04 Nov Austin’s Energy Plan — Ignores Huge Financial Risks
The risk analysis used to create Austin Energy’s Staff Generation Plan omits numerous elements that will likely cause Austin’s electricity prices to spiral upward in the near future.
Financial Risks associated with: ozone nonattainment, greenhouse gas regulation, coal ash regulation, health injury costs, exposure to litigation, and highly volatile maintenance costs — are all left out of the analysis used to guide our City’s energy plan, 2010 to 2020. Thus, City managers are recommending a coal-centric strategy. Risks omitted all target Austin’s coal plant, responsible for providing 1/3 of your electricity…
Pace consulting was hired by Austin Energy to create financial analysis of various scenarios related to planning Austin Energy’s next 10 years. Pace’s risk analysis document clearly shows a clean energy strategy costs Austin less, but would be financially riskier for Austin bill payers than the Austin Energy’s Staff Recommended Plan. (1) Yet Pace’s risk analysis omits numerous elements that will cause Austin’s Staff Recommended Plan to spiral upward in costs as they come online.
Here’s a list of what the Pace risk analysis chooses not to consider:
1. Ozone
Penalties for “Ozone non-attainment” will affect not only Austin Energy (AE) but all of Austin’s economy. Austin is currently hovering within “1 or 2 parts per billion of non-attainment.” According to County Commissioner Karen Hubner, penalties relating to nonattainment will potentially affect Austin for more than 20 years. (2, 3) Word on the street is that the Obama Admin is preparing to toughen standards and enforcement on ozone. This risk is neither acknowledged nor accounted for in any of the Pace reports. Key questions: How much will this legislation costs AE and when might they take effect? What’s a good estimate? Why aren’t ozone’s costs to Austin’s economy included?
2. Greenhouse Gases
The EPA is moving to regulate Greenhouse Gases, independent of Congress. This risk is neither acknowledged nor accounted for in any of the Pace reports, including its Risk Analysis. Key questions: How much will this legislation costs AE and when might they take effect? What’s a good estimate? Why aren’t greenhouse gas risks included in the analysis?
3. Coal Ash
The EPA is moving to regulate Coal Ash. This is a huge area with negative health effects both upstream and downstream in the coal industry. There are numerous points in the chain where coal ash could be regulated, and there are numerous types of coal ash. This risk is neither acknowledged nor accounted for in any of the Pace reports, including its Risk Analysis. Key questions: How much will this legislation costs AE and when might it take effect? What’s a good estimate? Why aren’t coal ash risks included in the analysis?
4. Health Injury
The National Research Council recently reported that every coal plant in America causes $156M in health damages every year. (4) This cost to the community is neither acknowledged nor accounted for in any of the Pace reports, including its Risk Analysis. What are the costs to Austin’s citizens and economy that should associated with our coal plant’s ozone pollution, particulate pollution, and mercury pollution? What are the costs to Austin and area citizens that should be associated with 1,030 new asthma cases each year, directly attributable to our coal plant? (5) What are the costs to Austin and area citizens that should be associated with new death each year, directly attributable to our coal plant? How much will improving the plant so that it no longer causes these health injuries cost Austin bill payers? Why aren’t public health concerns included in the analysis?
5. Litigation
According to the Sierra Club, Austin’s coal plant will soon move from #7th worst polluting industrial complex in TX to #50th, out of over 2,000 surveyed by the Texas Commission on Environmental Quality. According to studies by Harvard and the National Resources Defense Council, Austin’s coal plant causes 44 deaths per year. Law suits against Austin Energy or the plant itself related to the plant’s mercury pollution, heavy metals pollution, particulate air pollution, or any of the plant’s other direct negative health impacts are neither acknowledged nor accounted for in the any of the Pace reports, including its Risk Analysis.
6. O&M Volatility
What range of expenses can Austinites expect from continuing to keep our 30 year old coal plant running 10 more years? New boilers? Annual maintenance? 10 year maintenance? The Pace documents don’t show their math, so it’s impossible to know whether the analysis considered Fayette’s age and repair. These risks are neither acknowledged nor accounted for in any of the Pace reports, including its Risk Analysis. Given the likelihood that running an old coal plant is only going to get more expensive, when should AE decide to abandon its “problem asset” coal plant? What is the range of likely costs associated with this particular plant? What is the range of likely costs associated with a plant this age and condition?
7. Details
Slide 5 of the Pace Risk Analysis, “Market Risks,” is so vague, so general, it’s disturbing from a financial perspective. Example: #4 Risk (of 6 listed): “Capital Cost Uncertainty: Materials costs and capital costs have been volatile in recent years, Technology uncertainty results in wide range of potential outcomes.” Whoop. ti. do… Where’s the rigor? They’ve acknowledged the risk, but it’s certainly not accounted for in any clear terms. In other words, there is no range of “potential outcomes” shown anywhere in any of the documents. We have no idea what the range of risk is, associated with Austin’s coal plant, or any of its energy properties. None of the Pace documents show their math, thus we have no idea what their assumptions are — esp. in financial terms. My high school-aged nephew would be graded harshly for such generalizations.
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Summing Up
To me, the overall lack of attention to detail and the omission of specific risk areas in the Risk Analysis implies that Austin Energy is looking backward when thinking about Austin energy future. From a financial perspective, it’s irresponsible at best. We’ve got to keep hospitals running, food cold, and people employed, affordably. We’ve got to solve the climate, environmental, and health crises associated with our 20th century energy model. And yet — we have a 100% subjective representation of Austin’s future electricity costs as our sole forecasting tool.
This post is about financial risk. Current plans are to keep Austin’s riskiest energy investment (its coal plant) burning 10 more years. Environmentally, this is a disaster. The National Research Council estimates the plant will do more than $1B in area health injury over the next 10 years. Financially, the near-term pains will be felt by all as today’s unacknowledged and unaccounted-for legislative risks become realities.
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Notes
1. slide 17, “Pace_Analsysis_Risk” (PDF), available at AustinSmartEnergy.com
2. Jim Marston, board chair of the Clean Air Force of Central Texas, Austin Chronicle, August 18, 2009 – http://www.austinchronicle.com/gyrobase/News/Blogs/?oid=oid:823103
3. Karen Huber, Precinct Three Report, August 14, 2009 – http://www.precinct3report.com/Pages/MediaAASAir.html
4. “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use,” National Research Council, pg. 67 — http://www.nap.edu/catalog/12794.html.
5. National Resources Defense Council “Clean Air Task Force”
learn about Austin’s clean, affordable, alternative strategy: http://www.burntorangereport.com/diary/9446/i-endorse-paces-quit-coal-scenario
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