RD100 - Annual Executive Summary of the Virginia Commission on Energy and Environment


    Executive Summary:
    Pursuant to Chapter 46 (§ 30-301 et seq.) of Title 30 of the Code of Virginia, the Virginia Commission on Energy and Environment ("Commission") is charged with reviewing and recommending steps to implement the Virginia Energy Plan developed pursuant to Chapter 2 of Title 67.

    The Commission has 15 members: three members of the Senate, five members of the House of Delegates, seven citizen members, and two ex officio members. Senator Mary Margaret Whipple served as the Commission's chairman and Delegate Charles D. Poindexter as vice chairman. The other Senate members are Senators J. Chapman Petersen and Richard H. Stuart. The other House of Delegates members are Delegates Samuel A. Nixon, Clarke N. Hogan, Joseph P. Johnson, Jr., and Mark D. Sickles. Citizen members are Patrick G. Hatcher, Karen Kennedy Schultz, Hugh E. Montgomery, Jr., August Wallmeyer, and Arlen K. Bolstad. The Director of the Department of Environmental Quality, David K. Paylor, and the Director of Mines, Minerals and Energy, Stephen A. Walz, serve on the Commission as ex officio members.

    Staffing was provided by Patricia Lung from the Office of the Clerk of the Senate and Ellen Porter and Patrick Cushing from the Division of Legislative Services.

    Meetings

    The Commission met four times during the 2008 interim.

    The first speaker at the initial meeting of the Commission was Dr. Robert Hirsch, who presented findings from his report entitled "Peaking of World Oil Production: Impacts, Mitigation, and Risk Management". The Commission asked Dr. Hirsch was whether $4/gallon gas was here to stay. Dr. Hirsch estimates that citizens will have to continually readjust their lifestyles to accommodate increasing fuel prices up to a range (according to one prominent economist) of $15-$20 per gallon at some point in the future. The Commission followed with questions on what the impact of an increase in biofuel production will have on these estimates. Dr. Hirsch stated that corn based ethanol is a dead-end and the most promising biofuel right now is cellulosic based ethanol, which uses energy crops or organic waste residue to produce ethanol. Despite the positive impact biofuels will have on the liquid fuel supplies in this country, Dr. Hirsch pointed out that no single technology or fuel will be able to meet the growing demand.

    Hugh Montgomery, a member of the Commission, expressed his opinion that coal-to-liquids technology may not be as appealing as Dr. Hirsch stated. Mr. Montgomery asked Dr. Hirsch to elaborate on the potential for waste-to-energy technologies. Dr. Hirsch responded that the country will need to tap all potential resources for liquid fuels, even though many of them have environmental drawbacks. The Commission concluded with a series of questions on what other technologies could help mitigate the impact of rising fuel prices. Dr. Hirsch responded that although there may be some fossil-based alternatives, such as natural gas, all fossil-based fuels are limited in supply and will eventually suffer the same fate as oil (the US, however, happens to have significant amounts of coal). Dr. Hirsch concluded by stating that all options need to be on the table to address the short-term potential for energy costs spiking in a short period of time. With regard to long-term planning, the country needs to focus on utilizing renewable resources.

    Second on the agenda was Dan Beckley with the Office of Energy Efficiency and Renewable Energy (DOE) presenting on the scope and integration of federal and state initiatives. Mr. Beckley began by stating that Virginia has adopted the most recent version of the IECC Building Codes, which contain greater energy efficiency requirements for new residential construction. The Commission asked Dr. Beckley what happened to state deployment grants from the DOE. Mr. Beckley stated that although they have been cut by 25%, there may be some block grant money coming to the state in the near future. Mr. Beckley's full presentation is available on the Commission's website.

    Next on the agenda was Steve Walz, the Governor's Senior Advisor for Energy Policy, presenting an overview of the Virginia Energy Plan. Mr. Walz confirmed that the Commonwealth does have a large reserve of coal, but it is not the type of coal used in the coal-to-liquids process. One question from the Commission was to what extent implementation of reasonable energy efficiency and conservation measure could meet the growing electricity demand in the Commonwealth. Mr. Walz responded that energy efficiency and conservation could level the Commonwealth's per capita use of electricity, but due to the growing population, overall electricity demand will continue to grow in the Commonwealth. Delegate Nixon asked what metrics are in place to gauge the success of the Virginia Energy Plan. Mr. Walz responded that most data comes from the Energy Information Agency (EIA) within the DOE, but the Commonwealth is looking for alternative methods for collecting better data.

    The Commission asked Mr. Walz where the Commonwealth should be concentrating its efforts in meeting increasing energy demands. Mr. Walz responded that the best options are efficiency and conservation, indigenous energy supplies, and consumer education. With regard to consumer education, the Commonwealth needs to focus on education consumers on replacing large scale appliances with more energy efficient products. Concomitantly, contractors of all types need to be educated to advise their customers on energy efficient options to traditional appliances. Mr. Walz's full presentation is available on the Commission's website.

    The initial presentation at the second meeting of the Commission was provided by staff and surveyed the existing energy policies established in the Code of Virginia and Executive Orders including regulatory incentives, grant programs, and tax credits. A surprising number of these initiatives are inactive because they have either been allowed to expire, the funding has disappeared, or the target population is not aware of the available benefits. Senator Petersen asked why Virginians might not know of some of the incentives, such as the various tax credits that might be claimed for alternative fuel vehicles and energy efficient appliances. Staff noted that further investigation may be needed to determine the steps necessary to publicize and market those programs that are funded. Senator Whipple asked that staff continue to identify and provide further information on inactive programs.

    Staff also provided a presentation on innovative energy efficiency and conservation policies in other states. Notable policies include a four-day work week for state employees; a revolving loan program for energy efficient projects; the mandated installation of solar water heaters in new homes; the accelerated phase-out of incandescent light bulbs; and the creation of an independent entity to manage energy efficiency programs for customers of various utilities. Mr. Wallmeyer asked staff to elaborate on which programs have provided the best results. Staff noted that it is difficult to measure success since many of the programs are very new. Dr. Schultz asked staff's opinion of programs best suited for Virginia. Staff replied that, while some of the programs such as mandatory solar water heaters would be wholly inappropriate for Virginia, others such as mandatory labeling and independent administration of energy efficiency programs may prove to be a good fit.

    Thomas Thompson, manager of the Virginia Energy Management Program, provided the Commission with an overview of progress made towards implementing the recommendations of the Virginia Energy Plan. Senator Whipple asked for clarification on the demand response program payments with regional transmission organization PJM. Mr. Thompson explained that the program allowed a reduction in load during peak times to change rates and permit users to opt out from consuming the most expensive energy. Senator Peterson asked about the role of switchgrass in the pilot project at Piedmont Geriatric Hospital in light of its potential as a feedstock for cellulosic ethanol. While the switchgrass is burned to co-fire a generator at the facility, such a use is not incompatible or exclusive to its cellulosic ethanol potential. Overall, the project creates a market for switchgrass grown by Virginia farmers. Delegate Hogan asked about the degree to which the Commonwealth is vulnerable to sudden increases in the price of natural gas. Mr. Thompson noted that the state actually consumes more natural gas than petroleum and that supply interruptions would have a significant impact on our economy. Senator Whipple and Delegate Nixon asked for additional clarification and data on some of the points covered in the report. The Commission would like to know the degree of actual progress made towards goals instead of general statements about activity in certain areas.

    Dr. Patrick G. Hatcher, Executive Director of the Virginia Coastal Energy Research Consortium (VCERC), provided the Commission with a brief overview of VCERC, its mission, and its members. Currently there are two primary thrusts of the research funded through VCERC: algae-to-biodiesel conversion technology and the capacity for wind energy in the Atlantic Ocean off the coast of Virginia. Since the Commission will tour Mr. Hatcher's laboratories at the next meeting, the presentation was turned over to Neil Rondorf, a VCERC industry partner with Science Applications International Corporation, to discuss wind energy. Mr. Rondorf stressed the importance of taking a responsible environmental and economic approach to developing the wind potential off Virginia's coast while adapting technology to meet our resources. Senator Peterson asked for clarifications on the permits necessary to proceed on a large scale wind farm in the Atlantic. Mr. Rondorf responded that the federal government hoped to develop permits that would be analogous to and complementary of any state permits to ease the regulatory burden on the developer. Delegate Hogan questioned the reliability of the wind power. Mr. Rondorf responded that although wind generation produces a low power factor, the electricity could be used cooperatively with natural gas fired turbines to relieve congestion.

    Dr. Michael Karmis is a Professor in the Department of Mining and Minerals Engineering at Virginia Tech and he is the Director of the Virginia Center for Coal and Energy Research. Dr. Karmis gave the Commission an overview of work being done at the Center to advance carbon capture and sequestration and noted the wide discrepancy between funds appropriated to VCCER by the Commonwealth and those appropriated to comparable organizations in other states. While initial tests of carbon capture technology will begin shortly, a large volume test is needed. Dr. Karmis notes that Virginia is fortunate and to have geologic formations that are suitable to store carbon and that policy makers should view such formations as a valuable natural resource. The Department of Energy will provide $65 million towards the large volume tests, leaving an additional $40 million in cost share commitment to be raised from other sources in the next few months. Dr. Karmis stressed the urgency and importance of identifying these funds for the project so that the Commonwealth will not lose its competitive advantage. Delegate Sickles inquired about the relationship between his research and the Virginia City Power Plant in Wise County. Dr. Karmis explained that the large volume test targeted storage integrity and not sequestration. Any initial projects should place the geologic storage close to the source of the carbon dioxide.

    Kelly Hobbs, Senior Manager with Wal-Mart’s Public Affairs and Government Relations Team, provided the Commission with an overview of policies implemented by Wal-Mart, the country's largest corporation and second largest employer, to improve energy efficiency and environmental sustainability. Delegate Nixon questioned whether the unique "green" packaging Wal-Mart had developed with certain manufacturers was considered proprietary. Ms. Hobbs responded that it was not and that Wal-Mart hoped such innovations could be shared with other manufacturers across the industry. Dr. Hatcher expressed his hope that Wal-Mart would provide some oversight with respect to the validity of claims presented on packaging, such as the useful life of a compact fluorescent bulb.

    Hugh E. Montgomery, Jr., Director of the Institute for Defense and Homeland Security, provided the Commission with a perspective of energy issues from the Department of Defense. Mr. Wallmeyer agreed that one of the primary shortcomings of the Virginia Energy Plan is the absence of prioritization for the recommendations and asked what actions the General Assembly should take. Mr. Montgomery noted that the Commonwealth will find the highest return on investment in conservation measures. Delegate Hogan further commented that increased investment in conservation need not occur at the behest of government. Mr. Montgomery spoke about his personal hope that waste to energy would take hold as a viable option.

    Ellen Matthews Davis, State Director at USDA Rural Development, discussed the availability of funding for loans from the Rural Energy for America Program (REAP), formerly known as the Renewable Energy Systems and Energy Efficiency Improvements Program. Like its predecessor, REAP provides grant and loan guarantees to farmers, ranchers and rural small businesses to promote energy efficiency and renewable energy. The authorized funding for REAP between 2009 and 2012 is $255 million, which is more than double the funding authorized in the previous Farm Bill. The monies can be used to purchase renewable energy systems and to provide energy efficiency improvements to a facility or process that reduces energy consumption. Sample funds have been provided to: (i) install factory made wood burning furnace to heat water that will be pumped through insulated underground pipes; (ii) install geothermal renewable energy system at a winery and farm; (iii) install wind turbines and solar PV array pumping system; and (iv) build a 12,000,000 gallon bio-diesel plant. Mr. Wallmeyer questioned whether personal guarantees would be required of loan recipients. Ms. Davis replied that personal guarantees should not be required and stressed the importance of getting the word out to potential borrowers.

    At its third meeting of the interim, the Commission heard from Al Christopher from Virginia Clean Cities. Mr. Christopher reviewed several different alternative transportation fuels and discussed the benefits and drawbacks of each. Although alternative fuels will help reduce the demand for oil, Mr. Christopher stressed the importance of conservation, which is faster, cheaper, and easier to implement than any of the alternative fuels discussed.

    Mr. Andrew Smith, from Virginia Farm Bureau, provided a presentation providing the Commission with information on the impact of expanded renewable fuels on the nation's food supply. Mr. Smith discussed the breakdown of how corn is used in the US. Currently, as ethanol uses increases, it is the nation's corn export that is shrinking, not the domestic supply of corn. The overall global increase in food demand is driving up the price of corn in all countries, including the US. Additionally, increased fuel and processing costs, combined with a weak dollar, have resulted in higher food costs. Mr. Smith also reviewed the variables that affect the price of corn, which includes variations in weather, world demand, ethanol production, and others. Of the expected 5% increase in corn prices this year, 44% of the increase is the result of higher fuel, transportation, and energy costs.

    Mr. John Warren, from Osage Bio Energy, discussed Osage's plans for producing ethanol using barley, which offers several useful byproducts, including barley protein meal and fuel pellets. Mr. Warren's presentation contains several estimates on the benefits to Virginia, which includes new jobs, environmental benefits, and tax revenue. One of the major benefits of using barley is that its use will have little to no impact on food supplies. One of the major challenges for Osage has been generating local interest among farmers in growing barley. Osage is prepared to import the barley it needs, but the ultimate goal is to have all barley production come from within the state. The Hopewell plant is scheduled to go on-line in the second quarter of 2010 with construction expected to start by the end of 2008.

    Ms. Ann Swanson, from the Chesapeake Bay Commission, provided an overview of the Commission's recent report entitled Biofuels and the Bay. One of the important data points in the report was an analysis on the impact of different biofuel crops on pollution levels in the Chesapeake Bay. Although the addition of corn and soybean crops would add nitrogen to the Bay, expanded use of switchgrass and cover crops, such as barley, results in a net reduction in nitrogen input to the Bay. Using a combination of switchgrass and cover crops could result in two-thirds of the targeted nutrient reductions.

    Mrs. Swanson also highlighted information from the Commission's report on the potential for the Bay region to take a national lead on cellulosic biofuel production. One of the major factors that makes Virginia well positioned to pursue cellulosic ethanol production is the fact the Virginia is one of the only significant corn producing states that is not committed to corn-based ethanol production. Mrs. Swanson proposes the Bay region focus on three pillars: feedstock, natural resource protection, and marketing and infrastructure. In her presentation Mrs. Swanson highlights potential steps to help the Bay region move towards becoming a leader in cellulosic biofuel production.

    Dr. Victor Fischer, from Virginia Tech, provided the Commission with an overview of cellulosic biofuels, including ethanol and green diesel. Dr. Fischer highlighted key national policies that are moving the industry towards cellulosic biofuels. A major factor driving the push for biofuels is the need for greater confidence in national security. Dr. Fischer next discussed the cellulosic ethanol production process developed by Virginia Tech that can produce ethanol at $1.36-$1.56 per gallon. The process is also more efficient in converting the sugar in organic matter to ethanol. Dr. Fischer also explained the type and value of the byproducts resulting from green diesel production using the new process developed at Virginia Tech. One byproduct, phenol, is worth almost twice that of the green diesel on a per volume basis.

    Dennis J. Sulick, from Virginia Biodiesel Refinery, provided the Commission with a presentation on biodiesel production in Virginia. Mr. Sulick noted that for every dollar spent on biodiesel approximately $.90 stays in Virginia, compared to $.13 for petroleum diesel. Mr. Sulick also stated that for every million dollars spent on biodiesel production in the state, there is created an additional 2-3 million dollars of economic activity. Mr. Sulick recommends that the Commission work to encourage the use of biodiesel in school buses and strengthen producer incentives in the state.

    Dr. Dennis Hatcher, from Old Dominion University, presented on the potential for algae as a feedstock for biofuel production. The main attribute of algae that makes it so lucrative is its oil content and reproduction cycle. Another benefit is that algae growth can be coupled wit other industrial processes to achieve greater economic and environmental benefits. Algae require carbon dioxide, nitrates, and phosphates to grow and reproduce. These same compounds are detrimental to the air, soil, and water.

    Dr. Hatcher reviewed ODU's first pilot facility as well as a recently constructed demonstration plant in Hopewell, VA. Dr. Hatcher offered the Commission members a tour of some of the labs working in algae biofuels research.

    At the final meeting of the Commission, Mr. Arlen Bolstad from the State Corporation Commission, provided an overview of the report by the State Corporation Commission ("SCC") on the feasibility of a 10 percent reduction in electric energy consumption by 2022. The SCC received input from 180 people and adopted five self-directed subgroups: general issues; conservation and energy efficiency; demand response; financial considerations; and consumer education. SCC staff concluded that the 10 percent goal was indeed achievable and noted the potential programs set forth in the Virginia Energy Plan as a manner of achieving that goal.

    The sole recommendation of the SCC report was that electric utilities provide information and data to determine the “cost-effectiveness” of demand-side management programs. Since the publication of the report in 2007, the SCC has been involved with applications for several pilot programs managed by the utilities; renewable energy portfolio standards; the development of a consumer education plan; and integrated resource planning.

    Neal Elliott, from the American Council for an Energy-Efficient Economy (ACEEE), presented the Commission with the ACEEE report "Energizing Virginia: Efficiency First." After reviewing the process used to develop the report, Elliott stressed that states should view electricity efficiency and conservation as the least-cost resource to meet our growing energy demands. Mr. Elliott also stressed the distinction between conservation and efficiency. Efficiency is a resource that can be purchased, for example by obtaining more modern appliances or weather-stripping. Conservation is a reflection of changed behavior to avoid the consumption of energy. The ACEEE report found that the Commonwealth could actually achieve a 19% energy reduction, equivalent to 28000GWh, and examined how that reduction could be achieved among sectors of the economy through various technological and regulatory policies. Mr. Elliot reinforced that electricity rates are rising now and will continue to rise in the future. The effect of aggressive conservation and efficiency program would simply be decline in the rate of increase. Another important benefit of an aggressive conservation and efficiency program would be the creation of jobs over the long-term, whereas expanded generation primarily creates jobs during the short-term construction phase.

    Jack Reasor, from the Old Dominion Electric Cooperative ("ODEC"), began by noting that ODEC has been working on this issue for more than 25 years and that their organization is unique because 95 percent of their users are residential. Delegate Nixon asked about market driven conservation efforts and whether Mr. Reasor agreed with rate design issues need to be addressed, perhaps according to a decoupling model like that implemented by the General Assembly for natural gas. Mr. Reasor responded that decoupling may not be the favored approach by industry and that what was meant by decoupling should be carefully examined. Mr. Reasor then referred to a pending rate case where base rates are increased to cover fixed costs; the quantity of usage is then passed through to the user.

    David Green, from Dominion Resources, reviewed the numerous innovative pilot programs being explored by Dominion. Dr. Hatcher asked about the susceptibility of smart meters to lightning strikes. Mr. Green responded that 1/3 of meters already in use are solid state meters similar to that in smart meters and that no problems have been reported.

    Ron Jefferson, from AEP Appalachian Power, discussed the numerous approaches AEP Appalachian Power takes to helping customers conserve electricity and demonstrated the tools on AEP's website to allow customers to calculate energy savings in their home.

    Bill Carden, from Potomac Supply Corporation, provided an engaging review of the importance of forestry and lumber products industries to Virginia. Although these industries are experiencing economic difficulties, there is an untapped potential to adapt wood products for use as energy feedstocks.

    Senator Whipple summarized the final recommendations of the Commission to: (i) identify dedicated funding for biofuels production; (ii) require that diesel fuel include a minimum of two percent synthetic fuel; and (iii) clarify the existing goal to reduce electricity consumption by 10 percent by 2022.

    Additional information regarding the Commission's activities is available through its website at http://dls.state.va.us/energy.htm. The Commission does not intend to submit a further report for publication.