Stressing the need for close tailoring for local areas, a group of state legislators has released a report on state-level energy policy options.

The group that wrote the report, called "Meeting the Energy Challenges of the Future: A Guide for Policymakers," includes 19 elected legislators from 17 states. They consulted with power interests including American Electric Power Co. Inc., Basin Electric Power Cooperative, the National Rural Electric Cooperative Association, the Nuclear Energy Institute and the Edison Electric Institute.

The National Conference of State Legislatures formed the task force on energy supply in 2009 and presented this report at its annual conference, held July 25-28 in Louisville, Ky. The report is one of several the task force will deliver, the group said. NCSL is a nonprofit, bipartisan effort to provide information to state-level lawmakers.

The report stresses the effects that economics can and should have on state-level energy policy. "One important challenge we found is that there is no 'one-size fits all' approach that will work for every state," Rep. Al Carlson of North Dakota, the task force's co-chair, said in a statement. "Given the current financial constraints, each state or region will have to make decisions that make economic sense for their constituents."

"Meeting the energy needs of the future, as demonstrated in the report, lies not just in one resource or technology, but in a combination of many technologies and resources, which are likely to include energy efficiency, natural gas, cleaner coal technologies, nuclear energy, smart grid technologies and renewable energy," the lawmakers said in the report. "Since the difference in energy supply resources and energy costs may vary dramatically among states, so may the choice of technologies and policies."

Generation options, constraints

States have various policies in place to encourage development of favored power resources. "All states provide incentives to support renewable energy development," the task force said. "These efforts are motivated by the desire to promote economic development, address air quality and greenhouse gas concerns, hedge against fluctuations in fuel costs and expand the diversity of the energy mix."

Twenty-nine states and the District of Columbia have renewable portfolio standards, and several have passed mandatory reductions in greenhouse gas emissions. There are many state-level policies to encourage, discourage or ban other resources:

* Three states require power plants to meet natural gas standards for CO2 emissions.

* Seventeen states have pro-coal-gasification policies in place, including property tax exemptions and bond issuances.

* Fourteen states offer tax incentives for carbon capture and sequestration projects. Eight have addressed the potential liability issues around the long-term storage of CO2. States may need to pay more attention to the 3,900 miles of CO2 transport pipeline in the country, the group said. "Expansion of the interstate CO2 pipeline system may require modifications to existing state regulations and creation of new regulations in states without such regulations."

* The natural gas pipeline system also requires states to work together. The Oklahoma Legislature has ordered a study to examine the adequacy of the existing system's capacity.

* Eight states forbid construction of new nuclear plants until a permanent waste disposal facility is built. Two more ban new nuclear for other reasons.

* On the flip side, several states offer expedited permitting processes for new nuclear plants. A number offer financial support directly or by allowing cost recovery during construction. Kansas, Texas and Utah offer tax incentives. Twenty-eight states support nuclear power education and training programs.

How to decide?

One indicator of which proposals could fly and which will sink is electricity prices. "In states with low rates, all types of new generation will be more expensive and are likely to affect rates, even if the state chooses its least costly options," the task force said. For the most part, this means coal-dependent states will see higher rates. "States with higher electricity rates can choose from many additional options that are more likely to be competitive with existing generation costs."

Existing federal regulations could force a state's hand, they said, as when Colorado passed a law requiring regulated utilities to look at closing or repowering half of their in-state coal plants. The utilities will, after review, be allowed to recover the costs of the less-expensive option. The state is required to reduce regional haze under impending EPA Clean Air Act regulations.

Dithering over policies is not helping ratepayers, the lawmakers said, citing figures from a 2008 Brattle Group study. "Capital investments in new generation between 2010 and 2030 could range from $455 billion to $951 billion, and much of the capital would come from financing," they said. "Uncertainty about future needs and government regulation affect decisions about which plants will be built. These uncertainties can increase the cost of financing, resulting in higher costs to build a plant and, ultimately, higher electricity costs for consumers."

Transmission and demand-side options

Transmission represents about 7% of the cost of the entire electric system but is an increasing share of industry headaches, the group said. As with a national renewable energy standard, the lawmakers stopped short of saying "no" to federal siting authority but did praise the role of state-level transmission infrastructure agencies such as those in Wyoming and Kansas.

"Unless guaranteed that generation projects will be built, transmission companies are unlikely to build new lines. On the other hand, energy developers are reluctant to commit to new projects unless they know transmission will be ready. Transmission authorities help bring stakeholders to the table to coordinate and overcome these barriers," they said.

Other options for state legislatures interested in seeing more transmission built include creating renewable energy zones and offering expedited siting processes.

For legislatures not interested in seeing more lines going up, the task force recommended distributed generation, demand-side management and energy efficiency. Twenty-four states have energy efficiency standards. The report details nine more policy options to require, fund and/or encourage efficiency programs.