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October 2009 Commentary
Where’s the guarantee on cost?
by Glenn English
CEO of the National Rural Electric Cooperative Association
In September, more than a thousand electric cooperative directors from regions along the East Coast and the Midwest, including Indiana, met in Vermont to help chart the coming year for their national association. A whole lot has happened since this regional meeting was held in Indianapolis last year.
In June, a strengthened Democratic majority in the U.S. House passed a sweeping climate change bill. Sen. Barbara Boxer, D-Calif., chairwoman of the Senate Environment and Public Works Committee, has promised to move similar legislation, and has already begun holding hearings.
Elsewhere in Washington, D.C., the Environmental Protection Agency has already proposed an endangerment finding under the federal Clean Air Act that current and projected atmospheric concentrations of six key greenhouse gases, including carbon dioxide, from vehicles threaten public health and welfare. This puts a “foot in the door” for EPA to promulgate sweeping new regulations that would impose strict limits on carbon emissions from power plants — even without legislation.
Also in the past year, more than 400,000 co-op consumers have raised concerns about the cost of climate change legislation and regulation with their members of Congress. This massive grassroots effort (see ourenergy.coop) has sent a strong signal to Capitol Hill.
As climate change legislation progressed and the severity of the economic recession became more apparent, the issue of affordability pushed to the fore. This summer saw a steady stream of cost estimates on the legislation from federal agencies, think tanks and private consultants.
Following House passage of the climate change bill, the Congressional Budget Office, the non-partisan arm of Congress entrusted with determining the cost of legislation, estimated that the cap-and-trade measure in the climate change legislation passed by the House of Representatives would cost $175 per household annually by 2020.
The bill’s supporters immediately pointed to this figure, claiming that the impact of curbing greenhouse gas emissions would amount to less than a “postage stamp per day.” But if Congress is going to rely on the CBO estimate, lawmakers need to put their money where their mouth is and back up that projection.
Given all the other pressures on electricity prices, including some of the other provisions in the bill, consumers must have a guarantee that the per-household cost of a cap covering all emissions, including transportation as well as electric generation, will not exceed the CBO estimate.
Two assumptions underlie CBO’s calculations. First, electric utilities will receive free carbon dioxide emissions allowances in the early years (without free allowances, the per-household cost jumps to $800 in 2020). Second, allowances in 2020 will cost only $26 per metric ton. To protect consumers, NRECA is therefore calling for a ceiling on the value of allowances and for assurance that electric utilities will receive needed allowances.
CBO acknowledged that its estimate depended on the availability both of new carbon capture and storage technology and carbon offsets. When the Energy Information Agency modeled a scenario where new carbon-control technology was not available and offsets limited, the per-household cost more than quadrupled. The EIA analysis suggests significant — and troubling — uncertainty, and underscores the need for inclusion of guarantee.
In August, I urged Chairwoman Boxer to include a guarantee in any climate change legislation. During a time of economic uncertainty, electric consumers deserve a guarantee from Congress that costs for the legislation will not make electricity unaffordable.
NRECA is the Arlington, Va.-based trade association for the nation’s consumer-owned electric co-ops.
A note about estimated costs
Indiana cooperatives are saying climate change legislation could cost consumers $50 a month. But cost estimates vary widely. How did co-ops come up with $50 a month?
Available studies range from a few hundred dollars a year for the average household to $3,000 a year. The low cost studies are national averages. Clearly, states such as Indiana that rely on coal will see higher costs for compliance.
We can’t be certain what the cost will be. Under the current bill, if the cost of carbon is $50 per metric ton, the wholesale rate increase to Indiana’s electric cooperatives would be 25 percent. Making matters worse, the price of renewable generation will likely be much higher because the current language of the bill has a renewable portfolio requirement for large utilities. A mandate will eliminate the need for renewable producers to become more cost competitive.
Another reason for our cost projection is that the legislation still contains the auction of emission credits which brings Wall Street volatility and speculation to your utility bill. Currently, we get approximately 65 percent of the allowances needed, so electric consumers would be exposed to the same speculative market that drove gasoline prices to $4 a gallon in 2008.
Written By: eceditor
Date Posted: 9/30/2009
Number of Views: 226
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