Natural Gas and Natural Gas and Transportation Transportation

FuelsFuelsEric Cutter

Energy & Environmental Economics, Inc. (E3)

Presented to:Presented to: Natural Gas and Transportation Fuels Natural Gas and Transportation Fuels

SubcommitteeSubcommitteeBoise, IdahoBoise, Idaho

August 2, 2006August 2, 2006

353 Sacramento Street, Suite 1700San Francisco, CA 94111

Telephone: (415) 391-5100http://www.ethree.com

AgendaAgenda

Key takeaways points for natural Key takeaways points for natural gas, petroleum and biofuelsgas, petroleum and biofuels

Present straw proposalPresent straw proposal Committee and public input (AM)Committee and public input (AM) Group, critique, refine policy areas Group, critique, refine policy areas

(PM)(PM) Write detailed outline (Conclusion)Write detailed outline (Conclusion)

Roadmap for Developing Roadmap for Developing the Energy Planthe Energy Plan

UnderstaUnderstand where nd where

we are we are todaytoday

Decide Decide where we where we want to want to

go go tomorrotomorro

ww

Figure Figure out the out the

best best ways to ways to

get thereget there

Implement Implement the the

approved approved measuresmeasures

NegotiatNegotiate e

through through legislativlegislative processe process

You are

here

RepeaRepeatt

Energy Policy Levers: Energy Policy Levers: What Can the State Do?What Can the State Do?

The state as a The state as a taxingtaxing authority authority The state as a The state as a spendingspending authority authority The state as a The state as a regulatorregulator (utility regulation, (utility regulation,

codes and standards, environment and codes and standards, environment and safety, water rights)safety, water rights)

The state as an energy The state as an energy consumerconsumer The state as an energy The state as an energy producerproducer The state as a The state as a participantparticipant in regional and in regional and

federal processesfederal processes The state as a The state as a moralmoral authority authority

Reasons for State ActionReasons for State Action

ExternalitiesExternalities Public goodsPublic goods Collective action problemCollective action problem Economies of scaleEconomies of scale Access to capital/high capital costsAccess to capital/high capital costs Builder/OwnerBuilder/Owner Public interestPublic interest Market imperfectionsMarket imperfections

Idaho Energy UseIdaho Energy Use

Majority of end use energy Natural Gas and Majority of end use energy Natural Gas and PetroleumPetroleum

Idaho ranks 16Idaho ranks 16thth in energy intensity and energy in energy intensity and energy costs as percent of median incomecosts as percent of median income

Petroleum, 48%

Natural Gas, 21%

Coal, 3%

Retail Electricity Sales, 21%

Biomass, 6%

Other, 1%

Idaho 2002 End-Use Energy Consumption by Fuel Source

Note: "Other" consists of Wood, Geothermal and Ethanol.

Higher Natural Gas Higher Natural Gas PricesPrices

Prices expected to be higher and more volatilePrices expected to be higher and more volatile Increasing demand: Elec. generation, coal Increasing demand: Elec. generation, coal

sands, biofuelssands, biofuels

Natural Gas SupplyNatural Gas Supply Historically Historically

captive supply captive supply gaining access gaining access to more to more lucrative eastern lucrative eastern marketsmarkets

PNW and US PNW and US relying heavily on relying heavily on “new” supply to “new” supply to meet demand meet demand

Natural Gas UtilitiesNatural Gas Utilities

Utilities are able to maintain reliable supply Utilities are able to maintain reliable supply and infrastructure.and infrastructure.

May need to make investments further May need to make investments further upstream and for longer termsupstream and for longer terms

Financial disincentive Financial disincentive

for conservationfor conservation Limited incentive to Limited incentive to

manage supply price manage supply price

and price volatilityand price volatility

PetroleumPetroleum

No instate production or refiningNo instate production or refining Competitive industry with increasing Competitive industry with increasing

concentrationconcentration State has few leverage points over State has few leverage points over

competitive structure with limited competitive structure with limited history of successhistory of success

Leverage points – efficiency and Leverage points – efficiency and alternative fuelsalternative fuels

BiofuelsBiofuels Increasing Federal and State supportIncreasing Federal and State support Wide Variety of Fuel TypesWide Variety of Fuel Types

EthanolEthanol Sugar & Starch (Corn)Sugar & Starch (Corn) CellulosicCellulosic

BiodieselBiodiesel MethanolMethanol

EthanolEthanol Production predominately in heartlandProduction predominately in heartland Idaho higher cost of production (Corn)Idaho higher cost of production (Corn) Can be offsetCan be offset

Wet MillingWet Milling TransportationTransportation

Energy InputsEnergy Inputs

0

0.2

0.4

0.6

0.8

1

1.2

1.4

CornEthanol

CellulosicEthanol

Petroleum

NG, Coal,Other

Petroleum

Units of energy input per 1 unit of energy Units of energy input per 1 unit of energy output (MJ)output (MJ)Science, January 27, 2006, Ferrel et. al (U.C. Science, January 27, 2006, Ferrel et. al (U.C. Berkeley)Berkeley)

Energy Invested

Net Energy

Biofuel Energy InputBiofuel Energy Input

Corn Corn EthanolEthanol

CellulosiCellulosic c

EthanolEthanol

PetroleuPetroleumm

PetroleumPetroleum .05.05 .08.08 1.11.1

NG, Coal, NG, Coal, OtherOther

.74.74 .04.04 .09.09

Net EnergyNet Energy 1.251.25 8.38.3 .83.83

EROI*EROI* 1.25/11.25/1 8.3/18.3/1 5/15/1*Energy Return on Investment*Energy Return on Investment

Units of energy input per 1 unit of energy Units of energy input per 1 unit of energy output (MJ)output (MJ)Science, January 27, 2006, Ferrel et. al (U.C. Science, January 27, 2006, Ferrel et. al (U.C. Berkeley)Berkeley)

Biofuel: Other IssuesBiofuel: Other Issues

Greenhouse gassesGreenhouse gasses Cellulosic much better than corn basedCellulosic much better than corn based

Devoted acreage/food supplyDevoted acreage/food supply Water use/Environment ImpactsWater use/Environment Impacts Corn as transition to cellulosic ethanolCorn as transition to cellulosic ethanol Modified/new infrastructure and Modified/new infrastructure and

vehicles required above 10% mixvehicles required above 10% mix Idaho production costs vs. HeartlandIdaho production costs vs. Heartland

Idaho Policy Idaho Policy GoalsGoals

Policy Goals from June Policy Goals from June Mtg.Mtg.

Five CategoriesFive Categories Reliability & stabilityReliability & stability Low-cost & affordabilityLow-cost & affordability Environment & conservationEnvironment & conservation Jobs & economyJobs & economy FlexibilityFlexibility

DRAFT Policy GoalsDRAFT Policy Goals

1.1. Ensure a secure, reliable and stable energy system Ensure a secure, reliable and stable energy system for the citizens and businesses of Idahofor the citizens and businesses of Idaho

2.2. Maintain Idaho’s low-cost energy supply and ensure Maintain Idaho’s low-cost energy supply and ensure access to affordable energy for all Idahoansaccess to affordable energy for all Idahoans

3.3. Protect Idaho’s public health, safety and natural Protect Idaho’s public health, safety and natural environment and conserve Idaho’s natural resourcesenvironment and conserve Idaho’s natural resources

4.4. Promote sustainable economic growth, job creation Promote sustainable economic growth, job creation and rural economic development through and rural economic development through investments in Idaho’s energy infrastructureinvestments in Idaho’s energy infrastructure

5.5. Provide the means for Idaho’s energy policy to Provide the means for Idaho’s energy policy to adapt to changing circumstancesadapt to changing circumstances

Other State Other State Energy PlansEnergy Plans

Nevada State Energy Nevada State Energy PlanPlan

Support and Encourage a Reliable, Support and Encourage a Reliable, Affordable and Sustainable Supply Affordable and Sustainable Supply of Electricity and Natural Gasof Electricity and Natural Gas

Support and Encourage the Support and Encourage the Efficient Use of EnergyEfficient Use of Energy

Support and Encourage Further Support and Encourage Further Diversification and Increased Diversification and Increased Reliability of Nevada’s Reliability of Nevada’s Transportation Fuel SupplyTransportation Fuel Supply

Nevada - TransportationNevada - Transportation

Ensure Effective Competition in Ensure Effective Competition in Transportation Fuels MarketsTransportation Fuels Markets

Work with other states and the Consumer Work with other states and the Consumer Advocate to monitor transportation fuel Advocate to monitor transportation fuel supplies and pricessupplies and prices

Continue to engage suppliers and Continue to engage suppliers and distributors to exchange information distributors to exchange information during supply interruptionsduring supply interruptions

Continue discussions with alternative Continue discussions with alternative transportation fuel supplierstransportation fuel suppliers

Nevada – Fuel ReliabilityNevada – Fuel Reliability

Improve Transportation Fuel ReliabilityImprove Transportation Fuel Reliability Assess options to improve the supply Assess options to improve the supply

reliability of refined productsreliability of refined products Improve consumer education on Improve consumer education on

transportation coststransportation costs Establish reasonable goals for ethanol and Establish reasonable goals for ethanol and

biodiesel productionbiodiesel production Join other states in seeking higher CAFÉ Join other states in seeking higher CAFÉ

standardsstandards Engage rural Nevadans in the production of Engage rural Nevadans in the production of

biofuelsbiofuels

Oregon - PetroleumOregon - Petroleum

Petroleum Price Increases and Petroleum Price Increases and Production PeaksProduction Peaks

Employer incentives to reduce single-Employer incentives to reduce single-occupant commutingoccupant commuting

Expanding incentives to encourage Expanding incentives to encourage carpoolingcarpooling

Starting commuter railStarting commuter rail Expanding transit serviceExpanding transit service Tax credits for hybrid vehiclesTax credits for hybrid vehicles Reduce Truck IdlingReduce Truck Idling

Oregon - BiofuelsOregon - Biofuels

2% Biodiesel and 2% Ethanol 2% Biodiesel and 2% Ethanol content requirementscontent requirements

15 million gallon biodiesel and 100 15 million gallon biodiesel and 100 million gallon ethanol production million gallon ethanol production targettarget

Technical assistance, tax credits Technical assistance, tax credits and low-interest loans for and low-interest loans for alternative fuel production and alternative fuel production and fueling stationsfueling stations

California - TransportationCalifornia - Transportation

Building vision for the futureBuilding vision for the future State should develop flexible overarching State should develop flexible overarching

strategies that simultaneously reduce strategies that simultaneously reduce petroleum fuel use, increase fuel diversity petroleum fuel use, increase fuel diversity and security, and reduce emissions of air and security, and reduce emissions of air pollution and greenhouse gasses.pollution and greenhouse gasses.

The state should implement a public The state should implement a public goods charge to establish a secure, long-goods charge to establish a secure, long-term source of funding for a broad term source of funding for a broad transportation program.transportation program.

California – Natural GasCalifornia – Natural Gas

Develop capability to evaluate Develop capability to evaluate natural gas adequacy under extreme natural gas adequacy under extreme conditions, not just normal peak conditions, not just normal peak conditionsconditions

Increase natural gas savings targets Increase natural gas savings targets in light of higher wholesale pricesin light of higher wholesale prices

Rigorously evaluate and monitor Rigorously evaluate and monitor natural gas efficiency programsnatural gas efficiency programs

California – Fuel Supply California – Fuel Supply DiversityDiversity

Transportation fuel plan shall include an Transportation fuel plan shall include an evaluation of alternative fuels on a full-evaluation of alternative fuels on a full-cycle assessment of emissions criteria, air cycle assessment of emissions criteria, air and water pollutants, impacts on petroleum and water pollutants, impacts on petroleum consumption, and other matters the state consumption, and other matters the state board deems necessaryboard deems necessary

Plan shall set goals for increased Plan shall set goals for increased alternative fuel use in the state that:alternative fuel use in the state that: Optimizes environmental and public health Optimizes environmental and public health

benefits consistent with existing and future benefits consistent with existing and future regulations in most cost-effective manner regulations in most cost-effective manner possiblepossible

Ensures there is no net material increase in air Ensures there is no net material increase in air and water pollution or other toxic substancesand water pollution or other toxic substances

California – Alternative California – Alternative FuelsFuels

Pursue all reasonable non-petroleum Pursue all reasonable non-petroleum fuel and technology optionsfuel and technology options High priority given to fuel blends that High priority given to fuel blends that

can be used in existing engines, do not can be used in existing engines, do not void manufacturer warranties and can void manufacturer warranties and can be dispense through existing be dispense through existing infrastructureinfrastructure

Vigorously pursue other fuel options Vigorously pursue other fuel options where cost effective (fleets)where cost effective (fleets)

California – Elec. & CNG California – Elec. & CNG VehiclesVehicles

Investigate how utilities can best Investigate how utilities can best develop infrastructure to fuel develop infrastructure to fuel electric and natural gas vehicleselectric and natural gas vehicles

Engage automakers and fuel system Engage automakers and fuel system “upfitters’ to continue production of “upfitters’ to continue production of gaseous alternative fuel vehiclesgaseous alternative fuel vehicles

Join national Plug-In partners Join national Plug-In partners campaign and communicate interest campaign and communicate interest in plug-in hybridsin plug-in hybrids

California – BiodieselCalifornia – Biodiesel

5% non-petroleum diesel standard5% non-petroleum diesel standard Seek recommendations for Seek recommendations for

expanding use of B-20 fuelexpanding use of B-20 fuel Investigate feasibility of requiring B-Investigate feasibility of requiring B-

20 in state fleet20 in state fleet Establish acceptable standard that Establish acceptable standard that

will preserve engine performancewill preserve engine performance

California - EthanolCalifornia - Ethanol 10% renewable fuel standard10% renewable fuel standard Seek recommendations for increasing use of E-85Seek recommendations for increasing use of E-85 Expedite permitting of E-85 stationsExpedite permitting of E-85 stations Investigate feasibility of Flex Fuel Vehicle Investigate feasibility of Flex Fuel Vehicle

requirementrequirement Establish collaborative state/industry working groupEstablish collaborative state/industry working group Consumer education programsConsumer education programs Evaluate various incentive options for creating E-85 Evaluate various incentive options for creating E-85

infrastructureinfrastructure Support research for development of biomass to Support research for development of biomass to

ethanol conversion technologyethanol conversion technology Examine feasibility of establishing ethanol pool or Examine feasibility of establishing ethanol pool or

reserve to provide E-85 fuel at prices competitive reserve to provide E-85 fuel at prices competitive with gasoline on cents-per-mile basiswith gasoline on cents-per-mile basis

California – Fuel California – Fuel ConservationConservation

Intensify efforts with other states to influence Intensify efforts with other states to influence federal government to double CAFE standardsfederal government to double CAFE standards

Use state fleet as model of efficiencyUse state fleet as model of efficiency Minimum fuel standards by 2009Minimum fuel standards by 2009 Procurement requirement for alternative fuel and Procurement requirement for alternative fuel and

vehiclesvehicles Encourage local governments to adopt minimum Encourage local governments to adopt minimum

fuel efficiency standard and procurement process fuel efficiency standard and procurement process for efficient and alternative fuel vehiclesfor efficient and alternative fuel vehicles

Establish state/industry working group to Establish state/industry working group to examine potential for plug-in hybridsexamine potential for plug-in hybrids

Develop program to reduce diesel engine idlingDevelop program to reduce diesel engine idling Develop program to reduce non-road fuel useDevelop program to reduce non-road fuel use

California – Fuel California – Fuel ConservationConservation

Establish low interest loan program for Establish low interest loan program for projects that reduce use and increase diversityprojects that reduce use and increase diversity

Explore efficiency standards for replacement Explore efficiency standards for replacement tirestires

Sponsor consumer outreach on transportation Sponsor consumer outreach on transportation energy choicesenergy choices

Sponsor research and developmentSponsor research and development Explore incentive programs to influence Explore incentive programs to influence

customer choicecustomer choice Pay as you drive insurance, purchase fees/rebatesPay as you drive insurance, purchase fees/rebates

Straw ProposalStraw Proposal

Natural GasNatural Gas

ConservationConservation DecouplingDecoupling Tariff rider or public purpose chargeTariff rider or public purpose charge

ConservationConservation Encourage direct end use of natural Encourage direct end use of natural

gasgas Encourage use of natural gas vehicles Encourage use of natural gas vehicles

for company and/or state owned fleetsfor company and/or state owned fleets

Natural Gas (con’t)Natural Gas (con’t)

Low cost & stabilityLow cost & stability Procurement Incentive mechanismProcurement Incentive mechanism Encourage hedging & long-term Encourage hedging & long-term

contractingcontracting Best Use (Loading order)Best Use (Loading order)

Direct end useDirect end use Peaking generation– (hydro)Peaking generation– (hydro) Base load generation– (coal, renewable)Base load generation– (coal, renewable) Instate industry Instate industry

Fertilizer, biofuels…Fertilizer, biofuels…

PetroleumPetroleum

Supply ReliabilitySupply Reliability Strategic reserve, in state storageStrategic reserve, in state storage Investigate supply reliability Investigate supply reliability

improvementsimprovements ConservationConservation

Encourage use of hybrid/high mpg Encourage use of hybrid/high mpg vehiclesvehicles

Public/Company fleets/State fleetsPublic/Company fleets/State fleets Work with other states to promote Work with other states to promote

increase in Federal CAFÉ standardsincrease in Federal CAFÉ standards Reduce speed limitsReduce speed limits

BiofuelsBiofuels Encourage purchase of FFV and alt. fuel vehiclesEncourage purchase of FFV and alt. fuel vehicles Incentives for growers and producers of biofuelIncentives for growers and producers of biofuel Encourage future development of cellulosic Encourage future development of cellulosic

ethanol productionethanol production Include triggers or defer adoption of renewable Include triggers or defer adoption of renewable

fuel standardfuel standard Primary feedstock supply initially from out of state Primary feedstock supply initially from out of state

producersproducers Need to address concerns regarding high ethanol Need to address concerns regarding high ethanol

prices and potential supply shortagesprices and potential supply shortages Need to better understand impacts of increased Need to better understand impacts of increased

production on water supply, water quality and energy production on water supply, water quality and energy demand in Idahodemand in Idaho

Your TurnYour Turn

Discussion GuidelinesDiscussion Guidelines

Please be mindful of timePlease be mindful of time Give everyone time to speakGive everyone time to speak

Focus on high level policy goalsFocus on high level policy goals details to come laterdetails to come later

AM – Information gathering AM – Information gathering PM – Critique and editingPM – Critique and editing Provide reasoning, data, experienceProvide reasoning, data, experience