So far, Delaware has not allowed less expensive clean energy options such as electric grid efficiency improvements, natural gas fueled power, and nuclear power to count against the standard. This may change in 2012 if the legislature replaces the RPS with a Clean Energy Standard. Beware, the new standard could be a Trojan Horse. The details of the new standard could either make energy much more expensive or put us on the road to lower energy costs.

The current RPS requires 25% of electricity used in Delaware come from renewable sources such as wind and solar by 2025. Solar is five times as expensive as conventional power and offshore wind and fuel cells cost two to three times more. Meanwhile, energy efficiency and natural gas fueled power reduce greenhouse gas emissions and actually cost less than other conventional power. New nuclear power technologies will also reduce emissions at potentially much lower cost. If we simply allowed these options to count toward the 25% goal we could reach the goal a lot quicker than 2025 and move Delaware toward competitive electric rates.

More likely, however, we will see an effort to dramatically increase the 25% goal combined with larger carve outs for the more expensive renewable options. Big Green is trying to severely curtail the use of coal to produce electricity. Nationally, 43% of electricity (55% in Delaware) comes from coal fired plants and Big Green would like to see that cut in half. The problem is the U. S. is the Saudi Arabia of coal. Eliminating the use of coal is like asking American manufacturers to compete globally with one hand tied behind their backs.

The 1990 Clean Air Act required individual coal fired electric generating plants to reduce air pollutants, such as sulfur dioxide and nitrous oxide, by 90% and that goal was met at a cost of about $30 billion. New EPA regulations aim to reduce emissions another 5% but will likely cost about $300 billion. Coal emits about twice the greenhouse gas as natural gas for each kilowatt-hour of electricity produced. Congress has rightly refused to pass expensive greenhouse gas reduction legislation so environmental groups are attacking coal with new regulations such as a national Clean Energy Standard that would require 80% of electricity be produced without coal. An Energy Information Agency study of the proposed legislation shows electric rates on the east coast would increase 50% more than a base case without the legislation. The national effort is going nowhere so the battleground is moving to individual states.

We certainly encourage legislative changes to allow the use of energy efficiency, natural gas, and nuclear power be used to meet the current 25% RPS requirement. However, Delaware manufacturers already pay 50% more for electricity than the average state. We should not increase the 25% RPS goal and risk making Delaware even less competitive on the national and world stage. We should also be eliminating carve outs for specific technologies not increasing them. Government initiatives always seem to bet on the wrong horse. The market place can react much faster and favor the best electric generating option.

David T. Stevenson, Director Center for Energy Competitiveness

DuPont just announced a 20% increase in sales in 2011 for a total of $38 billion. But all is not coming up roses. In addition to fines paid to the EPA and for chemical leaks in West Virginia, DuPont also paid the state of Delaware a $500,000 fine for noncompliance with the Clean Water Act at its Edge Moor Plant. Certainly these fines are taking a toll and at least DuPont nets $420,000 from Delaware household and business taxpayers. The Company promises to create 35 “good paying” jobs.

Oh, mentioning Delaware businesses, over the 12 months ending in March of 2011 Delaware businesses shed 66,606 jobs through the contraction of firms and 16,729 jobs through the closure of firms. While these businesses did not merit any grants from the state, surely they are happy to fork over the taxes to help their successful neighbor.

And as to the households who are contributing to the DuPont Co, surely they aren’t complaining about subsidizing DuPont even though the price of Girl Scout cookies has just gone up (as has the poverty rate).

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

Through its Centers for Economic Policy and Energy Competitiveness, the Institute has become a strong voice informing Delawareans of alternate public policy solutions and publishing reliable analytics to increase every citizen’s influence over public policy decisions that directly impact their personal situation.

“Education has always been one of our areas of emphasis and given the increasing awareness for the need to improve our system both in terms of efficiency and opportunities for our children, the time is right to start the Center,” Barrett Kidner, Chairman and CEO said. “CRI is dedicated to improving the quality of life, individual liberty, and opportunity for personal fulfillment of all Delawareans. We have aggressive plans to expand our offering and expand the influence of our citizens. Creation of the Center for Excellence in Education is the logical next step in our commitment to Delaware’s future.”

For over 100 years the primary focus of electric generation has been to provide reliable power at the lowest possible cost. That mission was accomplished very well and power generation was an engine of economic growth. More recently we also expect power production to reduce air pollution and green house gases.

You have $2.5 billion to re-build Delaware’s electric generating infrastructure. We currently pay about 9 cents a kilowatt-hour because of pricing rules from PJM Interconnection, the regional grid manager. To avoid pricing penalties we need to build 75% of our generating needs including reserve capacity. You should consider cost, reliability, job creation potential, air pollution reduction, and green house gas reduction.

In regard to reliability, base load power is available all the time, intermittent power is available only part time and the hours of availability cannot be predicted. The larger the air pollution and carbon dioxide index number the better. For example an index of “1” is eight times better than “0.16”. Read the full article for comparative properties of different generating resources. You decide the best solution!

David T. Stevenson, Director, Center for Energy Competitiveness

On one hand this can be seen as another example of corporate highway robbery. As of 2010 Amazon’s gross revenue was $34 billion, up 46% from 2009. Given the expansion of the product lines carried by Amazon and their continued investment in information technology, 2011 should see a double-digit rise in revenue as well.

Amazon is riding a wave of cash. Their simple business model is a small percentage of an ever larger size gross flow. This is backed by cutting edge computer and logistical systems, consumer research, and the increasing willingness of customers to shop on-line. As important, at this point, they are far ahead of any serious competitors.

On the other hand, as CRI has recognized before, Delaware is in competition with other states for firms and often the wheels have to be greased. The Delaware Economic Development Office is increasingly tying grants to job creation targets, often through convertible loans. Moreover, Amazon is hot and the risk of the firm not producing the 850 jobs at this time is low.

The majority of the jobs will require no more than a high school education. This couldn’t come at a better time given the high rates of unemployment among Delaware residents with less formal education. The occasional seasonal surge in hiring will be a plus to retail spending and restaurants around Middletown as well.

And, it may well be that the promised $4 million in road improvements will encourage other industry development to the west of Middletown.

Compared to heavily subsidized fuel cells and expensive hybrid cars with no established markets or service system, Amazon is a clear winner for Delaware.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

Plentiful natural gas is coming from new wells in Pennsylvania and neighboring states. The price for natural gas has dropped from $15.00/mft3 to $3.00. This lowers manufacturing costs, electricity prices, and heating costs saving Delaware homeowners money and makes our manufacturers more globally competitive. Natural gas may also replace expensive foreign oil in part of our vehicle fleet. Delaware will see great indirect economic benefit.

Environmental groups claim their opposition is simply to delay new gas production in the Delaware River Basin while regulations are refined. Read their blogs. The goal is to delay long enough to allow them to prohibit drilling permanently. The goal of this powerful lobby is clear, conventional energy prices must double so expensive alternate sources such as solar, fuel cells, and offshore wind can compete when we eventually tire of paying massive government subsidies for them. Low natural gas prices wreck that plan.

Governor Markell, as a voting member of the Delaware River Basin Commission (DRBC), has refused to support approval of new regulations for a natural gas drilling technique known as hydraulic fracturing or fracking. Water and sand are forced into wells in shale formations to form micro-cracks to allow gas to flow. Over one million wells drilled over the last sixty years have used fracking. The new twist is to combine fracking with horizontal drilling to minimize the number of well heads needed.

The Governor has based his decision on two issues; a short review period for last minute changes to the DRBC regulation, and unfinished state regulatory changes. A closer look shows these issues do not provide a sound basis for delay.

The proposed regulations have been worked on for the last year and a half with ample time for public review. It is odd our governor would be concerned the timing is rushed. He pushed the Fuel Cell Act through the state House and Senate in just nine days with few details available about the real cost. The Fuel Cell Tariff was then rushed through the Public Service Commission allowing only days for public review of complicated contracts before the final PSC vote for approval. Substantive changes were still being made the morning of the vote. Hundreds of public comments opposing the tariff were ignored. The reason for the rush was the questionable potential to create nine hundred new jobs in an industry that can sell nothing without massive government subsidies. The DRBC rules would un-questionably create over seven thousand new American jobs in Pennsylvania alone with no government subsidies needed.

The Governor also complained Pennsylvania and New York have not signed into law a number of regulatory recommendations made by the Pennsylvania Marcellus Shale Advisory Commission. The commission made ninety-six specific recommendations but only about a dozen had implications for interstate issues such as well setbacks, water withdrawal rates, and wastewater handling. Those dozen recommendations have been adopted in full by the DRBC and state approval is merely a duplicate effort. Most of the other recommendations had to do with issues such as in-state job training, transportation improvements, and the streamlining of the permit process.

The same document listed two-hundred state and federal regulations already in place to control the oil and gas industry. Remember, oil drilling started in Titusville, Pennsylvania in 1859 and natural gas was being drilled in New York even earlier in 1821. This is not exactly a new industry. Governor Markell wants to wait for state regulations to be complete but they never will be. In fact, one of the final Marcellus Shale Advisory Commission recommendations was for a periodic review process to constantly improve the regulations.

David T. Stevenson, Director

How did this run up in debt happen? The Institute singles out the use of antiquated budgeting and accounting rules that are used to determine employee compensation costs. Good accounting includes the cost of retirement benefits as they are earned. Delaware, in order to adhere to its constitutional balanced budget requirement, ignores accumulated employee retirement obligations.

Further, the state only sets aside 55 cents to pay each dollar of the promised retirement benefits. The $8.6 million shortfall includes $775 million of reported retirement liabilities, another $417 of unfunded pension benefits, and $5.6 billion of unfunded retiree health care benefits.

According to the Institute, “unless these pension and retirees’ health care benefits are renegotiated, future taxpayers will be burdened with paying them without receiving any corresponding government services or benefits.”

The state government’s position up to this point is to disavow the existence of this looming benefit debt.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

The reason for the flurry of activity is straightforward. Delaware currently has a 67,000 job gap to regain the ground that has been lost is the past four years. This includes: an additional 32,000 jobs to climb back to the peak level of total employment, 20,000 jobs to regain the historical unemployment rate, and 15,000 jobs to absorb the discouraged workers who have left the labor force. At the state’s current projected annual job growth rate of 0.7%, closing this 67,000 job gap will take 21 years.

Will the loans and grants pay off? It is immaterial. Over the past 10 years the Strategic Fund has put $200 million of loans, grants and equity into Delaware businesses. Over the same time period, the total investment by businesses in Delaware has been over $57 BILLION. While places like the Riverfront cannot survive without state loans and grants, overall the state loans and grants are a fly speck to Delaware’s private sector.

While Strategic Fund investments in projects of opportunity are fine, the state’s primary focus should be on those factors that drive investment and long-term economic growth in Delaware. These factors include the tax burden and tax rate stability, the regulatory environment, the quality of public education, labor skills and costs, infrastructure, energy costs, and the incentives to create value, including entitlements that discourage work and contracts that encourage pleasing government officials rather than producing goods and services that meet the market test.

In the near-term one hopes that all the money and effort by state officials will have positive outcomes. And certainly it gives the appearance of action. It is should be noted, however, that the economic boom years for Delaware during the 1980s were spurred on by deregulation, lower taxes, and the institution of fiscal constraints on state government spending.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

When I was a kid, my favorite Superman comics featured Bizzaro World, a place where everything was topsy-turvy and kryptonite was good for you. Today, you can find a real-life congressional version of Bizzaro World at the House Agriculture Committee, a place where deficit spending is rarely criticized and corporate welfare is stoutly defended. On Wednesday, the Republican committee chairman, Frank Lucas, successfully blocked a small but bipartisan effort to reduce agricultural spending — demonstrating that in Lucas’s political Bizzaro World, Republicans want to spend and spend.

The issue was how to pay for what the United States owes Brazil as a result of Brazil’s win at the World Trade Organization in its case against U.S. cotton subsidies. As part of a WTO settlement reached last year, the United States agreed to fork over $147.3 million annually to Brazil’s Cotton Institute.

Before you start sputtering in outrage, you should know that in March 2010 Brazil published a list of over 100 U.S. goods that would be subject to import tariffs of up to 100% and a preliminary list of U.S. patents and intellectual property rights that Brazil could restrict if no cotton settlement was reached. Trade actions like this frighten U.S. exporters, as they not only are shut out of the importing country’s market but also stand to lose market share — perhaps permanently — to third-country competitors.

Also bear in mind that the $147.3 million annual payment need not go on forever — it will be revisited in 2012 when current U.S. farm subsidy legislation expires and new subsidy programs are enacted. Thus, the payment is an incentive for U.S. lawmakers to (hopefully) make the changes necessary to end Brazil’s WTO case.

Meanwhile, however, Congress has to find that $147.3 million to pay Brazil now. Congressman Jeff Flake (R-AZ), a tireless fiscal conservative, proposed reducing direct payments to U.S. cotton farmers to fund the obligation to Brazil. No, said Lucas. Congressman Earl Blumenauer (D-OR) had an amendment that would have reduced subsidies by capping annual farm payments at $125,000 per farm operation. Lucas nixed that too. Finally, Lucas blocked an effort to limit certain agricultural payments to producers with an adjusted gross income of over $250,000.

Recall that Lucas is a member of the party that’s supposed to treat big government like kryptonite. But not in Lucas’s Bizzaro World, where big government is good and spending cuts are bad.

Where’s the House Republican leadership’s outrage over the damage done to the GOP brand by a party teammate who successfully thwarts attempts to reduce corporate welfare? The leadership’s pronouncements about fiscal responsibility are nice, but when it comes to making tough choices about a traditional Republican constituency (e.g., farmers), why must Bizarro World win?

Joanne Butler

Senior Economics Fellow

Caesar Rodney Institute

• There has been ample time for review and public comment. Requests for more hearings is merely a delaying tactic by groups who want to stop drilling completely
• The proposed rules adequately protect the basin with well pad setbacks and well siting requirements, and requirements for waste water re-use or treatment
• The rules are consistent with other jurisdictions, some in operation for over sixty years, and with experience learned from over one million “fracked” wells drilled in the U. S. so far

A primary concern has been control of wastewater from “fracking” operations when water with additives is forced into horizontally drilled wells to form micro-cracks to allow gas to flow. The water can be effectively recycled or treated in approved waste water treatment plants eliminating this concern. A second issue is gas leakage into drinking wells. Most reports of well contamination have been shown to be caused by local near surface methane sources not related to drilled wells. Where the wells have caused contamination it is from problems with improperly built or managed near surface well casings. Technical solutions for these problems exist and are being addressed by individual state permitting authorities and are not part of the DRBC rule proposal.

David T. Stevenson
Director, Center for Energy Competitiveness