Authored by: Cathryn Courtin, Student Scholar, THG

While in attendance at the United Nations climate negotiations in Doha, Qatar, delegates dispute many aspects of international action on climate change, one question that underlies every conversation is: How will the proposed changes be funded? A piece of this funding question has to do with investment in renewable energy and how to scale-up the clean technologies that are needed to bolster emissions mitigations.

Panel discussions that went on in events parallel to the negotiations in Doha addressed this question and helped to break down the funding challenge while providing potential solutions.

Marcel Alers, Principal Technical Advisor at the United Nations Development Program (UNDP), outlined a UNDP program that uses public resources to leverage private investment in order to transform the market so that renewable energy becomes a lasting part of the power supply. The projects are focused in developing countries where many barriers to renewable energy investment and development differ from countries like the United States. The fundamental issue, however, is the same. The risk-reward profile of renewable energy does not attract enough private investment to be economically feasible. To remedy this, UNDP projects attempt to shift this profile and create an enabling environment for private sector investment to scale-up renewables in two ways: first, through policy derisking measures to remove underlying barriers that cause risk and second, through financial derisking measures to transfer risk away from private investors. Fifteen of these projects were analyzed and documented in UNDP’s Transforming On-Grid Renewable Energy Markets. Findings included the notion that every country needs a tailored approach to removing barriers and reducing investment risk.

Returning from Doha, it was refreshing to see that the Department of Energy (DOE) had just announced a national investment in Research and Development (R&D) for energy storage technologies that could contribute to changing the risk-reward profile for renewables in the United States. The investment consists of $120 million over five years to Argonne National Laboratory for its new role as the leader of the Joint Center for Energy Storage Research (JCESR). A true collaborative effort, JCESR incorporates the efforts and expertise of five DOE labs, five universities, and four private companies. The State of Illinois will also contribute $35 million to the project. The research laboratories and university researchers in the project plan to produce breakthrough basic research while simultaneously working closely with industry partners to convert this research into market-ready clean energy storage technologies. This aspect of the partnership is essential.

The goal of JCESR is ambitious. It aims to develop revolutionary technologies within five years, with five times the energy density of existing technologies, at one-fifth the cost. Advanced battery technology promises to be essential to the future of renewable energy. Intermittent energy sources like wind and solar would stand to gain a reliable means to store power cheaply when the sun is not shining and the wind is not blowing. The energy storage and battery technologies developed would also improve the reliability and efficiency of the electrical grid as well as the performance of electric and hybrid vehicles, leading to reduced reliance on foreign oil. According to JCESR’s Director George Crabtree, achieving this goal would “overcome manufacturing barriers and reduce the investment risk for American industry.”

The Argonne innovation hub serves as an example of smart public investment in renewable energy. U.S. Rep. Dan Lipinksi (D-IL), called it “the greatest opportunity that we have seen in a long time to bring federal funding that’s intended to promote the creation of new companies and jobs.” If successful, it would serve as an excellent model of using public resources to shift the risk-reward profile of clean energy to catalyze private sector investment.

The question of success leads back to another event in Doha, this one hosted by the Intergovernmental Panel on Climate Change (IPCC), the scientific body that informs the negotiations. It included presentations by two researchers who contributed to the most recent IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation. The study includes a comprehensive analysis of policies for research, development, and deployment of renewable energy. One of its “most robust” findings is that R&D investments, like the DOE energy storage research investment, are most effective at inducing innovation when coupled with other policy instruments that target deployment of renewables. Deployment policies include grants, rebates, tax credits (for production or investment), tax reductions, guarantees, loans, public procurements, etc.

This is a particularly relevant finding to the U.S. case because at the moment, a policy to enhance deployment of wind energy, the wind production tax credit (PTC), is currently being debated in Congress. Up for debate is whether or not the credit will expire this year or continue into next year. The PTC was part of the “tax extenders” package that already passed the Senate, but it is now held up in Congress as part of negotiations about the fiscal cliff and debt reduction. The wind PTC is thought to have adequate bipartisan support, but there is a stalemate at the moment over the broader fiscal cliff package.

The PTC could be regarded as an example of a deployment policy to accompany the R&D investment announced by DOE. Therefore, the IPCC findings provide further evidence of the merits of extending the credits. Unfortunately, the issue is now does not hinge on the merits of the policy but instead on more contentious political debates and decisions about debt reduction. The policy could help to bolster the success of R&D investments at Argonne, but proponents of wind development and renewable innovation can only wait and hope for the best.

More avenues to shift the risk-reward profiles of renewables and catalyze private investment must be explored. The U.S. has taken good steps toward doing so with the Argonne innovation hub. Policy that would enhance wind development is currently being debated, and the tax credit will hopefully be extended. Deployment policies for other renewables and clean electric vehicles might provide added support to the R&D funding and encourage the transformation of the energy market so that renewables become a lasting component.

Authored by: Marianne Horinko, President, THG

America’s energy resurgence played an enormous role in the recent election cycle. Candidates all across the nation and on the national level sparred over the need for an energy policy that created independence, reliability and abundance for all Americans.

With typical ingenuity, American industry has responded by investing in a plethora of new energy sources. In addition to new renewable energy sources such as wind, solar and biomass, industry has explored new ways of extracting traditional fuels such as petroleum and natural gas by using innovative drilling techniques.

As these new energy sources become poised to enjoy explosive growth, it is worth noting that with this opportunity comes potentially great peril. It is incumbent upon both regulators and the regulated community alike to look at the lessons of the past in terms of dealing with emergencies and crises and plan ahead to avoid them in the future.

For example, the chemical industry was put on notice that their level of emergency planning and response needed to be drastically elevated with the 1986 explosion of the Union Carbide chemical plant in Bhopal, India. In response, the chemical industry put together CHEMTREC, a nationwide emergency planning preparedness and response capability that links a network of companies together in order to leverage their emergency response capabilities.

Congress also responded by enacting the 1986 Emergency Planning and Community Right-to-Know Act, which required some 50,000 facilities nationwide to create risk evaluation and analysis plans in order to prepare for and prevent emergencies. This law also created the Toxics Release Inventory, a reporting program that expanded community’s access to information about hazardous chemicals in their neighborhood.

In 1989, the Exxon Valdez oil spill off the shores of Alaska resulted in a catastrophic release of almost 20,000,000 gallons of petroleum into the ocean. Damages to natural resources totaled some $50 billion. In response, the petroleum industry and federal government responded by creating the National Response Center (NRC). Congress also enacted the Oil Pollution Act of 1990, which greatly expanded the governments’ capabilities in dealing with oil spills both on land and in domestic waters of the United States.

Today, our nation’s energy industries face a similar challenge. While utilizing innovative new drilling techniques and operating in locations often closer to our communities than ever before, the industry must also ensure that it has the necessary preparedness and communication skills to prevent an accidental release that will threaten human health and the environment as well as cause the enactment of stringent new legislation that will significantly increase the cost of production.

Actions should be taken at both the company and industry level.

Company level:

• Risk evaluations
• Response plans
• Training
• Exercising
• Outreach

Industry level:

• Leverage
• Collaborations
• Communications

As these nascent sectors of our nation’s energy economy grow, they would do well to develop their capabilities and prepare for dealing with any hazards that may be concomitant with production. In addition to preventing the harm to human life and the environment, these actions will also have the added benefit of enhancing interaction with the community, shoring up relationships with local and state law enforcement and enhancing collaborations with federal regulators.

All of these actions will allow our nation to develop its energy independence reliably and abundantly while at the same time ensuring public confidence in the environmental safety of our new sources of energy supply.

Authored by: Tim Richardson, Managing Member, Terra Nova, LLC

October 22, 2012

Political cycles present the obvious opportunity for prognostication.  Polling is happening daily. Rather than present another poll, let us take this opportunity to make a simple prediction.

There will be no pre-election BP Deepwater Horizon settlement despite an $18 billion deal being on the table last month and a rumored $21 billion settlement this past Friday, October 19.

Before speculating on why this settlement hasn’t happened and why those directly involved are hedging, let’s review what we know with certainty.

Revelation of the $18 billion version of a deal in the offing came in an October 1 Mobile Press Register story by George Talbot citing leaks from U.S. Department of Justice briefings to the five Gulf states.  The story vented Alabama officials’ objections to 1) proposed jurisdictional authority for spending funds; 2) geographic funding distribution pattern likely to result; and 3) allowable uses of the funds.  The objections were driven by the proposed blend of laws under which the BP fines would be paid, namely DOJ’s, and BP’s apparent accord over having more of the payment required under the natural resource damage provision of the Oil Pollution Act instead of the RESTORE Act’s implementation of Clean Water Act penalties.

A higher percentage of Natural Resource Damages (NRD) funds means more federal decision-making power compared to the broad state and local government powers under RESTORE, and it means more environmental focus to the expenditures compared with RESTORE’s ample allowances for economic uses.

BP prefers more of its penalties to come under NRD because they would be tax deductible, enough so that at $18 billion, or even at $21 billion, a high proportion of NRD levies would allow BP to come close to the real cost of $15 billion reported to have BP board approval, as long as that would mean it can close out all Deepwater Horizon state and federal lawsuits.

In contrast to NRD levies, RESTORE Act fines are not tax deductible, hence offer no discount from the real cost of $18 billion or $21 billion for example.

Alabama objections in the Press Register include this volley from U.S. Representative Jo Bonner, R-Mobile, “The idea that the Justice Department would attempt this, less than three months after the law (RESTORE) was passed, is absolutely unacceptable.  It is an arrogant slap to the people of the Gulf Coast and the members of Congress who passed it.”  Alabama attorney general Luther Strange vowed that Alabama’s case against BP would proceed January 14 despite a prospective  federal settlement, “We’re ready to go to trial.  They don’t want to see us in court.  Our motivation is simple: We want the biggest possible judgment or a settlement that makes Alabama whole.”

A follow-up Press Register editorial reinforced the objection to a higher NRD mix compared to RESTORE, “The RESTORE Act passed by Congress this past summer specifies that 80 percent of the penalties paid by BP under the Clean Water Act will be returned to the Gulf states to repair ecological AND ECONOMIC (sic) damage from the spill.  That means that the money can go for environmental as well as economic development.”

The Press Register coverage noted that greater federal power and environmental focus could favor Louisiana “because its coast incurred the greatest  environmental damage” and favor electoral swing state Florida with its extensive coast line, over Alabama, Mississippi and Texas, leading editorial writer Mike Marshall to ask, “Why the big rush?  Isn’t Justice more likely to be blind after November 6?”

But would strident opposition from Alabama, Mississippi and Texas officials be enough to deter Obama Administration Attorney General Eric Holder from striking a deal if BP agreed to $21 billion before the election?

Probably not.

However, the shift toward greater NRD fines from anticipated RESTORE Act proceeds is also opposed by Democratic U.S. Senators Mary Landrieu (LA) and Bill Nelson (FL) who were the principal authors of the RESTORE Act.  The eight Republican senators from the Gulf states co-signed the letter to President Obama thanking him for signing RESTORE and urging him to respect the bi-partisan support forged to pass the landmark legislation.  Despite the attraction of potentially more money for Louisiana and Florida, the loss of local control over NRD fines in favor of federal control doesn’t sit well with Landrieu and Nelson.  It is notable that Nelson is running for reelection this year, and doesn’t need a fire storm from local officials empowered by RESTORE and cut out of the action by a NRD-heavy settlement.  Landrieu’s next election would be 2014 and her understandably traumatized coastal communities have every expectation to be able to wield spending powers over part of the BP settlement.

Thirdly, the prospects for harshly negative media stories about the value of tax deductions offered to BP via a NRD-heavy settlement are daunting in an election atmosphere amid stories of new oil sheen showing up in the Gulf of Mexico traced to the Deepwater Horizon.  The public unease that large tax deductions for BP could arouse would be palpable during this election count down.  And this expected reaction is notwithstanding the impressive and ubiquitous television and print ads BP is sponsoring to tell their commitment to restore the Gulf.

While it is impossible for The Horinko Group’s readers not to have seen the BP advertisements many times, students and practitioners of the art of persuasion owe themselves a thorough look at BP’s messaging effort explaining all they are doing to restore the Gulf.  Discounting the initial atrocious handling of the spill disaster including the performance of former BP president Tony Hayworth, can you recall a more effective corporate media and public relations campaign than BP’s “” effort?

Finally, if Gulf state opposition, Democratic Senate RESTORE Act sponsors’ opposition and prospects for media backlash to tax breaks for BP are not troubling enough to the Obama Administration, the coup de grace against a pre-November election BP settlement in the range of $18 to $21 billion comes from the environmental sector, most pointedly from the National Wildlife Federation (NWF).

On October 10, NWF president and CEO Larry Schweiger wrote a letter to Attorney General Eric Holder opposing the rumored $18 billion settlement, because the fine is too low regardless of how heavily it is weighted to environmentally focused NRD fines.  The letter itemizes concerns over several points, including:

• BP is proposing to settle for less than half of what it could face at trial under existing federal law;
• The spill isn’t over as oil continues to coat wetlands and beaches in an extremely rich ecosystem;
• Don’t go light on BP because Congress enacted laws aimed at compensating the public for harm caused by unreasonably risky shortcuts by industry;
• If liability were to match the Exxon Valdez tanker accident, Exxon’s equivalent payment of $152 per gallon in 2012 dollars would equate to a BP fine of over $31 billion;
• Criminal penalties should go on top of the compensatory natural resource fines;
• Several other laws were violated besides the Oil Pollution Act and Clean Water Act including the Marine Mammal Protection Act, the Migratory Bird Treaty Act, the Endangered Species Act, and the Outer Continental Shelf Lands Act;
• BP should be fined for the discharge of methane gas in addition to oil and dispersants; and,
• Natural resource damages from Deepwater Horizon are almost certainly going to be long term and far-reaching.

In concluding the letter, Schweiger wrote, “Offshore drilling in deep waters continues, and is expected to move into deeper and more dangerous waters.  If BP is allowed to avoid the civil and criminal fines it is responsible for, the federal government will have failed to achieve justice for injured parties and will have failed to deter future recklessness that puts our environment at risk.

“In summary, any settlement of the Deepwater Horizon litigation must take into account both the letter and intent of our environmental laws; the extent of the recklessness of the defendants; and the extent of the damage they caused.  To accept anything less would shortchange the many communities that rely on a healthy Gulf ecosystem.”

A thorough legal review of BP’s environmental penalty exposure appeared in a last February by NWF’s Vice President for Conservation John Kostyack, and is still highly pertinent for those wanting an attorney’s overview of the BP case.

Future implications of the BP settlement loom large for the environment and how natural resources are treated and viewed by society.  Should BP and its partners receive what is perceived to be a minor penalty for a massive accident, wouldn’t a slippery slope of declining future penalties ensue?  Moreover, if U.S. standards for environmental disasters were viewed as shoddy by other nations, wouldn’t it have tragic global natural resource ramifications in a world undertaking more extreme measures in remote areas to exploit natural resources?  Simply put, the BP Deepwater Horizon stakes pose a “must win” perception event for the green movement given the certainty of future accidents and debates about pollution fines.

In conclusion, the four most compelling reasons why there will be no BP settlement before the election are:

• Strident and organized opposition by Gulf states and local governments;
• Opposition to shortchanging the RESTORE Act by bill sponsors Senators Landrieu and Nelson;
• Risk of public outcry over large tax breaks to BP prior to the election; and,
• The urgent necessity environmental groups feel about making the BP fine appropriate so as to both respond to the Deepwater Horizon impacts and to keep U.S. environmental penalty standards from eroding.

So, as anxious as many are on all sides for a settlement, this author is confident that the “when” part of the equation looks to be after November 6.  But hopefully, not too much after.

 

Authored by: Lewis D. Solomon, Rinehart Professor Emeritus of Business Law at The George Washington University Law School

October 22, 2012

From a locality’s perspective, a successful water public-private partnership (P3) rests on the power of knowledge, information, and experience.

With respect to knowledge, a locality contemplating a P3 must ask: what’s the problem we’re trying to solve? Is it maintaining, upgrading, or expanding our water infrastructure? Are we trying to close a non-water related budgetary gap, for example, funding employees’ pensions? Or, is it a mix of water infrastructure and non-water related budgetary needs?

After identifying the problem, a community needs to gather information and expand its knowledge base. It must ask: what’s the best way to solve the problem? For instance, if its water system needs capital, can the locality raise the funds by borrowing, increasing rates, achieving economies by consolidating and/or regionalizing services across small neighboring communities, or tapping general funds? In view of the fiscal crisis facing many localities, general funds represent a highly unlikely capital source. The funds will not magically appear and another solution must be sought.

Although not a panacea, a long-term P3 arrangement may help provide a new funding source to meet the water infrastructure capital needs. A P3 may also offer other benefits, including increased efficiency, cost savings, improved compliance with environmental standards, and overcoming a lack of public sector managerial and technical expertise.

In going forward to implement a successful water P3, a locality needs experience and access to best practices. Although there’s no secret sauce, it can hire consultants and outside counsel. These experts build a community’s capacity for entering into a P3. They can advise on the bidding process, perform due diligence by investigating bidders, and help with contract negotiations and drafting. A carefully drafted, monitored, and enforced performance contract will meet possible objections, such as union agreements, rates, and service issues, but the community must bear the requisite transaction costs involved in implementation. Officials must also communicate to their constituents that the profits a private entity obtains from the P3 are not at the public’s expense.

Let’s take a specific example of a P3 currently being studied. Allentown, Pennsylvania faces the need to raise between $100 and some $250 million to meet its pension obligations, among other liabilities, and avoid cutting public services. Projections indicate that the municipality’s pension obligations will grow to $23 million annually by 2015, a four-fold increase since 2005. These obligations will engulf the city’s budget.

To solve its budgetary plight, among other options, Allentown is considering a long-term lease of its water and wastewater systems. Thus far, the city has retained a consultant to advise it on the P3 process, distributed a Request for Qualifications, and narrowed the list of potential bidders.

Building on their existing knowledge, gathering new information, and obtaining experience by hiring experts, communities throughout the United States can successfully implement water P3s. Private firms and potential investors should pay attention and see this as an opportunity to enter into win-win partnerships with localities.

Lewis D. Solomon, an emeritus professor at The George Washington University Law School, is the author of America’s Water and Wastewater Crisis: The Role of Private Enterprise (2011, paperback edition 2012). He is a Senior Advisor on Public-Private Partnerships, Infrastructure Finance & Development at The Horinko Group.

On the occasion of the 175th Anniversary of Alton, Illinois

As delivered by: Patrick S. McGinnis, Senior Advisor, Great Lakes and Mississippi River Systems

September 12, 2012

Thank you COL Hall for the invitation to join you and your Alton Guests aboard this always impressive vessel today.

I worked for the Corps for 32 years and retired 3 years ago. Since then I have been working with clients of a Washington, DC-based consulting firm, The Horinko Group, and serve on the board of the Meeting of the Rivers Foundation.

In this capacity, I am involved in an ongoing conversation with a variety of private and public institutions on how to reposition themselves strategically by embracing principles of sustainability to improve market performance.

I have a few remarks that I think are timely to the occasion and reflective of the long-standing collaborative spirit that exists between the Corps of Engineers and the City of Alton.

I’d like to begin with an interesting historical note…in 1837, the same year Alton was founded, Congress authorized the Corps to develop a plan for improving navigation on the Upper Mississippi River. This study was led by Robert E. Lee. Lt. Lee was an officer in the Corps and was stationed in St. Louis from 1837-1840. Some folks credit Lee with being at least symbolically the Corps’ first St. Louis District Engineer.

However, as a matter of record, The Corps’ St. Louis District Office wasn’t officially established until 1873, six years prior to establishment of the Mississippi River Commission. St. Louis’ first District Commander was I believe either COL William Reynolds who was in St. Louis from 1870-1873 or his successor COL James Simpson. In any event, the late 1830’s marked the beginning of an active Corps presence at St. Louis and the beginnings of a longstanding relationship with the newly founded City of Alton.

Now, lets fast-forward into the twentieth century. Many of us now associate the physical presence of the locks and dams on the upper river as the beginning of the Corps’ permanent presence in the upper river valley. I know I do, growing up in Pike County between the Mississippi and Illinois Rivers, and I know for my parents growing up through the Great Depression, the Corps was those locks and dams, and the Sny Levee District, and the CCC projects.

My parents would tell you the Corps put people back to work.

The 29-lock system that supports the Nine Foot Navigation Project stretches over 600 miles and was practically completed in one decade between 1930-1940. Old Lock and Dam 26, here in Alton, was completed in 1938 and named for IL Congressman Henry T. Rainey

In that first year of operation, Old 26 locked thru 1.4 Million Tons of commodities. In 1975, less than 40 years later, tonnage locked through Old 26 exceeded 55 million tons. That figure grew to exceed 75 Million tons at one point, an amount valued at $23 billion. About 60% of grain exported from the U.S. actually locks through here and Locks 27.

And, something else happened with the completion of the 29 locks…a system of slack water pools or lakes was created that became regionally crucial for recreational development and remain so today. Nature-based tourism on the upper river has become very big business and Alton is emerging as a gateway to millions of foreign and domestic leisure travelers wishing to experience and explore the Mississippi River first hand.

The navigation project drove the acquisition of thousands of acres of open space, which became immediately available for public use and enjoyment. Much of these lands are now included in the National Fish and Wildlife Refuge System. It is very likely that these lands would not have been acquired back in the thirties had it not been for the desire to open up the upper valley to shipping.

Lets fast-forward again to the 1980’s…the lock system has been in place 50 years and increased traffic and wear and tear are making the aging locks a bottleneck to efficiency and safety. Alton is now going to get a new locks and dam. At the time, it becomes the largest public works project in the U.S. and puts local contractors and the trades to work for over a decade.

In 1986, the Federal Water Resources Development Act also declares the Mississippi River a National Natural Treasure and a nationally important transportation corridor. The ’86 act also authorizes the funding of the auxiliary lock here at Mel Price, as well as the Upper Mississippi River System-Environmental Management Program, which over the next twenty-five years would improve the water management capacity and habitat value of thousands of acres of riparian public lands along the river.

In 1990, we witness a new wave of activity and interest happening along the river in this region, as communities like Alton begin to make efforts to reconnect with the river spruce up their waterfronts. Construction of the new locks and dam was well underway and would become operational in 1990.

The Corps would establish a new office here in 1989, which I was charged with developing. We named it the Riverlands Area Office. Within 12 months, we reclaimed 3,700 acres to a bottomland permanent prairie complex and completed the Riverlands Migratory Bird Sanctuary just across the river.

The magnificent new Clark Bridge here at Alton was also under construction. Alton’s waterfront gets a new floating gaming casino, the Argosy. The 1993 flood came and went. The Corps was in negotiations with Alton on the Riverfront Park redevelopment, which would include a state-of-the-art Marina concession operation based on the three party public-private partnership. The Vadalabene Bike Trail would be completed connecting St. Louis to Pere Marquette Park running right through the City of Alton. The Corps completes the new regional Visitor Center at Mel Price called the National Great Rivers Museum, using an innovative public-private partnership to push it through. Many Alton residents and business owners served on the Museum Citizens Advisory Committee.

The Lewis and Clark Historic site would get a new state of the art interpretive center just downstream at Hartford. Just upstream of Alton Raging Rivers Water Park opened. Later, we would land the National Great Rivers Research and Education Center and again community leaders stepped up to make this happen. The Meeting of the Rivers National Scenic Byway would be officially dedicated.

The Berm Highway portion of Route 143 in front of Mel Price Locks and Dam would get a new name, The River Heritage Parkway. The National Audubon Society would commence local programming at the recently completed Audubon Center at Riverlands, just across the river from Alton. Audubon’s Brand would instantly boost visitation to the site.

The Corps’ Museum at Mel Price and the Sanctuary across the river are now seeing 300,000 visitors each year. Tri-City Port would get a new name, America’s Central Port. The Corps would complete the Mississippi River Water Trail, which was recently recognized as only the 2nd National Water Trail by Interior Secretary Salazar. This trail supports the fastest growing outdoor sport, kayaking.

A focused effort to market the region for nature-based tourism and as a tourism destination is led by the Alton Convention and Visitors Bureau. These efforts begin building Alton’s and the Riverbend’s brand as a destination and Gateway to the Mississippi River.

There have been major highway and intermodal improvements along the way and more to come with high-speed rail and Alton’s proposed Intermodal Station. There is a major effort underway to address and update flood protection over the entire metro east region.

Many, many change drivers have brought us to where we stand here today. And where are we?

We are hopefully coming out of a prolonged and deep recession, we have a huge deficit and unemployment is high. All this creates a great deal of uncertainty for everyone.

Agencies in the federal government are going through major transformations to address the likelihood of no more earmarks. The Corps is trying to transform itself to better address the challenges of a modern society and how it can best serve in an era where federal resources will likely be heavily leveraged with private capital.

Regionalism is driving regional planning and an interest in identifying regional strengths referred to as clusters and regional centers of excellence. The need for resource leveraging and cooperation is driving regionalism and regional planning, but it is also driving what folks are calling P3s, public-private partnerships, to encourage private investment on many fronts that traditionally have been publicly funded.

All of this is driving a new era where top-down command and control models of governance are giving way to bottom-up grassroots approaches driven by greater transparency, broader civic engagement, and community-based problem solving.

In the midst of this uncertainty, I would argue that there is also opportunity for agencies like the Corps, for the State of Illinois, for Madison County, and for the City of Alton. And, while others may be resisting change and confounded by this rapid change, I believe those that think and act boldly may be able to seize the moment.

Alton and the Corps are in a very interesting place. More and more Americans are seeing issues involving water as matters of national security. This is also the case around the world and it will influence manufacturing, agricultural irrigation, ethanol production, hydropower, household uses of water, and a trend toward low impact development in places like Alton.

In October, representatives of our local National Great Rivers Research and Education Center will join members of the Corps and the State Department to travel to Southeast Asia to advise and cooperate with people of the Mekong River Valley and the Mekong River Commission on issues confronting them as they seek to sustain their Mekong River and the quality of life of millions of southeast Asians that depend on the Mekong.

More and more domestic and leisure travelers are seeking out water-based opportunities for recreation at what are being branded as nautical or maritime destinations. You may not have known this, but the Corps is the number one federal provider of water-based recreational experiences among all federal land managing agencies.

Panama Canal expansion has many looking at inland port expansion and improved intermodal logistics.

We now have a National Maritime Highway which Transportation Secretary LaHood is spearheading, and we are sitting on what is called the M-55 Segment of that system.

At the same time, this Administration is attempting to reconnect Americans to their Great Outdoors. Access to rivers and celebrating the heritage of our great rivers is a big part of that effort, as we sit here at the confluence of three of our nation’s most iconic rivers. It is for this reason, that President Obama sent his Assistant Secretary of Civil Works, Jo Ellen Darcy and Secretary of Interior Salazar to Alton this time two years ago to listen to community leaders about what could be done to better reconnect Americans to rivers like the Mississippi.

Locally, we have over 20,000 acres of public open space along the river, on Pool 26 alone. Every acre of it is within 45 minutes of downtown St. Louis.

In addition to the Corps land holdings, Fish & Wildlife Service has two major national refuges; the State of Illinois has one of its flagship parks at Pere Marquette. We now also have a Metro East Regional Park District.

EPA and USDA have launched a Healthy Watershed Initiative focused on the water quality of the Mississippi River to help ensure our common water future.

Many communities are struggling to overcome stormwater management challenges and combined sewer overflows.

Farmers are more actively managing nutrient loss from their fields that together with municipal waste is threatening the health of the Gulf. This drought has actually shrunk the dead zone in the gulf significantly due to reduced run-off and incidence of combined overflows.

HUD, DOT, and EPA have launched a regional sustainable community planning effort to build more livable communities. In fact, the St. Louis region just received a $4.7 M planning grant, which includes Alton and other Madison County communities.

Many NGOs are placing greater focus on the Mississippi. The National Audubon Society is attempting to call greater attention to the importance of the river for birds, people, and commerce, as is the Nature Conservancy and others. These groups understand the river possesses a wealth of natural capital. It is this natural capital that will grow tourism and help sustain riverside communities like Alton.

A group called the Northeast-Midwest Institute, in cooperation with the Walton Family Foundation, has launched what they are calling the Mississippi River Cities and Towns Initiative. In just a few months, 35 mayors of Riverfront communities have joined this effort including Mayor Slay of St. Louis and Alton’s Mayor Hoetsch. The Executive Committee for this group consists of one mayor leading each of the ten state delegations. Mayor Hoetsch is leading the Illinois group and was actively recruited to accept a seat on the Committee. This group will conduct its first planning meeting in St. Louis in a few weeks (September 12-14).

Another group will also convene in St. Louis in September. This initiative is referred to as America’s Great Watershed Initiative, and it involves an effort to call greater attention to the economic and environmental health and future of the Mississippi River Watershed and its people and communities.

There is a new emphasis and spotlight being placed on our nation’s water resources and the Mississippi River and its iconic stature is not lost on others.

For several years when asked what’s the next “big idea,” I have said repeatedly said, and several in the room today can attest to this, “it’s the water, it connects everything.”

But, it’s really the nexus of water, energy, and food security. These systems have to remain resilient. And, most urgently, how we approach all this must be about putting people to work in well paying jobs.

In May 2013, River Network will bring its national membership to St. Louis for the first time for its annual national River Rally to lend its voice to promoting the vitality of the Mississippi River. This rally will likely draw over 700 participants and they will be here for almost a week.

So, where does all this activity leave us?

How do we connect all these dots strategically and reposition ourselves boldly to take advantage of this opportunity to possibly rebrand our communities, and the Corps, at a time when many others are hunkered down trying to just weather the storm?

How do we muster a convergence of effort across organizations?

Can we? Can we take advantage of our unique connection to water?

At a time of great uncertainty, how can we use this opportunity to create some predictability about where we are going so that investors know this region is unique and open for business?

This is a time for great vision!

As we celebrate these last 175 years of progress and the cooperation between the Corps and the City of Alton and honor Alton on its 175th anniversary…

And, as we look ahead, one question looms…

How do we pull all this energy and good intention about water, rivers, commerce, livable communities and rural landscapes into some common strategic direction and shared goals to carve out Alton’s place for the future?

The Corps has a motto “essayons” which means, “let us try.” But here, at this time, in this place, rather than trying, perhaps our motto should become, “let us begin.”

Let’s come together and work with our Mayors and Councils, community leaders, our County Chairmen, our business community, our state and federal legislators, and our District Commanders, and let’s seize this moment.

Perhaps, in all this uncertainty, we can forge some certainty about who we are, reaffirm our sense of place, and reveal to others where we are headed.

That type of certainty is good for business.

Thank You.

Authored by: Tim Richardson, Independent Consultant

August 17, 2012

On June 28, the House of Representatives voted 373-52 to pass the Transportation Bill.  H.R. 4348 assures current federal highway and transportation infrastructure project funding and authorizes those programs until the end of fiscal year 2014.  The looming June 30 threat of the cut-off of highway funding without passage of a bill motivated Congress to legislate on a bi-partisan basis and get it done. 

The Transportation Bill is the 112th Congress’ most impressive success, but it received scant media attention because it passed the same day the Supreme Court upheld the Obama Administration’s Affordable Care Act by a 5-4 vote.  The following evening, Washington, DC was hit by violent winds, thunder and lightning which knocked out electric power for nearly a million people, many of whom were in the dark until after the 4th of July.

Therefore, it bears noting – the Transportation Bill passed and was signed by the President on July 6th.

Readers of The Horinko Group’s May newsletter knew that the Transportation Bill would likely include the RESTORE Act, designed to allocate 80% of the Clean Water Act fines from the Deepwater Horizon oil spill.   Happily, it did.  The RESTORE Act begins on page 187 of H.R. 4348 and continues to page 207.  The May 2012 issue of The Horinko Group’s newsletter summarized the key points of the RESTORE Act. 

What follows is a reader’s guide to the eight sections of the RESTORE Act in the Transportation Bill labeled Subtitle F “Gulf Coast Restoration” that is now law.

RESTORE Act is Aptly Named

Section 1601 provides the subtitle of the bill as “Resources and Ecosystem Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012” (RESTORE).  The catchy and lengthy title reveals congressional intent that there are wide ranging purposes for which Deepwater Horizon Clean Water Act fines can be used.  The broadness of the spending categories guarantees a lively public debate about RESTORE’s priorities and outcomes.  For example, there will be disagreements over how much of RESTORE goes to economic purposes and how much for ecosystem restoration.  Both outcomes are authorized and there may be enough money to satisfy both aims.  Some proposals will likely offer hybrid blends of economic and environmental outcomes such as water and sewer infrastructure projects that create jobs and allow for future development, but also help “Restore the Gulf” by delivering cleaner water reaching the Gulf of Mexico from terrestrial watersheds. 

Bottom Line: Congress was clear; RESTORE is a come one, come all invitation for economic and environmental projects.

Treasury Secretary to Have Significant Oversight Clout

Section 1602 establishes a trust fund known as the Gulf Coast Restoration Trust Fund (Trust Fund) and places it at the U.S. Treasury “consisting of such amounts as are deposited in the Trust Fund under this Act…The Secretary of the Treasury shall deposit…an amount equal to 80 percent of all administrative and civil penalties paid by responsible parties…in connection with the explosion on, and sinking of, the mobile offshore drilling unit Deepwater Horizon pursuant to a court order, negotiated settlement, or other instrument.”  This section goes on to say the funds are available without further appropriation by Congress and are to “remain available until expended without fiscal year limitation.” 

In short, Congress is now out of the RESTORE picture forevermore except for getting annual reports on RESTORE Act expenditures and outcomes.  Further, the funds to be deposited in the Trust Fund have gained the coveted status of “no year money.”  It bears repeating: Congress has no further role in appropriating or allocating RESTORE proceeds from the Clean Water Act and the money will stay in the Trust Fund until it is all spent.  RESTORE funds will be outside of future federal appropriations or rescissions.  They will not be impacted by the across the board ‘Sequester’ in January 2013 or other budget cuts.  It would take a highly unusual congressional action to repeal RESTORE or somehow sequester these funds back into the general treasury.  This outcome was a major success by the Gulf States’ congressional delegations that deserve to take a bow, especially Louisiana’s. 

The section also places the Secretary of the Treasury “in consultation with the Secretary of Interior and Secretary of Commerce” in a very strong oversight role throughout the Act with the responsibility to deposit, expend, and audit the expenditures.  

Bottom Line: Although the Trust fund is protected from congressional meddling (unless RESTORE is repealed), it is nonetheless a federal account and the Secretary of the Treasury serving at the pleasure of the President of the United States has significant oversight authority therefore the President is ultimately still in charge of the federal role under RESTORE.  Interior and Commerce will be consulted but Treasury wields the hammer.

How 95% of RESTORE Funds will be Spent

Section 1603 is the “meat” of RESTORE and provides key definitions, ascribes responsibilities, establishes important geographic boundaries.  The section allocates 95% of the Deepwater Horizon Trust money into three accounts deciding how much can be spent, by whom, and for what purposes.  

After defining several terms such as ‘comprehensive plan, chairperson, Gulf Coast Ecosystem Restoration Council, Gulf Coast Region’ the bill moves into sixteen pages that outline and define the three spending categories of RESTORE and re-emphasizing the point that the Gulf Coast states are to be the primary area, if not the exclusive area for funding projects.  The most important definition prescribing where funds can be spent says “…the term Gulf Coast region means –

(A) in the Gulf Coast States, the coastal zones (as that term is defined in section 304 of the Coastal Zone Management Act of 1972 (16 U.S.C. 1453));

(B) any adjacent land, water, and watersheds, that are within 25 miles of the coastal zones described in sub-paragraph (A) of the Gulf Coast States; and,

(C) all federal waters in the Gulf of Mexico…”

The term ‘Gulf Coast State’ means “any of the States of Alabama, Florida, Louisiana, Mississippi, and Texas.”  The reader should note that each of these states have clearly defined coastal management zones, but differ greatly in size.  For example, Alabama’s coastal zone extends inland from the Gulf and Mobile Bay to the continuous 10-foot elevation contour (above sea level) in Baldwin and Mobile Counties.  In other words, parts of two counties are in the coastal zone.

Under a narrow interpretation of RESTORE, Alabama would have to spend all the RESTORE funds it receives within 25 miles of the 10-foot elevation contour inland from its two Gulf coast counties.  However, if the “watersheds” restoration goal in the bill language means that watersheds within the official coastal zone (plus 25 adjacent miles) are eligible as areas in which to invest in, then shouldn’t most of the state draining into Mobile Bay via the Alabama, Tombigbee, Mobile, and Tensaw Rivers be eligible for RESTORE Act funds? 

Florida doesn’t have that problem because the whole state is within its approved coastal management zone. 

In Mississippi, the three southernmost counties, Hancock, Harrison, and Jackson counties are in the coastal zone and RESTORE would allow an additional 25 miles beyond the northern boundaries of those three counties under a narrow interpretation of the definition of “watersheds” in the RESTORE Act.  But using a broad “watersheds” interpretation would open the whole state to RESTORE funding because all of the counties bordering the Mississippi River and its tributaries, the Tombigbee River, Pearl River, and other rivers draining to the Gulf would qualify as being within the spill region and eligible for funding.

Louisiana’s coastal zone is roughly 16 to 32 miles above the Intracoastal Waterway running from the Texas-Louisiana border then follows highways through Vermilion, Iberia, and St. Mary’s parishes, then dipping southward following the natural ridges below Houma, then turning northward to take in Lake Pontchartrain and ending at the Mississippi-Louisiana border.

Texas’ 18 Gulf of Mexico coastal counties are all in its coastal management zone.  Under a narrow interpretation of the RESTORE Act regional spending requirement, the Texas RESTORE investment boundary would be those 18 counties’ landward border, plus 25 miles of adjacent land inland from those counties.  Parts of Houston and parts of McAllen are in that zone.  Under a broad watershed-defined spill region, funding could be spent up all the major rivers in the Lone Star state and their tributaries.

So, clearly, the geographic boundary of where funds are eligible to be spent under the RESTORE Act is pivotal to visualizing the outcomes of RESTORE. 

Following the critical definitional part of Section 1603, the RESTORE Act describes three separate funding categories with very different allocation formulas and decision-making systems.  

1. State Allocations

   The first category of spending is called State Allocation and Expenditures and “of the total amounts available in any fiscal year from the Trust Fund, 35% shall be available…to Gulf Coast States in equal shares for expenditure for ecological and economic restoration of the Gulf Coast region.”  Therefore, under this section of the Act each of the five states will receive 7% of the total amount available in the Trust Fund that can be spent on a broad range of eligible activities. 

   Each state has a separate decision making system presumably adopted by Congress at each state’s request.  Alabama and Florida have council structures with counties and mayors holding important decision-making roles along with the governor and state agency officials.  Louisiana has a single Coastal Protection and Restoration Authority, Mississippi will utilize the Mississippi Department of Environmental Quality and Texas will rely on the Governor or his appointee.

   While RESTORE provides each state with wide latitude in its choices of restoration investments in drawing up their individual plans, they are all under transparency requirements, including the requirement of adequate public input and all are subject to auditing by the Secretary of the Treasury.  If expenditures by states are deemed to be for purposes outside RESTORE’s intent, the offending states will have to reimburse the Trust Fund and no new funds will flow to them unless they meet the transparency, planning and public input requirements. 

   This transparency, “state autonomy with federal oversight” feature of RESTORE will likely get tested, if not testy, depending upon Gulf State attitudes toward the federal government and depending upon whomever the Secretary of the Treasury happens at a given time.  But who knows, just as in the consensus that developed to pass the Transportation Bill, “peace may break out” among state and federal officials in the unfolding of RESTORE?  In the case of Exxon Valdez restoration the State of Alaska and the federal government overcame often fractious relations on many issues to work in harness on oil spill restoration to wide acclaim.

2. Federal and State Council

   A second category of spending totaling 30% of funds available in a given year will be invested by a Federal and State Council carrying out an approved Comprehensive Plan.  Members of the Council “shall consist of the following members, or in the case of a Federal agency, a designee at the level of the Assistant Secretary of the equivalent,” the Secretaries of Interior, Agriculture, Army, Commerce, the EPA Administrator, the Head of the Coast Guard and the governors of all five states.  The chairman will be a federal official nominated by the states and appointed by the President.

   The Council must have a comprehensive plan, each state must have a comprehensive plan for using this category of money, and they must report to Congress and operate under the audit power of the Secretary of the Treasury.  The Council has the same broad menu of investment options for environmental purposes but not for economic purposes as I read the Act regarding this 30% allocation.  The Council’s comprehensive plan must be published “not later than 180 days after the date of enactment of RESTORE (which means by January 2, 2013).  The Council “shall develop the initial Comprehensive Plan in close coordination with the President’s Gulf Coast Restoration Task Force.”

   The Council’s comprehensive plan closely resembles the Exxon Valdez Oil Spill Trustee Council Comprehensive Restoration Plan model and funding allocations for specific projects from this 30% kitty of available funds will be ranked and prioritized according to which projects “make the greatest contribution to restoring and protecting the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches and coastal wetlands of the Gulf Coast region, without regard to geographic location within the Gulf Coast region.” 

   This approach is designed to maximize projects offering the best ecological outcomes.  Various states will be winners and some will be losers in this competitive process.  In Alaska, biologists were put in charge of setting the priorities that state and federal agencies voted on, and it worked well. 

   The following limitation is placed upon the federally-led Council under RESTORE, “The Council, a Federal agency, or a State may not carry out a project or program funded under this paragraph outside the Gulf Coast region.”  Hence, the “watersheds” definitional question raised above arises here as well, yet Congress reemphasized the Gulf Coast prioritization they wanted in the RESTORE Act with this limitation language.

3. Restoration Impact Allocation

   The last of the three spending categories, Oil Spill Restoration Impact Allocation, will also come under Council control and uses 30% of available funds and is weighted for allocation based on a formula “established by the Council” in order to invest in areas that experienced the most oiling measured by miles of oiled coast, and that had the greatest human and economic impacts based on population density near the oiled coast.  This formula clearly favors Louisiana.  There is special language on Florida that prioritizes seven Gulf Coast counties over the rest of the counties in the state, all of which are in the coastal management zone.

   These impact-related funds will have their own planning requirements placed upon states that receive the funds and may include some economic investments.  However, there is a limitation that not more than 25% of this 30% Impact Allocation kitty can be dedicated for infrastructure projects.  Presumably, 75% of the impact-related funds need to be ecosystem focused but it may remain to be seen once the process gets underway.

   There are other aspects of the use of RESTORE Act funds defined in Section 1603, including the states’ ability to use those funds as non-federal matching funds for other federal projects (e.g. highways, ports, levees, etc.) but the availability of the RESTORE Act funds will not create a competitive ranking advantage for the Gulf States compared to non-Gulf states.  In short, the five Gulf States won’t gain competitive ranking benefits in federal programs over the other 45 states by virtue of having access to, and using RESTORE funds to meet non-federal match requirements.

   The last part of Section 1603 sets up transfers from interest earned on available Trust funds for use in two specific categories.  The first is for “Gulf Coast Ecosystem Restoration Science, Observation, Monitoring, and Technology” projects that serve the goals of RESTORE and for “Centers of Excellence” that will offer research grants authorized in section 1605 of the RESTORE Act.  Each of these spending categories gets their own direct funding allocation, but will also split the annual interest earned on unspent funds covered in Section 1603.

Ecosystem Science Funding will be Included

Section 1604 of RESTORE establishes a Gulf Coast Ecosystem Restoration Science, Observation, Monitoring, and Technology Program.  This funding category will receive 2.5% of the total amount made available for each fiscal year in the Trust Fund plus half the interest on unspent Section 1603 funds.  All the research focus allowed in this section of RESTORE will be for environmental resources with a significant emphasis on establishing baseline information on fish stocks in the Gulf of Mexico.  Presumably birds and marine mammals will receive baseline monitoring funds as well.  A plan for this spending category must be ready within the same 180-day timeframe as the Section 1603 funds.

Centers of Excellence

Section 1605 of the Act creates Centers of Excellence Research Grants using the remaining 2.5% of the RESTORE Act Trust Fund plus half the annual interest from unspent Section 1603 funds.  Each center of excellence will focus on science, technology and monitoring in “at least one of the following disciplines: coastal and deltaic sustainability, restoration and protection, including solutions and technology that allow citizens to live in a safe and sustainable manner in a coastal delta in the Gulf Coast Region.” 

Coastal fisheries and wildlife ecosystem research and monitoring in the region, offshore energy development research, sustainable economic development in the region and “comprehensive observation, monitoring, and mapping of the Gulf of Mexico” are all eligible funding categories.

RESTORE Won’t Supersede Other Federal Law

Section 1606 simply states that no specific language or provision in RESTORE will supersede or otherwise effect “any other portion of Federal law, including, in particular, laws providing recovery for injury to natural resources under the Oil Pollution Act of 1990.”

Federal Land Acquisition Requires Willing Sellers and Governor’s Okay

Section 1607establishes a restoration activity limitation that “funds made available under this subtitle may only be used to acquire land by purchase, exchange or donation from a willing seller.”  Finally, in a tweak of language impacting federal land acquisition this section states, “None of the funds made available under this subtitle may be used to acquire land in fee title by the Federal Government unless –

1. The land is acquired by exchange of donation; or,
    
2. The acquisition is necessary for the restoration and protection of the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, and coastal wetlands of the Gulf Coast region and has the concurrence of the Governor of the State in which the acquisition will take place.

Federal Oversight will be a Constant

Section 1608 repeats the mantra of federal oversight throughout RESTORE, concluding with this statement, “The Office of Inspector General of the Department of the Treasury shall have authority to conduct, supervise, and coordinate audits and investigations of projects, programs, and activities funded under this subtitle and the amendments made by this subtitle.”

What’s Next?

Each of the states has already begun their planning process on how to allocate funds they will receive from the 35% category in Section 1603.  For the remaining 60% of funds under the Council, the first order of business is to name the council members and to create a chairperson, which has not happened as of this writing, nearly six weeks after RESTORE became law.  The 180-day comprehensive plan adoption placed on the Council directed funds is now approaching 130 days, so some nervousness about complying with the planning requirement of RESTORE is likely.

Other crucial items include obtaining RESTORE Act funds either through a consent decree settlement over the Clean Water Act fine with BP and its partners, or the beginning of the trial in January 2013 in New Orleans. 

Speculation about a settlement was lively during May and June but has died down.  One source said that the time between the political party conventions might be the last chance for a settlement to be reached before the election.  The time between the election and the January trial is perhaps the most likely point for a settlement. 

It is worth noting that BP is not mentioned in the RESTORE Act.  Instead, the bill refers to “…civil penalties paid by responsible parties…in connection with the explosion on, and sinking of, the mobile offshore drilling unit Deepwater Horizon.”  This language means that Congress did not try to sort out blame for the accident.  BP has already paid $1 billion under the Natural Resources Damages Act, but it has sued its partners Transocean and Halliburton over liability for the disastrous failure of the well.  Readers interested in exploring this legal liability topic can visit the website for the most comprehensive discussion of how the disaster occurred and how liability effects the multiple companies involved.

The range of fines is another critically important topic under either a settlement or trial outcome scenario.  Based on a calculation of the amount of oil spilled, the figure of $5 billion is used for the minimum amount responsible parties will pay.  If that is the case then RESTORE directs 80% of that, or $4 billion, to the above purposes.  If negligence is found in trial, the award figures of $17 billion and $20 billion have appeared in the media.  One London-based source says that BP may have utilized the Financial Times story earlier this year citing a “$15 billion settlement offer” as an attempt to set expectations for the likely size of the settlement and also said that BP will not admit to criminal negligence under a settlement scenario. 

RESTORE only effects civil penalties and there could well be criminal penalties.  One source reported that BP’s (and/or responsible parties’) exposure under the maximum civil and criminal penalties under all the law’s broken could reach a jaw-dropping figure of $160 billion.

Authored by: Roger Ballentine, President, Green Strategies and Brian Spak, Senior Director, Green Strategies

August 17, 2012

Much has been made in the media and the halls of Congress about a number of Clean Air Act regulations which, due to court orders, statutory schedules and Obama Administration efforts, were likely to hit the electric generation sector more or less simultaneously. Critics of the rules asserted that this concurrent set of standards governing air toxics, particulate matter, haze, greenhouse gases and other pollutants were a “train wreck” that threatened grid reliability and consumer pocketbooks. Proponents argue that industry has long known these rules were coming, and that the standards are both critical to public health and reasonable. The debate about the costs and benefits of the new air rules rages on.

Most objective observers believe, however, that the fundamental weakening of natural gas prices is as much or more of a threat as any new clean air regulation to the nation’s fleet of coal plants. New EPA greenhouse gas regulations mandate CO2 limits on new generators that a coal plant could only meet if it was paired with a carbon capture and storage facility, but low gas prices for the foreseeable future are independently causing gas to be favored over coal for new generation. Add state-based policies requiring increased use of renewable energy and the decreasing cost of renewable generation to the low gas prices and the air regulations, and the precise cause leading to the significant overhaul of the nation’s electricity generating mix is difficult to sort out.

But while the air rules have garnered the most attention in Congress, new rules under the Clean Water Act (CWA) have also been cited as a factor in a feared “train wreck” for the electric generation sector. Not long ago, for example, industry feared that an upcoming new standard for cooling water intake structures at fossil and nuclear plants would add considerable burdens. However, EPA has since proposed stringency levels with projected costs that are actually more than 80 percent less expensive than originally predicted by industry.

There does remain, however, another CWA rule that has potential to have significant impact. New effluent limitation guidelines (ELGs) – national, technology-based regulations EPA establishes to reduce pollutant discharges directly to U.S. waters and indirectly to municipal wastewater treatment plants – are aimed at addressing the impacts on water systems that can result when (particularly coal-fired) power plants reduce air-borne pollutants. EPA and the environmental community contend that pollution problems are not solved if we end up essentially moving pollution from the air to the water.

Though EPA is mandated by the CWA to review ELGs every five years, the ELGs in force today for steam electric power plants were promulgated in 1982. In a 2009 study, EPA concluded that current regulations have not kept pace with the additions of wet flue gas desulfurization systems (i.e., wet scrubbers) at coal power plants to control SO2 emissions. While scrubbers have been effective at reducing air pollution from coal plants, most of that pollution has simply been moved from the air to the water, and existing ELGs do not address the arsenic and mercury-laced wastewater wet scrubbers create. In 2010 roughly 51 percent of total U.S. coal-fired capacity (more than one-tenth of overall U.S. capacity) used wet scrubbers, and EPA expects the amount of capacity served by coal plants with wet scrubbers to more than double by 2025.¹

Following a lawsuit filed by environmentalists in 2009 and pursuant to subsequent consent decrees, EPA agreed to propose revised power plant ELGs by November 20, 2012 and to finalize the rule by April 28, 2014. As EPA develops its proposed rulemaking, a draft CWA permit EPA issued in September 2011 on the Merrimack Station coal plant in New Hampshire is being viewed as a test case for the agency’s ELG rulemaking. The Merrimack Station has been the primary focus of efforts regarding ELGs, because, as the primary industry group interested in the issue, the Utility Water Act Group (UWAG), stated in their comments, “every company subject to the national [ELGs] may be affected…[because] the Merrimack permit and the national rulemaking…are intertwined and use the same data.”

In the draft permit, EPA Region 1 required the Merrimack plant to biologically treat effluent from the plant’s wet scrubber in addition to physical and chemical treatment technology requirements.² UWAG called the ELGs for wastewater “arbitrary and capricious”, and argues that flawed underlying scientific data confuses the analysis and results in proposed technology that is more expensive than necessary.³ Environmentalists also disagree with EPA’s draft permit, stating the while biological treatment is an effective way to reduce pollutants, EPA should require Merrimack to install vapor compression evaporation technology, which completely eliminates pollutants in wastewater from wet scrubbers (and costs more).⁴

Action on ELGs has not been limited solely to the Merrimack Station. Environmentalists have sued EPA to compel them to begin issuing CWA permits for other coal plants that use wet scrubbers, and the UWAG has attempted to intervene on EPA’s behalf on a number of lawsuits related to ELGs. The next major action – EPA’s proposed rulemaking on ELGs – is not scheduled until after the election.

We will certainly continue to see much ink spilled in the near term about the costs and benefits of coal-fired power and the impact of new air regulations. But the EPA’s eventual decision on ELGs will not just add to the dockets of federal courts, it could end up being a major factor in the viability of some generation assets.

¹ EPA, Steam Electric Power Generating Point Source Category: Final Detailed Study Report, October 2009. Available at: http://water.epa.gov/scitech/wastetech/guide/upload/finalreport.pdf
² EPA Region 1 is issuing the permit because New Hampshire lacks delegated permitting authority.
³ The Utility Water Act Group, “Comments of the Utility Water Act Group on Proposed NPDES Permist for the Merrimack Station in Bow, New Hampshire: NPDES Permit No. NH 0001465,” February 28, 2012. Available at: http://cleanenergyreport.com/iwpfile.html?file=mar2012%2Fepa2012_0447a.pdf
⁴ Defenders of Wildlife, the Sierra Club, Earthjustice, Environmental Integrity Project, and the National Wildlife Federation, “Comment on Draft National Pollutant Discharge Elimination System (“NPDES”)
Permit No. NH0001465 for Public Service Company of New Hampshire’s (“PSNH”)
Merrimack Station,” February 28, 2012. Available at: http://cleanenergyreport.com/iwpfile.html?file=mar2012%2Fepa2012_0447d.pdf

The Horinko Group and Green Strategies will continue tracking issues affecting the electricity grid and keep our networks apprised of developments. We intend to jointly explore the environmental and economic impacts of pending EPA regulations, particularly related to ELGs, through a webinar currently being planned for late 2012. Stay tuned as additional information becomes available.

Authored by: Cathryn Courtin, Student Scholar, THG

July 3, 2012

Few certainties exist in the growing debate on hydraulic fracturing (or fracking) that has been circling media, government, academic circles, and activist groups. A lack of empirical evidence has resulted in polarized, often opinion-driven discussions. However, stakeholders on both ends of the spectrum tend to agree on two points.

First, the access that hydraulic fracturing and horizontal drilling technologies have provided to shale and other unconventional gas reserves, once too expensive and difficult to extract, is and will continue to be transformative to U.S. and global energy markets. In 2010, this industry supported 600,000 jobs within the United States, contributed $76.9 billion to the gross domestic product (a figure expected to triple by 2035), and continues to reduce consumer costs of natural gas and electricity. Hydraulic fracturing and the related processes that have enabled this kind of economic growth are here to stay.

The next point of consensus is that a host of environmental and health issues associated with hydraulic fracturing must be better analyzed and addressed as natural gas development scales up. More than 11,400 wells are drilled each year, and from the initial phase of well construction to the end phase of waste disposal, there are unintended consequences to air, water, and climate. The pace at which the industry is growing has made it difficult for pragmatic regulation, permitting, and enforcement to keep up. Such oversight must be implemented in a streamlined, uniform manner, based on the strongest available science, while continuing to allow safe expansion of production of this important domestic resource.

The U.S. has begun to address this oversight challenge on a national level with EPA’s first set of federal regulations for air pollution associated with oil and gas drilling. Announced on April 17, the rule requires drilling companies to capture ozone- and smog-forming volatile organic compounds (VOCs), methane, a potent greenhouse gas, and cancer-causing chemicals like benzene.

The process to do this, known as a “reduced emission completion”, or “green completion,” is already in use by a number of industry leaders and required in Wyoming, Colorado, and two cities in Texas. EPA estimates that implementing green completions uniformly through gas drilling operations will reduce harmful emissions by 95%, reduce methane emissions by an amount equivalent to 19-33 million metric tons of CO2, and save industry $11 to $19 million each year from the capture and sale of otherwise wasted natural gas.

On June 19, the U.S. Senate Committee on Environment and Public Works held a hearing to review the new standards. Wyoming Department of Environmental Quality’s Director, Mr. John Corra, affirmed that in Wyoming, the rules have brought reductions in air pollution without hindering growth in gas production. He cited figures from Wyoming where air regulations were tightened in 2008. Since then, the number of wells has increased substantially, gas production has increased by 8.3%, and emissions of VOCs were reduced by 21% and nitrogen oxides by 17% from late 2009 through 2011.

EPA Assistant Administrator for the Office of Air and Radiation, Ms. Gina McCarthy, made clear in her testimony that EPA modeled the regulations on prior experiences and lessons learned from states and companies already employing green completions. EPA solicited further input from all stakeholders during a public comment period and three public hearings. In response to feedback, EPA made a number of changes to promote greater flexibility, including a two-year compliance period providing companies with additional time to implement necessary technology upgrades.

State officials and industry representatives in the hearing also emphasized the need for regulations to be tailored to varying geologic conditions, different well types, and other conditions unique to each state. Furthermore, Mr. William Allison, Director of the Air and Pollution Control Division of the Colorado Department of Public Health and the Environment, stressed the need for “continued and adequate Congressional funding to ensure that EPA and the states can effectively implement these important regulations.”

The hearing also addressed concerns regarding the science behind the regulations. Devon Energy’s environmental manager, Mr. Darren Smith, challenged EPA’s estimates of methane emissions from fracturing related processes, noting that EPA’s numbers were based on data from only three drilling companies and did not align with data that Devon and others have submitted. Smith’s primary concern, however, was not what these numbers meant as far as complying with the new standards, but that overestimates are contributing to flawed policy research.

Assistant Administrator McCarthy defended that EPA used the best available data in its estimates. However, as with many issues surrounding hydraulic fracturing, the data is insufficient. A new Environmental Defense Fund study in partnership with the University of Texas and industry is underway to gather additional empirical data and is expected to shed light on the discrepancies underlying the debate. A regulatory framework that enables and encourages the incorporation of new scientific data as it becomes available is another critical element to this evolving process.

Mr. Allison added that while there is bound to be uncertainty on any emission estimates, “regardless of what the right number is, we think that these controls have demonstrated effective reductions in air pollution,” and the new rules are “an important tool to complement the unprecedented success and growth of America’s oil and gas industry.”

While all parties involved in the hearing identified areas where the regulations could be improved, the Committee’s Chairman Senator Carper (D-DE) concluded the session by remarking on the hearing’s noticeable lack of disagreement. He noted that EPA had used a “fair measure” of common sense and done an excellent job in consulting with states and industry to inform these standards.

Where the technological know-how and sufficient data exist, there is a need for a similar collaborative push towards addressing other environmental issues tied to this rapidly expanding industry. As concerns grow daily over the disposal of wastewater from fracking operations, the potential contamination of groundwater and surface water, the depletion of groundwater supplies from large volume withdrawals, and seismic activity attributed to underground injection of wastewater, EPA must continue to work proactively with industry, state governments, and other stakeholders to ensure new policies and regulations are promulgated in a collaborative and adaptive manner, while continuously seeking out the best available data. The domestic economy, environment, and human health all stand to benefit.

Sources:

The Economic and Employment Contributions of Shale Gas in the United States. IHS Global Insight. (2011).

“Oil and Natural Gas Air Pollution Standards.” U.S. Environmental Protection Agency.

Review of Recent Environmental Protection Agency Air Standards for Hydraulically Fractured Gas Wells and Oil and Natural Gas Storage: Hearing before Subcommittee on Clean Air and Nuclear Safety of the Committee on Environment and Public Works, U.S. Senate, 112th Cong. (2012).

Authored by: Sean McGinnis, Director, THG
June 12, 2012

In April, The Horinko Group convened the first in its 2012 Executive Roundtable Salons to explore proven and conceptual public-private partnership (P3) models to finance the massive overhaul awaiting our nation’s aging water infrastructure.  Moderator, G. Tracy Mehan, Principal with the Cadmus Group and former Assistant Administrator for U.S. EPA’s Office of Water framed the discussion stating, “This salon is intended to focus on attracting private capital to the water sector by way of “pure-play” P3 models, absent government assistance or subsidy programs.” 

One such model gaining popularity and cited during the salon discussion is the use of a concession lease to convene the public entity that owns the water system, the private entity that operates and maintains/improves the system, and the private investment partner(s) with the capital necessary to construct or rehabilitate the facility.  The duration of the lease is critical when seeking such large, upfront private investment.  A long-term, 20-year plus lease mitigates risk and provides the necessary rate of return for private investors.  However, the typical lease duration between the municipality and private service provider is 3-5 years, insufficient time for the initial capital investment cost to be spread over the long life of the assets.  In both instances, facility operations and maintenance is returned to the public entity at the end of the concession lease.  The extended lease also permits a steady, graduated scale of water rate increases, while allowing for operational efficiencies to be implemented.  Such proactive improvements reduce the uncertainty tied to financing unexpected infrastructure failures by way of sharp rate hikes.

Taking a closer look at how this concession lease model has been effectively implemented within our nation’s water sector, the Santa Paula Wastewater Plant in Southern California is worth recognizing.  Operating under a consent decree with a tight timeline, the public entity sought to transfer construction, operational, financial, and compliance risk to a private entity with access to capital and the ability to invest efficiently and effectively.  The original facility, built in 1939, was replaced with an entirely new water recycling facility, resulting from a service agreement between the City of Santa Paula and the private entity responsible for designing, building, and operating the facility – all financed by the private entity through a 30-year concession lease.  The lease incorporated a water rate sheet that was stable, transparent, easy to comprehend, and summarized on a single page.  Furthermore, the new facility’s advanced water reuse capabilities create the opportunity for additional revenue by selling reclaimed water for irrigation, thermal power plant cooling, fracking, or other water-intensive practices. 

Another model highlighted during the April Salon was the creation of a water infrastructure fund that could connect pension plan beneficiaries with the stable, predictable returns provided by water systems.  Serving in my previous capacity as an International Credit Portfolio Manager at The Northern Trust Company, providing credit and risk management support to global investment funds, I believe this model is ripe for future discussion.  Opportunities exist for the water sector to attract major investment dollars from a community of fund managers that are overseeing and managing massive pools of private capital. Thinking locally, public-service pension assets from teachers, firefighters, and police could be invested into water systems directly benefiting the communities in which they live.  Considering each state has varying laws and regulatory environments, it may be more efficient to invest pension assets directly back into the state’s own infrastructure.  By connecting the infrastructure investment back to the community, stakeholders will become better informed as to the overall need and take greater ownership over the improvements.

In May, I participated in EPA’s first Technology Market Summit held in partnership with American University.  This effort brought together the private sector and government to create a cross-sector dialogue on private investment and business opportunities presented by environmental technologies.¹  A worthwhile case study presented a P3 financing model involving a wastewater facility retrofitted to harness energy production through biogas cogeneration.  The Philadelphia Water Department (PWD) entered into a partnership with Ameresco to design, build, and maintain the biogas-to-energy system.  Bank of America financed and owns the facility that cost $47.5 million to construct.  PWD entered into a 16-year lease agreement to provide ongoing operations, with the option to renew the contract, purchase the cogeneration system at fair market value, or terminate the arrangement outright.²  The partnership provided the municipality with an innovative, non-mission critical technology, absent the upfront capital commitment and associated risk.  A major takeaway from this case study was that our nation’s groundwork of existing infrastructure is in place to expand renewable energy production in a way that is scalable, replicable, and economical.

This success story suggests that similar partnership opportunities may offer solutions to a broader range of water infrastructure challenges.  For instance, the Army Corps of Engineers and Bureau of Reclamation both acknowledge the dilapidated state of our nation’s inland waterway infrastructure.  A P3 arrangement could be used to privately finance the rehabilitation of a lock and dam, by way of retrofitting the structure with hydropower.  Through the generation of hydropower electricity, the future revenue stream could attract the private capital necessary to replace and maintain the infrastructure.  Such an arrangement would require a long-term lease (50-year plus) to recover costs and permit an attractive rate of return, as well as an insurance component to address the longevity of the contract and further disseminate risk.  Based on past discussions I have had on this concept, one of the greatest challenges continues to be the lengthy permitting process (5-10 years) required to locate hydropower on such facilities.  While such permitting ensures necessary operational and environmental assessments, a further streamlined process will be necessary for this model to be financially viable.

To conclude, P3 models present an expanding range of near-term opportunities for our nation’s aging water infrastructure to attract much needed private capital.  Long-term commitments that are equitable and benefit all parties will be critical.  Both the public and private sectors must continue to test old assumptions and embrace innovative financing models.  Subsidized, low-cost capital has a place, but is not the silver bullet.  Establishing a financial toolkit that remains accessible, flexible, and includes several alternative financing options will be necessary to overcome these challenges. 

1. http://www.epa.gov/envirofinance/2012summit.html

2. http://www.epa.gov/envirofinance/BiogasPresentation_Kohl.pdf