If little else is clear about the future of the U.S. power industry, this much is: Electricity rates are going up across the country, and will continue to. None of the esteemed panelists at the CEO session of the ELECTRIC POWER 2007 Conference & Exhibition in Chicago last month actually said those words. But much of what they did say supports that conclusion.
The public demand for solutions to global warming (see story) is one reason power prices will rise (Figure 1). Others include substantial escalations in the capital costs of new units (well before any dirt is turned), a woefully inadequate (and shrinking, due to retirements) talent base to draw from in rebuilding staff and skill sets, a tight market for skilled and unskilled labor, and an insatiable global demand (led by China) for commodities.
1. Sign of the Carbon Age. In California's beautiful Mammoth Mountain region, seismic activity a few years ago began CO2 releases into the soil, essentially poisoning the vegetation. The CO2 level around Horseshoe Lake is many times the normal level, and there are many signs posted telling you to leave if you begin to find yourself experiencing fatigue or vertigo. Courtesy: USGS
Dr. Robert Peltier, PE, editor-in-chief of POWER magazine, kicked off the session by imploring his audience to engage in critical thinking, rather than sharing opinions. He decried the "coarseness of the discourse on global warming" that has become a "political dogfight" rather than a "scientific discussion." As result, Peltier concluded, we have "energy politics, not an energy policy." Alluding to the fact that the electricity industry is likely to be an earlier target of global warming legislation than the automobile industry, Peltier said, "Cars vote, power plants don't."
Apparently, ratepayers vote, too. David Saggau, president and CEO of Great River Energy, the nation's fourth-largest generation and transmission cooperative, stated that his customers are asking for environmental stewardship. Great River supports a national CO2 cap-and-trade program, especially if "piecemeal legislation" is the alternative, Saggau stressed. With respect to global warming, he believes that energy conservation is an "untapped resource." Saggau said that his utility plans to do its part to meet a 25% renewable portfolio standard (RPS) by 2025 and intends to reduce its greenhouse gas (GHG) emissions to year 2000 levels by 2020.
Jim Turner, president and chief operating officer of Duke Energy's regulated businesses, noted that his utility is actively arguing for carbon legislation, even though Duke is one of America's largest consumers of coal. He borrowed a quote used by his CEO, Jim Rogers: "If you are not at the table, then you are on the menu." In other words, the time has come to recognize that "uncertainty" about the future carbon regulatory framework is the challenge and that we "have to get the rules right." Furthermore, he added, "nuclear becomes the global warming solution under tough CO2 legislation."
Guy Gorney, president of Midwest Generation, which also owns and operates a sizable fleet of coal-fired plants, said he realizes all too well that carbon legislation "is coming down the pike" and that Midwest Gen needs to "protect the company and grow under any legislative scenario." Two components of that growth strategy are to invest in thermal efficiency improvements at existing coal plants and to develop wind energy. "Wind is a large part of our growth plan," Gorney noted.
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