California considers transportation electrification

California utility regulators are considering proposals by electric utilities to electrify the transportation sector.  If the three largest electrical corporations' proposals are approved by the California Public Utilities Commission, it could represent an investment of about $1 billion in transportation electrification in California over about 5 years.

The transportation sector is a major consumer of energy and emitter of carbon dioxide.  In California, the transportation sector accounts for 37 percent of statewide greenhouse gas emissions.  Electrifying transportation -- converting vehicles and trips from direct consumption of fossil fuels to EVs or electric vehicles -- can reduce emissions, particularly where the electricity supply is sourced from renewable or low-carbon resources.

To address energy and climate matters, in 2015 the California legislature enacted Senate Bill 350, the Clean Energy and Pollution Reduction Act.  SB 350 codified Governor Edmund G. Brown Jr.'s clean energy and climate change goals, establishing a statewide 2030 greenhouse gas reduction target of 40 percent below 1990 level.  SB 350 calls for pursuing those goals through a variety of measures, including the promotion of "widespread transportation electrification," defined as "the use of electricity from external sources of electrical power, including the electrical grid, for all or part of vehicles, vessels, trains, boats, or other equipment that are mobile sources of air pollution and greenhouse gases and the related programs and charging and propulsion infrastructure investments to enable and encourage this use of electricity." 

The legislation requires the California Public Utilities Commission to direct electrical corporations to file applications for programs and investments to accelerate widespread transportation electrification.  That process is now underway.  On September 14, 2016, the Commission issued an order directing the state's three major investor-owned utilities to prepare and file applications describing their proposed transportation electrification projects and programs.

On January 20, 2017, the three utilities -- Pacific Gas and Electric Company (PG&E), SouthernCalifornia Edison (SCE), and San Diego Gas & Electric (SDG&E) -- filed their applications.  As summarized by the Commission, PG&E, SCE, and SDG&E submitted proposals to invest $1 billion in transportation electrification over an approximate five year period.  Onroad medium and heavy-duty charging infrastructure proposed by SCE accounts for roughly half of this total; residential charging infrastructure proposed by SDG&E and "FleetReady Make Ready Infrastructure" proposed by PG&E round out the largest-ticket items.  Other projects include electrification of cranes and forklifts at ports, terminal yards, and airports.

The cases remain pending before the Commission, with evidentiary hearings held earlier this month.  Other cases before the Commission address proposals by three smaller utilities.

Oregon coal export plans stopped

The United States is one of the world’s top coal producers and exporters, but recent plans to add coal export capacity in the Pacific Northwest have not been fulfilled, as several proposed export terminals have been withdrawn.  Plans for yet another terminal have been scrapped, as yesterday Kinder Morgan Energy Partners LP canceled its proposed Clatskanie, Oregon project.  What does this mean for U.S. coal exports and for domestic pricing?

Kinder Morgan Energy Partners is a publicly traded master-limited partnership,or MLP, focused on pipeline infrastructure.  Along with fellow Kinder Morgan family companies Kinder Morgan, Inc., Kinder Morgan Management, LLC, and El Paso Pipeline Partners, Kinder Morgan claims to be the largest midstream and the third largest energy company (based on combined enterprise value) in North America.  The company owns or operates about 80,000 miles of pipelines and 180 terminals handling products like natural gas, refined petroleum products, crude oil, and carbon dioxide, as well as gasoline, jet fuel, ethanol, coal, petroleum coke and steel. It boasts of operating primarily “like a giant toll road”, and seeks to avoid commodity price risk through a fee-for-service model.

Most coal export capacity in the U.S. is located in the Midatlantic and Gulf Coast regions.  While Asia dominates the world coal import market, major markets for U.S. coal exports include Canada, Brazil, the Netherlands, and the European Union.  The principal West Coast coal export port is Los Angeles/Long Beach, with virtually no export capacity in the Pacific Northwest.  Kinder Morgan had proposed a terminal to be built at the Port Westward industrial park on the Columbia River near Clatskanie.  Yesterday project partner Port of St. Helens stated that Kinder Morgan had announced that it would not be pursuing the project.

Up to six Pacific Northwest coal export terminates have been proposed in recent years, but to date none have been built.  The Kinder Morgan proposal joins a series of other canceled Pacific Northwest coal export plans.  RailAmerica Inc. announced last year that it would not pursue a coal storage and export facility at Washington’s Port of Grays Harbor.  Earlier this year, the Oregon International Port of Coos Bay announced the end of its exclusive negotiating agreement between with Metropolitan Stevedoring Company (Metro Ports) to build a thermal coal and biomass export facility.  With the Kinder Morgan project gone, three potential terminals remain:  Australian  company Ambre Energy’s barge-loading operation at the port of Morrow and Port Westward, Millennium Bulk Terminals’ proposed $643 million dock west of Longview, and SSA Marine’s proposed $600 million coal terminal at Cherry Point.

Whether a coal export terminal will be developed in the Pacific Northwest is uncertain.  If not, it will continue to be difficult for coal produced in the western U.S. to reach the world’s largest demands for coal imports.  China, Japan, South Korea, India, and even the relatively small Chinese Taipei have led the demand for coal imports in recent years.  This opens significant economic activity. At the same time, environmentalists argue that new export projects would contribute to global pollution and greenhouse gas emissions.  Combined with the pressures of the commodity market for coal and other fuels, these dynamics may continue to block expanded West Coast export plans.  As is being argued over the issue of liquefied natural gas exports, whether coal exports are expanded could also have impacts for U.S. coal pricing.