State energy policy at heart of dispute

Critics worry about oversight of Sustainable Energy Utility

When the Sustainable Energy Utility was formed last year, lawmakers envisioned a small nonprofit that could help Delawareans insulate their homes, buy energy-efficient refrigerators or install solar panels.

But the SEU's scope could grow dramatically, thanks to a regional effort to tax polluters. Its coffers could swell by $5 million to $12 million per year, thanks to so-called "carbon taxes." At a time when other agencies are cutting back, the SEU could become a big player in the state's environmental efforts, and influence the debate about whether Delaware needs more power plants or alternatives, such as offshore wind turbines.

Critics contend that a bigger SEU would put too much control and money into too few hands. There's no protection against conflicts of interest, they say. While they believe some of the new money should go toward energy efficiency and conservation, they also say much of it should also go toward a different goal: utility-scale renewable energy projects.

At the center of the controversy sits Sen. Harris McDowell III, D-Wilmington North, who has worked to defeat a proposed wind farm to generate electricity offshore from Rehoboth Beach. McDowell is the chairman of the task force that set up the SEU.

"Energy conservation, energy efficiency, we think that's a great idea," said Nick DiPasquale of Delaware Audubon. "We have grave concerns about the governance structure and accountability. There is no question that there has been a fundamental loss of faith and trust among members of the environmental community with Harris McDowell specifically."

The General Assembly is expected to vote on whether to assign the SEU the lion's share of the carbon taxes before the legislative session ends June 30. That money comes from an interstate agreement designed to cap carbon dioxide emissions and require polluters to pay for what they release into the air.

McDowell says the SEU board will be insulated from the spending decisions, but others say that under the current rules, there's little stopping the board from having the final say in which vendors get a lot of new business.

Although they share a desire to halt global warming and clean the air, SEU supporters and supporters of the offshore wind project known as Bluewater have fallen into different camps, partly because they share different philosophies about the state's energy future.

One, championed by McDowell, places the greatest emphasis on conservation, or using less energy, and energy efficiency, or using more efficient appliances and light bulbs.

Such methods, along with small-scale renewable projects such as home solar panels, are "the proven best insurance policy against price volatility," the SEU Task Force wrote at the beginning of its final summary report last spring.

The report says the SEU can reduce demand by 400 megawatts, enough to offset an entire power plant on a peak summer day. Delaware is far behind states such as California in energy efficiency, the report says.

And with a third of the state participating, Delaware can cut its carbon footprint by a third by 2015, the report contends.

"Everything the SEU will do will lower demand on the system and would save the ratepayer money," McDowell said.

The competing philosophy holds that conservation and energy efficiency are only part of the solution. Chad Tolman, who is a member of the Sierra Club and other environmental groups, said to achieve stable prices, satisfy a growing demand for electricity and defeat global warming, new, larger-scale projects are needed to generate green power.

"What they want to do is very incremental. They're going to reduce the rate at which energy consumption is increasing. That's basically what President Bush was talking about," Tolman said. "What we're trying to do is make a transition from a fossil fuel-based energy resource to renewable energy resources."

Dave Bayless, a professor of mechanical engineering at Ohio University, said reducing the state's carbon footprint by a third using only SEU methods is an ambitious goal that would require a fundamental change in people's lifestyles.

"There's just a huge number of people there," he said of the area around Delaware. "It would shock me if what you were not doing is slightly delaying the need for power generation."

But he said helping people buy energy-efficient appliances would be an important part of reaching that goal.

SEU getting cash

The SEU, approved by the General Assembly and governor last summer, would be the state's primary energy conservation program.

It would help customers buy energy-efficient appliances and vehicles for the same price as their less-expensive, less-efficient counterparts. It would also subsidize solar panels and other locally situated renewable projects.

Its proponents say that will enable businesses and homes to save about 30 percent on their electricity bills, cutting annual average household costs by about $1,000.

Several states, such as Oregon and Vermont, are trying a similar concept, but the Delaware model, which includes subsidizing cars and solar panels, has a more ambitious scope, said Blair Hamilton, director of Efficiency Vermont.

The SEU was originally going to take on these tasks with a relatively modest bank account. They would get roughly $2 million from the state's Green Energy Fund, which would be helped by an 18-cent monthly increase on electric bills.

And they would float $30 million in bonds for startup capital.

But during the past year, a new source of money emerged.

The Regional Greenhouse Gas Initiative requires polluting power producers to pay for the emissions they create. Some of these allowances, or "carbon taxes," are expected to be passed through to consumers.

The first year, Delaware will be expected to receive between $7 million and $10 million. Within five years, Delaware is expected to take in between $12.8 million and $18 million.

Each state gets to decide what to do with its share of RGGI money, although it is expected to be used to combat global warming. A Delaware work group this month recommended 65 percent of that money go to the SEU.

"The SEU, if they had additional revenues, could do that much more," said Philip Cherry, director of policy and planning for the Department of Natural Resources and Environmental Control.

The activists had another idea. Tolman and his allies suggested spending the lion's share of the money on new, renewable generation projects. One example they described was underwater turbines in the Indian River inlet.

They want to invest in entrepreneurial projects to develop new technologies, such as making biofuel from switchgrass.

And they want to invest in the offshore wind power industry. While not directly subsidizing the Bluewater project, they would invest in a manufacturing center for offshore wind turbines at the Port of Wilmington.

The money also could go to greenhouse gas-reduction projects such as planting trees, or reducing methane gas emissions from landfills and animal feeding operations, he said.

Bluewater connection

The debate has familiar echoes to anyone who has followed the energy debate in Delaware over the last year.

Energy consumption in the region is expected to increase by 17 percent over the next decade, according to the electric grid operator, PJM Interconnection. There are questions of whether fossil fuel costs will be exorbitant, and whether enough transmission lines will be in place to carry the electricity to the East Coast. Home electricity prices for Delmarva Power customers rose 59 percent after rate caps came off two years ago.

That's the equation that gave rise to the Bluewater plan, which would put 150 turbines off the coast of Rehoboth Beach, and require Delmarva to sign a 25-year contract to buy the electricity. It would be backed up by a new natural gas-fired plant in Sussex County, less environmentally harmful than coal-fired plants, but more expensive.

Environmental activists are upset with McDowell, who held hearings they claim were meant to defeat the Bluewater project. A report, endorsed by McDowell's Energy and Transit Committee on April 17, was highly critical of the proposal, calling it too expensive.

McDowell's opposition to the wind project soured many of those activists on his own project.

"It boils down to a lack of trust in Sen. McDowell based on his history of behavior over this issue, over the SEU and offshore wind project, these illegitimate hearings," DiPasquale said.

Many of the activists say McDowell's philosophy has too closely mirrored that of Delmarva Power, which also is emphasizing conservation and talking down the need for new local generation. Delmarva has mounted a large-scale campaign to fight the Bluewater contract.

McDowell said he doesn't understand the criticism.

"It's illogical. It doesn't flow from the facts. They have constantly misrepresented. It saddens me, but what can I do if people want to make a mistake?" McDowell said.

Of Delmarva, he said, "If sometimes they say the right things, that's OK."

Hamilton, of Vermont, said he was surprised to hear of the conflict between Delaware's offshore wind proponents and SEU leaders. Even if a state can reduce its electricity usage by a third, "you've still got that other two thirds," he said. Large-scale wind would, economically, be at the top of the list to deal with that, he said.

"It's a question of how fast do you want to ramp up the other stuff toward a sustainable future. For me, we need everything we can get."

SEU evolving

McDowell had submitted legislation that spelled out much of the SEU's makeup and responsibilities, including that the board would appoint its own members. But he withdrew much of that language last month.

The current SEU law designates the chairman of the task force to become, or appoint, the chairman of the board.

Jim Black of the Clean Air Council said legislators shouldn't be on the board of directors. There's too much of a chance for conflicts of interest and "pay-to-play" politics, he said.

The original SEU legislation, as approved last year, put the management of day-to-day affairs under a nonprofit corporation contracted by competitive bid by the Delaware Energy Office. The Senate voted 14-6 last month to allow that contractor to be a for-profit entity.

It's unclear who would control the purse strings of the SEU. The language McDowell withdrew had given the board "oversight and management of the business and affairs of the SEU." The existing language gives the state energy coordinator and SEU board shared oversight over the contractor.

In the Senate debate last month, McDowell emphatically stated the contractor, not the SEU board, would make the spending decisions. The Energy Office, "in conjunction with the SEU board," would hire that contractor, he said.

But Tolman said he was skeptical the contractor would be insulated from the board's influence. It would put a huge amount of power into the hands of few "who appear to be accountable to no one," he wrote in a letter to members of the Senate.

Sen. Karen E. Peterson, D-Stanton, said money that would otherwise go to the state would instead go to an organization with "no government oversight, no anything."

Asked about these questions, McDowell said, "There are no conflicts of interest, period, end of sentence. I'm just better off not addressing it."

Senate Minority Leader Charlie Copeland, a member of the SEU, said he has no problem with lawmakers being on the board. He said the SEU is set up like other nonprofits, which control lots of government money. But he said there's the need for the SEU's meetings to be public and subject to the state's Freedom of Information law, and that should be addressed in an amendment.

Cloudy energy future

The SEU and Bluewater are just a part of the overall discussion on Delaware's energy future. Delmarva is responding to a state mandate by drawing up a master plan for making sure there's enough electricity. Much of its plans rely on transmission, bringing in both traditional and renewable power from out of state. And Delmarva is working to gain local approvals for a new power line that would cut through much of Delaware and Maryland.

Meanwhile, PJM has recently increased capacity surcharges on electric bills to try to give generators an incentive to build new power plants in the region. It has met limited success.

But the legislative effort to site a new power plant in Delaware, started a year ago and culminating in the Bluewater proposal and a natural gas backup plant, is stalled. Lawmakers have faced a strong lobbying campaign from Delmarva against these plans.

Copeland said the SEU concept is a good one, and environmentalists should put aside their differences with McDowell and embrace it.

"Senator McDowell has skepticism about parts of the Babcock and Brown proposal for offshore wind, and some people, I believe, have taken that personally," Copeland said. Bluewater is owned by Babcock.

"Sometimes politics gets personal, but the SEU in particular will be, in my opinion, a huge benefit in reducing our energy consumption," Copeland said.