Power Industry Flip-Flops on Support of Carbon Controls

I recently had the privilege of moderating the Power Industry Executive Roundtable, part of the annual ELECTRIC POWER Conference & Exhibition opening ceremonies. Last year the panel included Michael Morris from AEP and Jim Rogers from Duke Energy, among other notable executives. Both of these gentlemen are very outspoken, and people are interested in their views. Predictably, I began our discussion asking for their critique of the then–recently proposed American Clean Energy and Security Act (ACES), aka Waxman-Markey (H.R. 2454) legislation. I lit the fuse and the expected fireworks followed. When the smoke cleared there were few positive comments from the panelists about the legislation, and the audience enjoyed an interesting and informative discussion. The lively debate made the hour pass quickly and made the moderator’s job a breeze.

I was hoping for a reprise of last year’s  performance by requesting a critique of the proposed American Power Act (APA), released to the public only days before the conference. (A summary of the APA is available in this issue of COAL POWER.) Instead of taking the bait as expected, all five panelists expressed their full support of the APA proposal and encouraged Congress to move quickly on the legislation. In two minutes, my most controversial question was asked and answered with no disagreement among the panelists.

Much Industry Support for American Power Act

What changed over the past year to cause such a dramatic change in the industry’s position on regulating carbon? The bottom line: The constant uncertainly about future carbon emissions limits has made optimizing investment in environmental upgrades and new plants an impossible chore, according to the panelists. The industry (as reflected by the roundtable panelists) believe that further stalling will ultimately result in inefficient deployment of the industry’s limited supply of capital, thereby increasing the overall cost to ratepayers even without the unpleasant cost of a carbon cap-and-trade system rolled in. From their perspective, it’s meaningless whether you agree with the science of global warming because that train wreck has slowed progress of more important work.

Here are some comments from the roundtable panelists. [To hear short, selected excerpts of the discussion, listen to the video clips available on the home page (lower right).]

"While we are sitting here without knowing what is going to happen, we are trying to make these large investment decisions," said Andrew Murphy, executive vice president and regional president of NRG’s Northeast operations. "We can’t afford to sit and wait and make short-term decisions about these large investments."

Keith Trent, group executive and president of Duke Energy’s commercial businesses unit, said climate legislation would certainly impose additional costs on utilities and their customers but that continued delay by Congress was robbing the industry of the opportunity to cushion that impact. "The rate increases are coming," he said. "The issue is trying to manage those costs. We need to know the rules. To make those [investment] bets in a world where you don’t know what the rules are is very hard to do."

John Adams, senior vice president of power operations for Calpine, noted his company was in relatively good shape to respond to climate regulations because most of its power plants are fueled by cleaner-burning natural gas or emissions-free geothermal energy. In fact, he said of climate legislation, "It would not hurt us; it would actually help us as a company. Our problem is this is too long in coming. . . . We need the certainty going forward."

James Connaughton, executive vice president of corporate affairs, public and environment, for Constellation Energy Group, said the Senate proposal was an improvement over House-passed climate legislation in terms of the number of emissions allowances granted to electric utilities, although he noted the allocation formula for handing out those allowances was different from that proposed by the Edison Electric Institute, the trade association for investor-owned utilities.

But despite that and other unresolved issues, he said the emissions trading provisions of legislation would reduce compliance costs and that cutting carbon emissions would offset much larger costs that would stem from the environmental disruption caused by climate change.

Low Odds of Quick Passage

However, when asked about the prospect of the Senate passing the legislation before the fall elections, "The odds of passage before the election are very, very low," said Connaughton, who served as head of the White House Council on Environmental Quality during the Bush administration. He expressed concern that the outlook for action by Congress on climate change this year was grim, in part because it is an election year.

The APA as the Lesser of Two Evils

The specter of the EPA moving forward with a command-and-control response to regulating carbon also is a factor in the industry’s desire to move forward with the APA legislation. Trent noted that the EPA’s approach would be far more costly and lack the transition period provided for utilities under the proposed legislation. "We will have EPA regulating this world," he warned. "I think the legislation . . . goes a long way to trying to provide us with a transition" with the allocation of free allowances to utilities in the initial years of the bill’s emission reduction program.

Industry Recognizes That the Game Has Changed

The remainder of the roundtable went well enough, but the discussion left me with the feeling that the rules of the game had changed and no one told me. I have yet to digest Connaughton’s comment that "Here is an industry asking to be regulated" when quizzed about the level of industry support for the legislation.

Given that industry leaders had been working with the Edison Electric Institute and Senators Lieberman, Kerry, and Graham (who later withdrew his support for reasons unrelated to the legislation) in secrecy for many months to produce the 996-page draft, I suppose I should have anticipated the panelists’ answers. Either we have leaders who have done the industry a great service by negotiating a minimally invasive compromise in order to put the issue of carbon controls behind us, or these executives recognize that the days of revenue growth purely through energy sales are gone forever and that regulating carbon is the only market opportunity remaining.

Honestly, their arguments are compelling, but I’m not buying what they are selling. In my opinion, if the very attractive package of subsidies contained in the APA draft were not present, these same industries executives would not be "asking to be regulated." This Faustian bargain has virtually no discernable effect on future global ambient temperatures (the CO2 reduction schedule is the same as for ACES), and, given the billions of dollars in subsidies proposed, is not a good deal for either the American taxpayer or electricity ratepayer.

—Dr. Robert Peltier, PE is COAL POWER’s editor-in-chief.

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