New Mexico EIB Hearings On Cap & Trade & Rule 100

This is another great report by Jim & Donna Crawford. Not only is it filled with straight-forward facts, it has one particular fact that caused me to splash my screen in mirth and with a tad of coffee,  I hope readers will read the complete document.  It is eight pages in length, but it is a fair education in matters covered by the hearing.  I have chosen to post the documents as text rather than a link.  Give Jim and Donna a great big Thank You when you see or talk to them.


Notes EIB Hearings EIB 11-16 – December 5 through 14, 2011

By Jim Crawford

A funny thing happened on the route to hear how the planet is dying from the threat of global warming. It was too damn cold and snowy to go! The hearing was delayed in starting and was then postponed for most of Monday because of snow and cold. We did not venture out until Wednesday, December 7, so had to join the festivities in progress without the benefit of instant replay.

The hearing started on December 5, 2011 in Apodaca Hall in the old PERA building. The board members have started an attendance rotation. Not all the members have been present at each day of hearings. At least three have been in attendance each time. The hearing is to hear arguments for repeal of the carbon dioxide reduction rules, 20.2.100 of NMAC (Part 100), promulgated by New Energy Economy (NEE) last December.

OOB Observations, Opinions, and Barbs:

Board member Tim Morrow deserves an award. He has been in attendance for all the hearing days while the others have rotated in and out.

In spite of the plethora of attorneys in the room, the key question of the whole 8 days of hearings came from the board. Part 100 contains a clause that the rule sunsets if a Federal or regional green house gas (GHG) reduction program goes into effect. The present and expected EPA regulations are in fact Federal GHG reduction programs and Part 100 should sunset. There is no reason for it not to be repealed.

Our biggest gripe is the sound system. It is practically impossible for the audience to hear the questions and testimony. There is a sound system that is useless since it is either off or turned so low it has no effect. Even the poor court recorders who were sitting right in front of the witnesses constantly had to ask folks to repeat themselves.

The Occupy Wall Street (OWS) crowd made appearances. We heard they marched through the hearing room before the hearing was called off on Monday and appeared again on Tuesday. Our only direct contact was on Wednesday evening. We were packing up to leave right at 1830 when public comments were to be heard. About 250+ OWSer’s completely filled the auditorium decked out with surgical masks, signs, coal hung in effigy, etc. They did their shouts and chants but from what I heard the next day, they were orderly and got their protests recorded. The funny side bar is that just after we left the PERA parking lot, one cop car after another came screaming up the street with lights and sirens blazing. We speculated whether they were headed for the PERA building. The next day, I found that they were indeed going to PERA but not at the request of the hearing officer but because a CYFD employee on an upper floor saw the kids gathered outside and called the cops. Not your usual EIB meeting.

Once again the schedule was kind of weird and hard to keep up with and unless one is an official “party” not very public friendly.

The opponents include attorneys from both NEE, Bruce Frederick, and Western Resource Advocates, Steven Michel. I have categorized both as NEE in these notes. Throughout the hearings, the NEE group frequently set up “assumed” scenarios to have witnesses impeach their own testimony by agreeing with an “assumed” set of conditions which of course was different from what the witness had actually analyzed. Unfortunately, some of the witnesses were lured into playing along. This ended up allowing the NEE attorneys to enter their own testimony into the record. It seems a little bizarre for, Mr. Michel, the author and primary technical witness for establishing Part 100, to now be one of the attorneys cross examining proponent technical witnesses about his own previous testimony. He is thereby getting his own testimony into the record without calling any witnesses to be cross examined. He should have only been a technical witness providing technical testimony.

Another procedural oddity is the way statements of reason (SOR’s) are done for the board’s decisions. The proponents and the opponents each submit a draft statement of reasons along with closing arguments. Consequently, based on which side is the winner, the SOR reads like closing arguments and not reasons why the board chose one path over another. A good case in point is the SOR for last December’s decision. It is a pack of lies. In Item 1 it says, “Public interest and support was demonstrated throughout the hearing”. That does not sound like the hearing we attended. There was public interest but most was not in “support”. The very first day of the hearing there was 4 hours on each side. Meetings were held all across the state where comments were overwhelmingly opposed. Several of the witnesses in this hearing also pointed out other fictitious statements throughout the SOR.

As was the case last month, the witnesses particularly in their written pre-filed direct and rebuttal testimony provided a library’s worth of information about power generation, EPA rules and policies, economics, oil and gas operations, health effects, and climate change. The documents are worth reading for anyone with an interest in some of these topics. The link to access the written testimony follows. It takes you to the filing by each company. The individuals are accessed by clicking on the company link. Much of it is the same as last month’s hearing on Part 350 but one significant addition is the rebuttal testimony of Dr. Peter Valberg who challenged all the unsubstantiated talk of health effects from the San Juan generating station.

Hearing Notes:

As I indicated earlier, we joined the hearing in progress on Wednesday morning 12-7. Unfortunately, we missed some key witnesses. A few of their main points taken from their written testimony are:

Dr. John Christy – Tri-state: Dr. Christy also appeared in the cap and trade hearing, Part 350. He provided additional rebuttal testimony in this case to dispute the global warming claims of NEE witness Dr. Gutzler. He also added rebuttal to NEE witness, Dr. Goldstein, regarding health effects. Both his written direct and rebuttal testimonies are worth reading.

Jack Ihle – PNM: Mr. Ihle also appeared in the hearing on Part 350 last month. He too provided additional rebuttal testimony in this case. Once again he provided an excellent description of the multitude of EPA rules and how Part 100 is redundant or in conflict. In rebuttal, he disputes the health claims of Dr. Goldstein not only in relation to GHG’s but also non-GHG’s. Good discussion of EPA controls in place and coming. Had a good leakage discussion particularly how TX and NM would be affected by leakage.

Doug Price – NMOGA: Mr. Price provides a primer on the oil refining business in NM. He also gave testimony in the Part 350 Hearing. There is virtually no CO2 reduction possible in refining. Cost limits will be reached in 1-2 years.

Wednesday, December 7:

Dr. Miles Light- PNM: Dr. Light is another witness added since last month. He is an economist and provided testimony on the economic effects of Part 100 on PNM’s operation. He provided analysis of PNM’s share of the overall economic impact. He provided an excellent executive summary of his presentation.

Some main points were that because of Part 100, NM GDP will be reduced by $1.9 million, income reduced by $824 million, jobs reduced by 1371. He predicted a leakage rate of about 37% because of the rule. We only heard the tail end of NEE’s cross examination. His testimony started Tuesday and continued until about 10 P.M. last night.

Dr. Light struggled with a number of questions about the validity and severity of global warming which were obviously out of his area of expertise.

The NEE group has a fixation on PNM’s revenues. To make the point that Part 100 is inexpensive and we should not worry about the cost, they continually bring up that PNM has $1.2 billion in revenues and claim that the added costs of compliance are 1% or less of revenues. However, I don’t think that profits are tied on a one-to-one basis to revenues and it would be more meaningful to look at how profits are affected by the cost of Part 100. It might be true that a single rate payer might not notice a 1% increase in their monthly bill. However, when one looks at the total $463 million for residential customers and another $800 million for commercial customers it becomes a whole lot more significant. Nobody pointed out that the increased cost to the commercial customers will also ultimately be passed on to consumers.

The board wanted to know what kind of jobs were going to be lost. The answer was the mining and power generation sectors would be hurt the worst.

Cynthia Bothwell – PNM: Cindy provided comments similar to her November comments but also added an excellent rebuttal testimony as well. She discussed the PNM planning operation and how their resource mix is determined and how the system dispatch is operated.

Cynthia was on the stand from the lunch break until the end of the day. She appeared calm and collected in spite of interrogation that bordered on harassment in my opinion. She repeatedly fended off attempts to provide the attorney’s own testimony through the ruse of hypothetical situations. They also wanted to get into a discussion of her personal views about global warming which was fortunately thwarted. There seemed to be a lot of deviation from questioning her written testimony. A few of her main points were:

  • PNM’s dispatch after the rule will leak to areas outside of EIB jurisdiction and not reduce emissions
  • Part 100 will not encourage any increase in renewable energy or green jobs since the NM Resource Performance Standard rule already mandates the amount and mix of renewable energy. Renewable energy costs in the range of $80 to $130 per megawatt hour.
  • No offsets are available in NM
  • Dispatch has to account and respond to constantly and instantly changing loads as demand varies

The board asked several clarifying questions. The main points were:

  • Part 100 has the potential to increase emissions rather than decrease them because of the need for plants to operate at less than ideal efficiency because of peaking needs and leakage and thus end up producing more added emissions than are saved.
  • Part 100 will not be an incentive to invest in more renewable because of higher cost and leakage.
  • Switching gas compression engines to electric will increase electric demand and offset emissions reductions form Part 100.
  • No off sets are available in NM
  • Part 100 is actually more about increasing cost of coal fired generation than reducing emissions.

That was the end of testimony until after public comments. This was where the OWS invasion happened. The board had planned to hear Jennifer Knowlton after public comments but that got rescheduled due to the length of the public comment period.

Thursday, December 8, 2011

Darren Smith – NMOGA: This is where we ran into the vagaries of scheduling. We got there about 0830 which was a bit early but Mr. Smith had already been on the stand for more than an hour and was just finishing being cross examined. The schedule change was necessary because of the lengthy public comment period last night and the conflicting travel schedules of witnesses. Mr. Smith’s main points that we caught were:

  • Offsets have strict qualification requirements and are not available in NM
  • Offsets must be strictly regulated because they are worth money and easily subject to fraud
  • Different projects within a company must compete with each other for capital and will cause leakage across state lines.

Jennifer Knowlton – NMOGA: As I reported last month, her testimony is a primer on the oil and gas business in the Permian basin in SE NM. She is very knowledgeable in this rule and related EPA rules. She was intensely grilled on EPA rules particularly New Source Performance Standard part OOOO. The NEE group kept making the point that since all the EPA rules deal with emissions why would Part 100 not be compatible and should just remain in place. My thought was that EPA rules also made the case that Part 100 is not needed. Her main points were:

  • Midstream oil and gas production creates emissions from compression, fugitive escapes, and venting
  • Available, adequate, and reliable electricity would be needed to switch to electric motors rather than gas
  • There is no EPA technology to reduce carbon dioxide
  • Carbon dioxide is a measure of efficiency
  • There is no assurance of off sets, credits, or early reduction credits as proposed in the rule because it totally dependent on undefined administrative determination by NMED. NMED is trying hard with their limited staff but unlimited administrative discretion is a concern.

The following points were made in response to board questions.

  • Part 100 should be repealed because of the costly overlap with EPA Part OOOO
  • EPA emission factors are not measurable
  • Since they are not voluntary, compliance actions under EPA rules are not eligible for credits
  • Years of ongoing lengthy negotiations with NMED on other rules demonstrates the uncertainty of the discretion given to NMED in Part 100

Barbara Walz – Tri-state Generation: Tri-state provides power to twelve rural electric cooperatives in NM. She gave a good description of how the cooperatives work and their power generation facilities. They operate the Escalante coal fired plant just off Interstate 40 near Prewitt. She provided information on employment and economic impacts from the Escalante plant and has an excellent document attached to her testimony as an exhibit. Her main points were:

  • Since their operations are member owned cooperatives, all costs are passed directly down to the member consumers. Any cost of Part 100 will go directly to the members.
  • The focus on revenue does not reflect the true cost of reducing emissions since operational changes will be amplified through the whole system.
  • 16% of their power comes from renewable. They have 30 megawatts of solar in NM.
  • Part 100 will cause changes in their dispatch orders since they can obtain lower cost power out of state.

Butch Tongate – NMED: Mr. Tongate’s testimony was about the same as presented last month. He again struggled with some of the cross examination when it got into his knowledge of last year’s record and NMED’s position then. He also had problems with questions on whether NMED considers global warming to be a serious problem. His main points were:

  • Emissions are a global problem that Part 100 will not address
  • NMED can only support regulations that have an actual environmental effect
  • Part 100 is a de facto tax that harms low and fixed income folks the most.
  • The rule lacks precision and sufficient guidance for implementation and will result in litigation.
  • NMED does not have a written policy on manmade global warming.

Bruce Gantner – NMOGA: Mr. Gantner’s testimony is the textbook for understanding the oil and gas industry in the San Juan Basin. He covered much of the same areas as last month. He made the following points:

  • The field operations only get about 10% of the market price for natural gas. Most of the price goes to transportation.
  • Additional efficiencies are not possible in the mid-stream operations.
  • 900 new wells per year are needed to maintain production
  • Green House Gas reduction results in reduced production
  • Switch to electric compression will double emissions
  • Upstream reductions are not eligible for off sets

Richard Goodyear – NMED: We did not stay for Mr. Goodyear’s testimony. His written testimony did a good job of describing the fiscal and personnel impacts on NMED. He talked about the legal and administrative burdens on the department.

Friday, December 9

Ed Cichanowicz – Tri-state: Mr. Cichanowicz provided detailed discussion on emission control technologies. He reported on the solar heat trial at the Escalante plant which was not a great success. A few of his main points were:

  • The solar supplementation at Escalante could only produce 3% of the power but cost $188 per megawatt
  • No control technology exists to control CO2.
  • There are only 5 ways to reduce CO2 emissions i.e. increase efficiency, eliminate the source by shutting down, switch to combined cycle gas, capture before venting, and switch to renewable.
  • Capture or sequestering will probably not be feasible before 2020 and even then will use up about 33% of the electricity generated to strip, compress, and move the CO2.
  • Changing coal plants to gas would require new pipelines at $300 to $400 thousand per mile plus the cost of the plant retrofit.
  • When the proportion of renewable exceed about 10% of the total generation, the grid will not handle the dispatch load. Backup generators would have to be located close to the renewable facilities.
  • If carbon prices get sufficiently high conversion to other technology could accelerate. (As noted by Ms. Bothwell above, Part 100 is all about increasing cost not reducing emissions).
  • There were a few points made in response to board questions:
  • Nuclear power can provide emission free base load power.
  • CO2 sequestration takes 33% of the power generation and half of that is for separation and half for compression and transportation.
  • Combined cycle natural gas and new technology coal plants are the most economical way to add new power.

Peter Valberg – PNM: Dr. Valberg is an internationally known toxicologist specializing in inhalation toxicology. He makes human health risk assessments from air pollutants. His rebuttal testimony was presented to examine the adverse health claims presented last year by NEE’s witness, Dr. Goldstein.

Dr. Valberg was on the stand under withering cross examination for several hours. NEE tried their best to shake his testimony and impeach his rebuttal of Dr. Goldstein. He was asked about his work for the tobacco and mining industries implying that his testimony would be biased. He dealt with it all very well. NEE stated that he is only hired by polluters. Since determining health effects of pollution is Dr. Volberg’s expertise, it is unlikely that an industry that does not pollute would hire him! Seems to be a plus and not a negative to me.

NEE had a dozen or more potential exhibits dealing mainly with EPA rulemaking, EPA rules, and EPA proposed rules. Most had nothing to do with Dr. Valberg’s testimony. Fortunately, they were challenged and most were admitted as proof but not subject to questions for Dr. Valberg. NEE was very unorganized and indirect with the questioning so it helped shorten questioning. Here again NEE was just trying to get its own testimony into the record on the back of questioning Dr. Valberg.

Dr. Valberg’s written rebuttal testimony is well worth reading. My favorite analogy is that smoking a single cigarette is equivalent to breathing the emissions from the San Juan Generating Station for 3 years! A few of his main points were:

  • Dr. Goldstein is a medical doctor interested in disease diagnosis and treatment while toxicologists such as Dr. Valberg deal with public health questions to determine cause and prevention. This difference is the primary difference between the men.
  • Dr. Goldstein made only general observations, made no calculations, and made no quantification of the effects of Part 100.
  • Change in air quality is the key question and more important than reduction in emissions. Reducing emissions does not necessarily improve any health related air quality impacts.
  • NM air quality is very good and actually some of the best in the country.
  • Dr. Goldstein did not consider dose response which is the key to determine health effects. In other words anything in high enough dosage for long enough exposure time can be hazardous. To determine health effects the dosage and exposure time has to be analyzed to determine the health risk. San Juan does not pose a significant health risk.
  • Indoor air is much worse than outdoor air and asthma is more related to indoor air factors than outdoor air. Studies show that there is an inverse relationship between air quality and asthma. In the US asthma has increased as the quality of the air has improved.
  • Dr. Goldstein relied on statistical correlations that do not prove any cause and effect relationship. He used the analogy of ice cream sales going up when temperatures rise so therefore ice cream must cause global warming.
  • There is no 100% certainty in science and science cannot prove a negative.
  • Not bothered by holding a “minority” view since he relies on measured data and not statistical correlations actually linking cause and effect.
  • Closing down coal plants in NM would have no measurable effect on air quality in NM.
  • Reducing CO2 will not necessarily reduce other pollutants.

There were several main points made in response to board questions:

  • This hearing is about CO2 and there are no health effects from CO2.
  • The National Ambient Air Quality Standard regulates particulates. The standard is 15 micrograms. The San Juan plant only emits 5-8 micrograms, well under the standard.
  • Removing Hazardous Air Pollutants (HAPs) from the emission stream may not affect the amount of CO2.
  • Goldstein made no attempt to localize his testimony to NM.
  • The leakage problem also applies to health risk. Moving or building a facility in another state with worse air quality than NM may increase health risk when there is no significant risk if the facility remains in NM.
  • The dose makes the poison and Dr. Goldstein did not consider dose effect.
  • RGGI did not consider health effects in their rules. They were only concerned with global warming.
  • NM asthma incidence is not related to outdoor air or power plants.
  • Asthma incidence in NM is no different than other surrounding states.
  • EPA relies almost totally on statistical correlation. EPA analysis flaws are widely recognized. Correlation may have no relationship to causation.
  • San Juan produces only a small portion of PM 2.5 particulates found near the plant.
  • Part 100 has no relationship to PM 2.5. CO2 has nothing to do with particulates.
  • The gold standard of science is experimental studies and clinical trials to determine cause and effect not statistical correlation.

Steve Henke – NMOGA: Mr. Henke provided similar testimony for Part 350 last month. We headed for home before his testimony. His written testimony provides a good picture of the oil and gas industry as-a-whole in the state. Some main points were:

  • NMOGA represents over 300 companies
  • There are 50,000 oil and gas wells in NM
  • Oil and gas provides 26,500 jobs and $2.2 billion in revenue and account for 27% of the state general fund.
  • Provides a significant part of NM state employee and educator retirement funds
  • Includes an excellent tax impact report.

Tuesday, December 13

As usual we arrived a bit early at the hearing room all expectant for a 0900 start as usual. When nary another soul had arrived by 0855, we started to suspect the hearing would not be starting on time. Like I said scheduling on these things is a bit problematic. Someone finally arrived and said the hearing officer was hearing another matter and would arrive by 1000. She arrived about 1030 and then there was a wait for the court recorder. We finally got under way about 1045.

Before we got going on the first scheduled witness we had to listen to arguments from the NEE camp to allow previous written testimony from a Dr. Epstein into the record even though the guy has passed away. The motion was denied because of travel costs to cross examine the witness!

Anne Smith – Tri-state and others: Dr. Smith is an economist. She did a very detailed and through analysis of the economic impacts on the state from implementing Part 100. She contradicted much of the economic analysis done by Mr. Michel who is a lawyer and not an economist. She presents a very good chart of CO2 emissions and an excellent discussion of leakage. She was personally involved in the model runs and in writing the testimony so she knew it very well. She was on the stand until about 1730. A few of the highlights from her testimony about the economic effects of Part 100 are:

  • The state gross domestic product (GDP) declines $317 million or $1.3 billion on how off sets are handled with the $1.3 billion being the most likely scenario.
  • A corresponding 322 or 1,511 jobs will be lost.
  • Over 25% of the job loss will be in McKinley and San Juan counties with the rest spread all across the state in almost all sectors.
  • Increasing amounts of coal fired electric generation will be displaced by natural gas generation and would be detrimental to the NM economy.
  • Even though she used electric rate increases less than the rate NEE uses and characterizes as “negligible”, the above impacts occur.
  • Even though $1.3 billion is less than one percent of the state’s GDP and is negligible in NEE’s eyes it is still a big hit on the state’s economy particularly in heavily affected sectors.
  • A carbon tax is the best way to control carbon emissions rather than cap and control like Part 100 or cap and trade like Part 350.

Dr. Smith made the following points in response to questions from the board:

  • The low GDP and jobs impacts are from assuming off sets being readily available in NM and the high effect numbers are from assuming very limited off sets being available. The limited off set scenario is the most likely. There are no off sets now and probably will not develop because of the way the rule is written.
  • The rule is ambiguous on awarding credits and off sets due to complex ownership, operation, and control of generating facilities including renewable.
  • There has to be actual production which may take many years for and off set to be certified by the Climate Action Reserve.
  • The compliance limit is an enforcement nightmare because it applies to a company average and not individual units.
  • Discount rate used was 5%.
  • Much of the time was spent on seemingly trivial matters like her personal opinions on legal interpretation of the rule, validity of manmade global warming, effect of proposed EPA rules, news articles on numbers of disasters, how to achieve zero emissions globally, etc. that had little connection to her analysis of the economic effects of the rule. Most of it seemed like harassment to me.

Pat Themig – PNM: Mr. Themig is vice president for generation at PNM. He testified about the effects of Part 100 on PNM’s generation operation. His main points were:

  • Repeal will have no environmental effects. The rule adds costs but does not reduce global warming.
  • The power generation priority stack is nuclear, renewable, coal plants not operated by PNM, coal plants operated by PNM and then natural gas plants. The stack is the order of dispatch and bringing units on line to meet load requirements as they change.
  • Part 100 will cause leakage in the PNM system.
  • A methane flare at the San Juan mine has reduced mine output to about 15% of normal but will be back to 100% in April.
  • Inventory capacity is one month at the station and eight months at the mine so they can operate for 9 months with the mine down.
  • Renewable energy’s primary benefit to consumers is that the company complies with the Renewable Energy Act and won’t be subject to penalties that will increase the cost to consumers. Otherwise there is no benefit to consumers other than some folks just feeling good about using renewable energy.
  • The rule penalizes fast start gas plants that would be needed to back up renewable energy.
  • PNM’s position is that any controls on carbon emissions should be national at a minimum and global at best. The company does not have a stated position on the validity or urgency of the threat of catastrophic global warming.

Public comments were taken with 5 of us including Donna and me making oral comments. Four of us favored repeal and one did not.

Wednesday, December 14:

This is the last day of the hearing with only one witness scheduled so we decided not to get up at 0500 and drive back to Santa Fe. The witness for today is Dr. Gutzler appearing on behalf of the NEE group. He is a global warming alarmist assuring us we will all perish if Part 100 is not retained. The cross examinations and questions from the board would have been interesting but they will have to press on without us!

Since we were not there today, I don’t know for sure when deliberation and decision will be done. I am guessing it will be at the February 6 or 7 meeting when deliberation is supposed to be done on Part 350.

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