind projects may not have given up.

•An Orsted representative is quoted that “it’s a Maryland project,” but adds that “Delaware is becoming a really great partner in this process.”

•Professor Jeremy Firestone of the University of Delaware is quoted to the effect that even if the electric power winds up being consumed by Delawareans, “Maryland will get the renewable energy credits for the project.” The obvious implication is that Delaware is missing out.

•The reporter: “Delaware officials took more of a wait-and-see approach on getting involved in wind projects – until this proposed partnership between state parks and Orsted came to light this fall.”

We’ll continue to keep an eye on this situation.

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