Second Quarter 2008

The Trickle-Up Effect

States Put Singular Stamp on Energy Policy—With National Implications

Spurred by federal legislation and public concern about energy costs, electricity supply and environmental issues, the pace of state and local government activity on energy policy in general—and nuclear power in particular—has skyrocketed in the past few years. Energy, environmental and economic concerns are coalescing, and states are taking action.

“For most people, the federal government seems too removed from their daily lives,” said Del. Sally Jameson (D), a member of the Maryland House of Delegates since 2003. Her district straddles the nation’s capital and Calvert County, Md., home to Constellation Energy’s Calvert Cliffs nuclear plant. “Most people look to the state for policy. They know us one-on-one and state policy directly affects their lives.

“The federal government is so huge that they believe they will get lost in it. At the state level,” she noted, “their voices are heard.”

Looking to the future, the United States must maintain at least the current 30 percent share of non-emitting electric generating capacity if it is to meet its clean-air goals. Even with conservative assumptions about increases in electricity demand and a doubling of renewable energy production, the United States faces a challenge to maintain its current proportion of carbon-free electricity production. A substantial increase in nuclear energy is essential.

The Energy Policy Act of 2005, which incorporated a wide range of measures to support current nuclear plants and provided important incentives for building new nuclear plants, reflects a national commitment to carbon-free energy sources. The legislation includes investment incentives to encourage construction of new nuclear plants, including production tax credits, loan guarantees and business risk protection for companies pursuing the first new reactors.

Now, states are linking environment and energy in the policy calculus.

“The view is that when the federal government isn’t taking the lead, the legislatures need to step up to the plate,” said Melissa Savage, program director for the Agriculture, Energy and Environmental Committee of the National Conference of State Legislatures (NCSL). States are “repealing moratoriums, holding committee session study hearings, looking at changing regulations, and just getting the conversation started in some cases,” she noted.

“We’re facing a pretty critical energy crunch in the country. The issue is starting to bubble back up,” Savage said. “In some states, it never went away.”

Ten states have passed policies instituting some form of cost recovery assurance for nuclear plant construction. Three states have introduced and one has passed legislation requiring that nuclear energy be included in some form of clean or alternative energy portfolio. Six of the 13 states with moratoriums preventing new nuclear plants are considering removing those bans. Two states have passed local tax incentives for nuclear plants.

For Maryland’s Jameson, the link between environmental and energy policy is a driving factor in policy formulation. “We are nearly surrounded by water in Maryland,” she said, pointing to the Chesapeake Bay, Atlantic Ocean and a network of rivers. “We are doing everything we can to limit harm to our waterways and environment because of climate change and global warming.”

The state has taken a “fairly proactive approach” to addressing both environmental and energy issues in the face of a Maryland Public Service Commission warning that electricity customers could face power restrictions or rolling blackouts as early as 2011, she said.

STATES AS POLICY LABORATORIES

“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country,” Supreme Court Justice Louis Brandeis wrote in 1932.

Historically, state and local governments have led the way on issues as varied as child labor, the environment and social reform. And state governments indeed are serving as laboratories in the development of policy supporting nuclear energy.

One such policy is the Regional Greenhouse Gas Initiative, or RGGI, a cooperative effort by 10 Northeast and Mid-Atlantic states to reduce carbon dioxide emissions.

Participating states have agreed to implement RGGI through a regional cap-and-trade program whereby participating states anticipate auctioning nearly the entire annual regional emissions budget, approximately 188 million tons of carbon dioxide. Each ton of carbon dioxide will constitute an “allowance.” The multi-state agreement treats all carbon-free sources of electricity, such as nuclear energy and renewables, equally in the framework for awarding monetary credits for greenhouse gas reduction.

The RGGI states have agreed to participate in regional auctions for the allowances, beginning this September. Officials have scheduled a second auction in December.

OUT OF THE GATE IN 2008

The first half of 2008 has seen significant state activity on nuclear power and other energy issues.

Ohio Gov. Ted Strickland in May signed electricity rate legislation that includes nuclear power among the technologies available to satisfy an advanced-energy portfolio standard. Ohio’s move represents the first time nuclear energy has been included in a state’s clean-air energy portfolio.

Several states have passed renewable energy standards, mandating that certain percentages of energy supply come from renewable sources. States are now tackling energy and environmental concerns with “advanced energy” or “clean energy” port-folio standards, which require that a dictated amount of energy come from technologies that include clean-coal, nuclear and renewables.

The South Carolina House of Representatives passed legislation adding nuclear power to the list of sources to be included in any energy strategy promoting carbon-free, non-greenhouse-gas-emitting technologies. Likewise, Washington state lawmakers have introduced requirements to include nuclear power in a study of energy sources that reduce greenhouse gas emissions.

California, Illinois, Kentucky, Minnesota, Oklahoma and Wisconsin have considered legislation to lift bans on new nuclear power plants.

Other states have moved beyond the ideological into the nuts and bolts of getting new plants built. Most recently, Florida lawmakers this year approved a state energy bill permitting cost recovery for transmission lines to nuclear plants, and the Missis-sippi legislature adopted a cost-recovery bill that helps utilities finance baseload power plants by allowing approval of rate increases before construction of a plant is started or finished to cover costs from preconstruction planning and then construction.

When Kansas examined its need to increase baseload electricity generation this spring, the state’s public utility commission hosted a roundtable on nuclear development to determine obstacles that may prevent utilities from initiating, licensing and planning activities for a new reactor.

Moreover, states are not acting in isolation. Regional organizations and coalitions are furthering the cause of clean, reliable electricity generation and related issues. The NCSL in May unanimously adopted a resolution supporting off-site interim storage of used nuclear fuel. The National Association of Regulatory Utility Commissioners (NARUC) also backed a resolution supporting interim storage, as did the Energy Council, comprised of 10 energy-producing states.

Wisconsin state Rep. Frank Lasee (R) echoed the passion for nuclear energy increasingly heard from state legislators across the country.

“Europeans have used nuclear power for years without incident. So have we. The French have been recycling spent uranium for years. We could do the same. Nuclear is the cleanest source of electricity and is inexpensive,” Lasee wrote in his May newsletter to constituents.

“We have had two nuclear power plants in Wisconsin for many years, and we should have more. I support changing the law in Wisconsin to allow more.”

FUEL DIVERSITY, ECONOMIC FACTORS PLAY ROLE

A May survey by the consulting firm Deloitte found that state public utility commissioners across the country believe nuclear energy is the best technology to reduce greenhouse gas emissions, ranking it above energy efficiency, renewable energy and advanced coal technologies.

The survey also gauged how regulators believe consumers would react to increases in electricity rates. A majority said they anticipate the cost of electricity production to rise in the coming months, but that they believe consumers would be willing to pay more (some believe up to 15 percent more) for their electricity if it results in lowering greenhouse gas emissions.

Another survey of 1,000 adults nationwide, conducted by ICR for Deloitte, revealed that 53 percent would support the construction of new power plants—and of those,
60 percent would be willing to have new plants built within 20 miles of their homes. Seven in 10 surveyed said they believe state regulation is needed to reduce greenhouse gas emissions, while 62 percent are willing to pay 5 percent or more for electricity if it would reduce greenhouse gas emissions.

It is unclear to what extent public opinion shapes policymaker actions and vice versa, but the message is clear—both are paying attention to climate change and energy policy and are open to solutions that meet both challenges.

Fuel diversity in the electric sector and nuclear energy’s low-carbon footprint are driving the industry’s resurgence in Florida, said Katrina McMurrian, a commissioner on the Florida Public Service Commission. She pointed to several other factors underpinning Florida’s support for nuclear energy generation, including federal and state investment incentives for new-reactor construction and increased public acceptance of new reactors.
State and federal actions to curb greenhouse gases are driving a re-examination of nuclear energy among regulators and lawmakers alike. “Passage of some type of climate change bill seems to be a question of when—not if,” she said.

Recognizing Florida Gov. Charlie Crist’s support for nuclear energy and renewable resources as a means to achieve the state’s greenhouse gas emission goals, McMurrian noted the commission’s determination that two additional reactors at Florida Power & Light’s Turkey Point plant “will provide a clean, non-carbon-emitting source of baseload power to meet Florida’s growing energy needs.”

POWER DEMAND PROMPTS ACTION IN MARYLAND

Some 700 miles north of the Sunshine State, Maryland saw an example of business groups, labor organizations, utilities and cooperatives banding together to promote energy policy at the state level last month. Rising demand and insufficient infrastructure prompted formation of Marylanders for Reliable Power, a coalition to push the state to build more power lines. The group has the support of the Maryland Chamber of Commerce and the Greater Baltimore Committee.

“There has been insufficient investment in energy infrastructure,” Don Fry, president of the coalition, told The Washington Post. “It’s imperative that we have sources of energy available.”

The group supports upgrades to the state’s electric power grids and lines, construction of power plants, and conservation efforts. The region’s bottlenecked transmission grid forces Maryland to import more than 30 percent of its electricity from other states, according to the group.

Russell Frisby, a former chairman of the state’s utility commission who now is a spokesman for the coalition, said the group also plans to launch a marketing campaign to raise awareness of the state’s energy crisis. “Our goal is to raise public awareness about the need for reliable power,” he said.

The state’s General Assembly has approved several measures proposed by Gov. Martin O’Malley aimed at conserving energy, investing in efficiency and bolstering the state’s renewable portfolio standards.

After touring the Calvert Cliffs nuclear power plant, O’Malley said he supports building an additional nuclear reactor at the site. Constellation Energy submitted a license application for the reactor last July to the Nuclear Regulatory Commission.

“It is a huge moral challenge and it is a moral imperative,” O’Malley said when discussing the role of nuclear energy in reducing greenhouse gases. He believes the new reactor also will slow the rising rates consumers are paying for electricity.

Maryland legislator Jameson said such support is crucial to the formulation of sound energy policy in the state, Jameson said. Ultimately, she would like nuclear energy included in the state’s renewable energy portfolio.

“It’s not renewable,” she said, “but we need to start thinking differently. It is a clean-air source of electricity.” Jameson added that a program to recycle used nuclear fuel could prompt more legislators to see nuclear energy as renewable.

“There is a lot more energy in spent fuel that can be used and will be used in the future,” she said. Such an effort is important since Jameson noted that support for nuclear energy from some constituents and policymakers carries this caveat: “How do we deal with nuclear waste?” A fully integrated used fuel management approach that includes interim storage and recycling helps answer that concern.

States and coalitions overlapping state boundaries have pushed federal policymakers toward action on building new plants and addressing climate change and other energy issues.

Governors of five southern states sent letters last year to President Bush urging nuclear waste reform. The American Legislative Exchange Council—consisting of state regulators—passed a resolution in 2007 updating its policy on used nuclear fuel and new plants. At the same time, the Southern States Energy Board identified the region’s need to increase nuclear generation.

A RGGI report issued earlier this year said the continued operation of New England’s five nuclear power plants would be a necessary part of the region’s commitment to reduce emissions of greenhouse gases and that rising electricity demand may prompt construction of new reactors.

In all aspects of energy policy, state and local leaders are actively seeking solutions and making their voices heard.

NEI, INDUSTRY OUTREACH TO STATES

The nuclear energy industry is embracing the role states play in determining energy policy by reaching out to educate, organize and advise. Much of the outreach focuses on the environmental benefits of nuclear energy and the development of new nuclear power plants.

“States are not waiting for the federal government to take action,” said Marshall Cohen, NEI senior director for state and local government affairs. “We know nuclear energy has to be and will be a part of that eventual equation, but it is important for us to act together now and take a proactive approach on this issue and others at the state level.”

In the Lone Star state, Nuclear Energy for Texans is a coalition of decision-makers who advocate an increased role for nuclear power in a state already below accepted levels for reserve electric capacity. The coalition leadership includes state and local elected officials, representatives of business and industry, academics, and the scientific and engineering communities. Exelon has chosen a site in Victoria County, Texas, for a potential new nuclear plant, NRG is planning two new reactors at the South Texas Project and Luminant is considering expanding its Comanche Peak nuclear plant in Glen Rose, Texas.

“We must have an energy mix in place that allows Texas to stay competitive as the need for power is expected to grow 48 percent by 2030,” said Tom Forbes, the coalition’s president. The group “believes nuclear energy must be part of that mix.”

NEI is working with various national organizations to ensure state policymakers continue to consider nuclear energy, including NCSL, the National Governors Association and regional governors’ groups, NARUC, National Association of Attorneys General, and the National Association of Regional Councils.

“You can make things happen in the states and move issues forward,” said Mike McGarey, NEI’s director of state and local government affairs. “They really are the laboratories of democracy and they can be very influential in Washington.”
But there are challenges.

“The legislative cycle can be long. With term limits, it can be difficult. Just getting it out there and in front of the legislature can be a big step,” NCSL’s Savage said.

Introduction of a bill “gets the conversation going,” she said. Term limits, turnover and the policy environment “change from session to session. It’s more a matter of sticking with it than of perfect timing.

“Many have come to the realization that nuclear should be a piece of [the energy] puzzle. Conversations are starting to happen. More are open to it,” Savage said.

During the exploratory stage, policymakers “are very interested in finding out what other states are doing. They are looking at their neighbors. Minnesota had a hearing in April. Indiana this summer convened an interim study committee on the issue. Kentucky also explored the issue,” Savage noted.

For Maryland’s Jameson, education is the logical first step for lawmakers and the public alike. Once education begins, other states will observe what Jameson observes frequently in Annapolis.

“We are seeing legislators standing up on the floor and speaking about the need for nuclear energy,” she said. “And those statements go out to the whole world via the Internet. That’s huge.

“It is not easy when you are trying to provide regulatory action for a new plant” that keeps government, public and corporate interests in mind, Jameson said. “We are creating an environment that will not overly impede plans for bringing a project to fruition,” she noted.

Jameson believes nuclear energy “has an advantage” as a clean-air baseload generation source. “The wind does not blow 24 hours a day and the sun does not shine 24 hours a day. But that nuclear power plant operates 24 hours a day.”