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MINUTES

ALTERNATIVE ENERGY PRODUCTION STUDY COMMITTEE

November 6 and 7, 1995 -- First and second of three meeting days

MEMBERS PRESENT

MEETING IN BRIEF

Minutes prepared by Mark Johnson, Senior Legal Counsel
Organizational staffing by Julie Smith, Legal Counsel II

  1. Procedural Business.
  2. Electric Utilities at the Federal Level.
  3. Fifty States Analysis.
  4. Department of Natural Resources.
  5. Utilities Division.
  6. West Branch Middle School.
  7. Municipal Utilities Use of Alternate Energy.
  8. Investor-Owned Utilities.
  9. Iowa Association of Electric Cooperatives.
  10. Municipal Utilities.
  11. Business and Industry.
  12. Sustainable Energy for Economic Development (SEED).
  13. Isaac Walton League.
  14. Former Legislator David Osterberg.
  15. Technologies and the Future.
  16. Iowa Energy Center.
  17. Hydro Energy.
  18. Wind Energy.
  19. Methane Energy.
  20. Biomass Energy.
  21. Committee Discussion.
  22. Written Materials Filed with the Legislative Service Bureau.

COMMITTEE BUSINESS

1. Procedural Business.
Call to Order. Temporary Co-chairperson Senator Fink called the first meeting of the Alternative Energy Production Study Committee to order at 9:14 a.m., Monday, November 6, 1995, in Committee Room 116, State Capitol Building, Des Moines, Iowa.
Election of Permanent Co-Chairpersons. Members of the Alternative Energy Production Study Committee elected temporary Co-chairpersons Senator Fink and Representative Nutt as permanent Chairpersons.
Adjournment. The meeting day recessed for lunch at 12:17 p.m., reconvened at 1:25 p.m., and recessed for the day at 5:06 p.m. Co-chairperson Nutt reconvened the meeting at 8:00 a.m., on November 7, 1995, recessed for lunch at 11:25 a.m., reconvened at 12:45 p.m., and adjourned at 2:15 p.m.
2. Electric Utilities at the Federal Level.
Industry Restructuring. Dr. Larry Hill, Visiting Fellow, National Conference of State Legislatures, Oak Ridge National Laboratory, discussed the restructuring of the electric utility industry across the country. He discussed defining the makeup of the electric utility industry and how federal policy has promoted the restructuring of that industry, and identified important state issues. Dr. Hill indicated that restructuring the electric utility industry is difficult because of decentralization. He noted that a recent count of electric utilities in the United States indicated that there are 254 investor-owned utilities, 2,007 state and municipal utilities, 10 federal power projects, and 941 rural electric cooperatives. He also indicated that 92.8 percent of the existing generating capacity in the United States is owned by electric utilities, but that new generating capacity is increasingly coming from nonutility generators.
Federal Role. Dr. Hill briefly identified federal laws and regulations which have promoted restructuring in the electric utility industry, including the federal Public Utility Regulatory Policies Act of 1978; the federal Energy Policy Act of 1992; rulemaking by the Federal Energy Regulatory Commission regarding open access of transmission lines which would essentially result in the electric utilities which own these lines becoming common carriers for other generators of electricity; and pending reform of the Public Utility Holding Company Act of 1935, which would open the electric utility industry to foreign ownership. In addition, he said changes in the demands of industrial consumers for retail competition necessitate changes in the regulatory structure. He indicated that even if changes in the regulatory structure do not occur as a result of consumer demands, various states are looking at changing their regulatory structure and moving to performance-based regulation.
State Role. Dr. Hill identified several state-level issues of importance, including retail competition, economic regulation, strandable commitments, energy efficiency, renewables, and the environment. Dr. Hill concluded his remarks by saying that states have a great deal of flexibility in determining how the electric utility industry will look. He indicated that there currently is excess generating capacity in the United States which should permit policymakers time to examine necessary issues before taking action.
3. Fifty States Analysis.
Mr. Matthew Brown, Senior Energy Policy Specialist, National Conference of State Legislatures (NCSL), reviewed a survey compiled by NCSL regarding incentives for renewable energy in other states. Mr. Brown explained that the factors in other states for the promotion of alternative energy production include economic development, environmental impact, and energy diversity. He stated that the form of the incentive varied and included tax breaks, incentive payments, minimum or incentive rates to be paid to qualified providers of alternate energy for their energy production, and loan funds. He noted that the state alternate energy production (AEP) policies are being set in an environment where the federal government is changing its policies as well.
4. Department of Natural Resources.
Mr. Larry Bean, Division Administrator, Energy and Geological Resources Division, Department of Natural Resources, provided an overview of Iowa energy usage. He indicated that Iowa imports 98 percent the energy used in the state with only 2 percent coming from Iowa resources. He discussed the history of the AEP laws in Iowa.
Mr. Bean expressed the Department's support for expanded use of renewable energy resources and stated that Iowa's AEP law encourages the development of a diverse energy portfolio which will prevent the negative impacts which might accompany price and supply fluctuations in the fossil fuel market. He stated that the current AEP statute requires purchase of 105 megawatts of alternate energy, but that currently only 15 megawatts are being produced in this manner. Mr. Bean informed the Committee that current energy production capacity in Iowa is approximately 8,500 megawatts.
5. Utilities Division.
Mr. Bill Smith, Bureau Chief of Rate and Safety Evaluation Bureau, Utilities Division, Department of Commerce, briefly discussed the objectives of the current AEP program. He stated that planning for utilities is becoming more short-term as a result of changes in the marketplace and regulatory environment. The Iowa Utilities Board, composed of Mr. Alan Thoms, Mr. Emmet George, and Ms. Nancy Shimanek Boyd, also answered questions and provided comments to the Committee.
Suggested Law Changes. Mr. Smith, on behalf of the Utilities Board, proposed the following changes:
Mr. Smith closed his presentation indicating that the proposal provided by the board will be used as discussion piece for developing further proposals to be brought before the Legislature.
6. West Branch Middle School.
Several members of the Partners in Environmental Science, West Branch Middle School Science Class, accompanied by their teacher, Mr. Hector Ibbarra, stressed that promotion of alternate energy and energy efficiency needs to happen now before an energy crisis arises. The class discussed the importance of the Iowa Energy Center and explained that a Center grant had permitted the West Branch Middle School to retrofit a classroom to be more energy-efficient. The class explained that after review of the data collected regarding the retrofitting, the class made a presentation to the school which resulted in the retrofitting of the entire middle school. The class stated that there is enormous potential for the use of solar energy and wind energy in Iowa.
7. Municipal Utilities Use of Alternate Energy.
Mr. Glenn Cannon, General Manager, Waverly Light and Power, Waverly, Iowa, stated that wind energy has been thoroughly studied and that now we need hands-on experience regarding the use of wind generation for generating electricity. He indicated that his experience has shown that while wind energy is more expensive in the short-term, in the long-term, wind becomes one of the least expensive options. He stated that if the electric utility industry is deregulated, or reregulated, the time for making investment decisions will be shorter and the decisions to pursue wind energy will not be made until a later time period, if at all.
8. Investor-Owned Utilities.
Mr. John M. Lewis, President, Iowa Utilities Association, introduced three persons representing investor-owned utilities to present testimony to the Committee.
9. Iowa Association of Electric Cooperatives.
Mr. Keith Luchtel, Iowa Association of Electric Cooperatives, stated that current law places a burden on certain ratepayers to provide an incentive for the development of the AEP industry. He stated that the Association believes that utility customers in Iowa should not be required to subsidize the AEP industry through higher electricity rates.
10. Municipal Utilities.
Ms. Linda Kading, Iowa Association of Municipal Utilities, stated the Association's position that Iowa should develop renewable resource alternatives and discussed examples of the development of alternate energy by Association members.
11. Business and Industry.
Deere & Co. Mr. George Van Damme, Manager, Energy Management, Deere & Co., Moline, Illinois, stated that it is ultimately the customers of an electric utility who pay for an AEP in the form of higher rates. Mr. Van Damme also noted recent energy usage statistics for John Deere which indicate a drop in total energy use per ton of product produced.
Cedar River Paper Co. Mr. John Croushore, Chief Financial Officer, Cedar River Paper Co., Cedar Rapids, Iowa, stated that paper recycling is both a capital-intensive and energy-intensive process. He expressed concern that an increase in the cost of energy will result in a loss of business, and therefore, jobs. He strongly encouraged the state to employ sound economic design and planning in the development of any state program which supports the development of alternate energy production.
12. Sustainable Energy for Economic Development (SEED).
Ms. Heather Rhoads, Iowa SEED Coordinator, Renewable Energy Association, informed the Committee that SEED encourages the development of homegrown energy resources and promotes renewable energy legislation. She stressed that a full accounting of environmental costs must be completed to assess the total costs attributable to each source of energy. She stated that including the costs of externalities will show that renewables had the truest least cost.
Mr. Mike Tennis, Senior Energy Analyst, Union of Concerned Scientists, indicated that environmental factors are not a factor in determining the costs of energy in a market-based system. He stated that today's market costs reflect power purchases from existing power plants and are not a true reflection of the actual costs. He outlined several options for AEP pricing, including a flat price with no inflation factor, a minimization of price difference today, but which follows inflation, and higher payments for energy early on which will attract lower interest rates for loans to alternate energy producers.
Mr. Ed Woolsey, Board Member, Iowa Renewable Energy Association, informed the Committee that crop land which is currently out of production under federal programs could produce biomass energy equal to approximately one-third of the total electricity produced in Iowa. He stated that Iowa needs to enforce the requirements of the existing AEP statute, establish firm and reasonable inter-connect requirements, establish reasonable liability requirements, and establish firm dates for compliance with penalties for utility inaction. He also recommended a 10 percent requirement for the purchase of power generated by renewable sources.
13. Isaac Walton League.
Ms. Nancy Lange, Associate Director, Midwest Energy Efficiency Program, Isaac Walton League, Minneapolis, Minnesota, expressed concern that restructuring the electric utility industry with a move toward retail competition will benefit only a few at the expense of many and result in significant environmental degradation. She recommended that Iowa continue to require investments in renewable energy, establish a timetable for acquisition of these renewable resources and upon establishing this timetable allow market forces to determine the price to be paid, consider ways to assist small alternate energy producers, and, no matter what happens in the electric utility industry, retain existing state directives for energy efficiency and renewable energy.
14. Former Legislator - David Osterberg.
Mr. David Osterberg, former member of the Iowa House of Representatives, and Professor, Environmental Policy, University of Iowa, discussed the chronology and development of the existing statute. He indicated that the original bill was developed as an economic development tool and the use of taxpayer dollars was not considered. He stated his belief that present alternate energy rates are fair when the proper comparison is made. He stated that the utilities want to compare short-run costs to long-run costs while the proper comparison is to compare long-run costs to long-run costs.
15. Technologies and the Future.
Dr. Frank Kreith, Legislative Fellow, American Society of Mechanical Engineers, stated that scientists differ in their opinions concerning the economic viability of alternate energy based upon the assumptions used. He stated that according to his calculations, using figures offered by the investor-owned utilities, the price would go up approximately 1 percent, or .03 cents, if the utilities would implement the entire 105 megawatts required under the current law. He stated that the cost of building a new gas-fired turbine is about one-half of the cost of building a new coal-fired power plant but cautioned that there is a limited supply of natural gas. While stating that he is unsure of why utilities are hesitant to accept new technologies, he indicated that there has never been an energy source which has developed on its own without subsidization. He stated that the factors necessary for a new technology to survive include public support, availability of resources, appropriate technology, and market demand.
16. Iowa Energy Center.
Mr. Norm Olson, P.E., Program Manager, Iowa Energy Center, discussed alternate energy production including the existing AEP program and the Center's concerns with the program, why investments should be made in renewable energy, and the Center's definition of the goals and objectives of an alternate energy program. He suggested that an assessment of each potential alternative energy source in Iowa should be made and that technical advisory teams be created to make recommendations. He recommended constructing a 20 megawatt wind demonstration project and a biomass demonstration facility to prove these facilities could be sulf-sustaining after two years.
17. Hydro Energy.
Wisconsin Company. Mr. Loyal Gake, Director of Development and Regulatory Compliance, North American Hydro, Neshkoro, Wisconsin, testified via a telephone hookup that North American Hydro is currently working on two projects in Iowa. He stated his support for the Iowa AEP statute and noted that utilities are more willing to negotiate if there are published tariffs. He stated that hydro generating capacity is highly capital intensive, but has low operation costs and utilizes a renewable resource. He stated that it currently takes 4-6 years to obtain a federal hydro generating facility permit. He averred that the benefits of hydro electric generation include job creation, tax base enhancement, and promotion of economic development. He also stated that North American Hydro needs at a minimum around five cents per kilowatt-hour to compete.
Cedar Rapids Company. Mr. Tom Wilkinson, President, FORIA Hydro Corp., Cedar Rapids, Iowa, discussed the process of obtaining a federal permit to construct and operate a hydro electric generating facility and the various federal agencies which must be dealt with.
Swiss Hydro Developer. Mr. Jean-Pierre A.L. Honnart, Groupe Page, Geneva, Switzerland, discussed his experience and expressed his frustration with attempting to develop a hydro electric generating facility near the city of Fort Dodge. He stated that Groupe Page was offered only 1.4 cents per kilowatt hour by Mid American which was not feasible. Since then, Groupe Page has entered into an agreement with the city of Fort Dodge for 6 cents per kilowatt hour and Mid American has filed a complaint with the Utilities Board to prevent this agreement. Mr. Honnart requested that the Legislature consider changes in the statute to assure that this type of agreement cannot be challenged.
18. Wind Energy.
Zond Systems. Mr. Philip Stoffregen, Legal Counsel, Zond Systems, Storm Lake, Iowa, stated that major changes should not be made to the existing statute, although some minor refinements may be appropriate. He indicated that the Utilities Board has been responsive in enforcing the statute. Mr. Stoffregen commented on the Utilities Board's proposal and suggested that the provision grandfathering existing contracts is not broad enough, and that equitable contracts should be included; the requirement that a utility purchase from an AEP or produce alternate energy itself or through a consortium would effectively eliminate AEPs; that there needs to be a requirement for long-term contract commitments; the introduction of retail wheeling might result in an AEP being considered a regulated utility; the phase-in provision is inconsistent with other economic development policies of the state; and there should be sanctions for noncompliance.
Windustries, Inc. Mr. Steve Blake, Windustries, Inc., indicated that IEC has refused to negotiate with Windustries concerning an AEP contract. He stated that his company supports an AEP rate of 4.5 cents with increases for inflation. He noted that this change can be done without any change in the current law. He voiced his opposition to any major changes in the AEP law.
Windway Technologies. Mr. Tyler McNeal, Windway Technologies, Des Moines, Iowa, stated that a moratorium on contracts under the AEP statute would be devastating to Windway Technologies. He stated his support for the AEP law as it exists at this time and distributed a petition from Northwest Junior High School in Iowa City in support of alternative energy.
Vestas-American. Mr. Paul White, Midwest Manager, Vestas-American Wind Technology, Inc., Palm Springs, CA and Ames, IA, indicated that it takes from 12-18 months to plan and install a wind turbine with less than five megawatts of generating capacity. He recounted European experiences with wind generation. He indicated that the advantages under Iowa's AEP statute and wind energy include net-energy billing; local and economic development; and slow, incremental development permitting policy development to track and adjust for industry development.
19. Methane.
Des Moines. Ms. Teree Caldwell-Johnson, Director, Metro Waste Authority, Des Moines, discussed landfill gas and its potential as a renewable energy resource rather than as an environmental problem. She indicated that landfill operators can manage the gas to benefit the community. Ms. Caldwell-Johnson stated that electricity generated from landfill gas meets utility requirements for purchased electricity. She voiced her support for retention of the existing AEP law and the need to honor existing contracts under that law.
Cedar Rapids. Mr. Ron Mace, Blue Stem Solid Waste Management Agency, Cedar Rapids, stated that methane gas recovery has been implemented at the landfill, but that these facilities are exempt from AEP purchase rates. He indicated that the number of landfills which could support a landfill gas project is probably small and would represent a small portion of overall alternative energy to be purchased by utilities under the statute.
Fort Madison. Mr. Randy Hartman, Director, Great River Regional Waste Authority, Fort Madison, stated that methane extraction is not feasible without the current AEP statute and that the current AEP project proposed by the Great River Regional Waste Authority would be at risk if changes are made to the existing AEP statute. He stated that discussion of proposed changes in the statute has resulted in an inability by the Authority to negotiate a long-term contract for the sale of the energy. This inability to enter into an agreement has resulted in the Authority's partner in the project notifying the Authority of an intent to drop the project. He recommended that the Legislature maintain Iowa's existing statute.
20. Biomass.
Mr. Jim Cooper, Chariton Valley RC&D, Inc., Centerville, Iowa, stated that biomass cannot compete economically with coal under present market conditions. He stated that over the next several years, federal Conservation Reserve Program (CRP) contracts covering approximately 140,000 acres in a four-county area will expire and that more than fifty percent of this land is considered highly erodable and suitable for growing biomass fuel. He indicated that using the land in this manner would provide benefits to water quality, soil conservation, and the local economy.
21. Committee Discussion.
After Committee discussion of the information presented at the November 6th and 7th meetings, Co-chairperson Senator Fink moved that the Committee request an additional meeting day and an extension of the deadline for the Committee's final report. The motion was seconded by Senator Lundby and passed. The Committee agreed to meet on Tuesday, January 16, 1996.
The Committee requested that the Utilities Board provide further information regarding the Board's proposal for consideration at the January meeting.
22. Written Materials Provided at Meeting.
a. Procedural rules adopted by the Committee.
b. November 6, 1995 Des Moines Register article.
c. Fifty State Survey and other informational materials submitted by Mr. Matthew Brown.
d. Written Testimony and Alternate Energy Policy Questions submitted by Mr. Larry Bean.
e. Iowa Utilities Board alternate energy production proposal outline submitted by Mr. Bill Smith.
f. Testimony outline and supporting documentation submitted by Mr. Glenn Cannon.
g. Written testimony of Mr. Dean Crist.
h. Testimony outline of Mr. Erik Madsen.
i. Written testimony of Mr. Lynn Vorbrich.
j. Written testimony of Mr. Keith Luchtel.
k. Written testimony of Ms. Linda Kading.
l. Written testimony of Mr. George Van Damme.
m. Written testimony of Mr. John Croushore.
n. Written testimony of Ms. Nancy Lange.
o. Testimony summary of Mr. David Osterberg.
p. Written statement of Mr. Jack Soener, Iowa Association of Business and Industry.
q. Written statement of Mr. Timothy Wilkinson, Aluminum Company of America.
r. Information provided by Northern States Power regarding AEP purchases.
s. Informational material submitted by Mr. Frank Kreith.
t. Testimony outline and other resource material submitted by Mr. Norm Olson.
u. Written testimony of Mr. Steve Blake.
v. Written testimony of Mr. Tyler McNeal and petition from Northwest Junior High School, Iowa City.
w. Testimony summary of Mr. Paul White.
x. Written testimony of Ms. Caldwell-Johnson.
y. Written testimony of Mr. Randy Hartmann.
z. Informational material submitted by Mr. Jim Cooper.

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