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Wednesday, March 11, 2009

What Things Will Come

Hot on the heels of our recent posts about how broadband and electric power could be combined to offer solutions to the energy crisis we all face, comes this article from American Public Power Association. It is an interesting read as it paints the scene we have been describing from a totally new and independent perspective.

One thing is certain. Change is coming. We can try to steer that change by utilizing our network and our ideas about altering the way everyone uses energy, or, as the article below implies, we can all just prepare to pay a lot more to keep doing things the way we have for the last one hundred years. I know which choice makes the most sense. I hope you agree...

The next few years will be exciting for people in the electric utility business, as utilities struggle to decarbonize their portfolios and as consumers struggle with rising energy bills, a panel of CEOs agreed yesterday at an energy conference in Washington, D.C.

"If you're not up for an exciting time, you're in the wrong business," said APPA President and CEO Mark Crisson. The next decade or so will be a transition period that will make the difference as to what the electricity sector will look like 40 years from now, he said.

"The next five or 10 years will be exciting," agreed Richard Kelly, president, CEO and chairman of Xcel Energy.

"It will be interesting to see how we can decarbonize electricity over the next couple of decades," said Hank Courtright, senior vice president of the Electric Power Research Institute.

"It may be more than exciting," said Glenn English, CEO of the National Rural Electric Cooperative Association. "There many be moments of sheer terror."

The electricity sector faces Herculean challenges, said Tom Kuhn, president of the Edison Electric Institute. "How to build transmission lines that will cost billions?" he asked. "How are you gong to reduce carbon emissions 80% by 2050?" he said, calling climate change "the mother of all issues."

They spoke at the EnergyBiz Leadership Forum, a two-day conference sponsored by EnergyBiz Magazine, USA Today, Energy Central, Oracle Utilities and several other companies.

"We've only got two objectives: to make sure consumers have enough power, and make sure they can afford it," English said. But both of those goals look increasingly hard to carry out, he said. Even with multibillion-dollar annual investments in carbon capture and storage technology, 2020 is the earliest anyone can expect CCS to be operable, he said. Until then, and perhaps beyond, utilities have to eliminate coal as a choice for new power plants, because Congress is bound to pass legislation soon that will make coal-fired power much more expensive, he said.

"We are removing our primary fuel of choice for the last 20 years," English said. "How in the world are we going to get through this?"

On climate change, APPA "would like to see the right bill" come out of Congress sooner rather than later, Crisson said. In today's economic environment, Congress is likely to be more sensitive to consumers' concerns, he said.

"We think it's important to minimize the impact on the consumer," Crisson said. That is why APPA is opposed to a proposal in the Obama administration's budget that calls for the federal government to auction off carbon emission allowances to the highest bidder. Under that proposal, the government would sell 100% of the allowances.

"We don't like this approach at all," said Crisson. "We think a cap-and-trade system is a thinly veiled tax and we have concerns around auctions," he said. One of those concerns is that prices may be volatile. Another is how the market could influence the auction process. APPA also is concerned about where the revenues would go, he said.
"We'd rather see a direct fee or tax," he said.

If a cap-and-trade system is used, all of the allowances should be allocated, rather than auctioned, at least in the beginning, he said. Then, the auction process could "grow at a pace that ensures protections for consumers," he said.

"We think it's extremely important that any climate bill isn't a tax collection bill," and that any auction revenues stay within the energy communities, said Kuhn. Price collars should be built into the auction system, "so the price doesn't fluctuate wildly to the benefit of traders," he said. EEI has endorsed a set of principles for climate change legislation that calls for half the emissions allowances to be allocated, and the other half auctioned. Gradually, the allocated allowances would be scaled back, he said.

How to handle allocations may be the biggest issue in the debate over designing a cap-and-trade program, Kuhn said. He agreed with Crisson that it will be important to avoid rapidly escalating electricity prices, which would cause a backlash by customers.

Marty Rosenberg, editor in chief of EnergyBiz Magazine, asked English whether he thinks Congress understands the issues involved.

"I don't think they get it," English replied. "I don't think they've focused on it. That's scary, when you realize how short a time we have. If we are going to have a strong climate change bill, that will severely limit the options available to us. Some time during the next decade, we will see brownouts and blackouts in some areas," he said. "We will see large price increases. I don't think the public is prepared for that."

Some people think their bills will go down because of the new emphasis on renewable resources such as wind and solar power, and there is a perception that "the wind and sun are free," English said.

On the contrary, he predicted, "We're going to see rates go up very steeply."

"We need time to inform consumers of what is coming because I don't think they have a clue," Crisson said.