By Michael T. Burr

Every article we publish in Public Utilities Fortnightly is incomplete. The virtual cutting room floor is always littered with content that didn’t fit for one reason or another.

For this year’s CEO Forum feature story, we asked several utility leaders about climate change regulation. Very little of what they said made it into the June cover story, “Conservation Compact,” so we’re presenting a more complete edit of their responses here in the Public Utilities Blog.

While it’s fair to say none of the CEOs departed far from their corporate message about the topic, their comments illustrate growing concerns among utility executives about how to regulate greenhouse gases fairly and effectively.

Chris Dutton, Green Mountain Power

Fortnightly: Given your experience in a RGGI state, what’s your perspective on federal greenhouse gas regulation? How can utilities reach a compromise on GHG regulation and allocation methodologies?

Dutton: I think the better and fairer approach is a carbon tax. Whether that’s politically feasible is another issue, but that’s a more competitive and less cumbersome approach than a cap-and-trade program, which has a whole host of complications associated with it.

New England as a region has a relatively small carbon impact, in terms of generation, because of the predominance of natural gas and nuclear power in the supply. There’s very little coal in New England, so those issues are a little different for us than they are for parts of the country that depend on coal-fired generation.

One of the things we’ve been able to do outside the power supply arena is to change the way we behave in the four corners of our business. We’ve converted all our line trucks and operating vehicles to biofuels. And we operate with an office blueprint that is radically different from what’s typical in our business. At Green Mountain Power there are no private offices. I as the CEO have a work area that’s about 9’x9’, and we have low partitions. There’s no private office. That’s meant we require a lot less office space than is traditionally the case, and you can guess the corporate culture advantages this approach brings. We try to be very transparent in our behavior within the company and in our interactions with both regulators and the general public, and a part of that transparency is the idea there are no hidden agendas. Part of that concept is no private offices.

We’ve been operating this way for about eight or nine years and we just love it. It gives the place a sense of energy and direction that didn’t otherwise exist. But also, shen you operate in a place that doesn’t need as much space, you don’t need to heat and cool it.

J. LaMont Keen, Idaho Power

Fortnightly: What’s your perspective on mandatory greenhouse gas regulation?

Keen: GHG regulation now seems certain to happen. The presidential candidates both support regulation in some form and it has been ruled that carbon is a pollutant that EPA should regulate. The discussion now centers on how and what type of regulation will occur.

Whatever the form carbon regulation takes, it’s important that regulatory efforts be applied economy-wide. We recognize the electric utility industry is probably the easiest to regulate, but if carbon regulation is to succeed no single sector should be unfairly burdened. More importantly, time frames should also be consistent with development of the carbon capture and sequestration technologies needed to comply.

If applied appropriately, either a carbon tax or a carbon cap-and-trade mechanism could work. Either way, the key is getting adequate research dollars collected and applied toward developing the necessary technologies.

In a cap-and-trade program, how allowances would be apportioned is the million dollar question, raising serious issues of effectiveness and fairness no matter how the apportionment is done. Whatever method takes place, it is appropriate that companies gain some recognition for the wisdom of earlier decisions to invest in and develop emission-free forms of generation.

Fortnightly: How will the industry reach a compromise on that? I’m hearing diametrically opposed views on this.

Keen: I don’t believe it’s appropriate for the allocation method to come out in a way that’s biased against companies with a smaller carbon footprint today. Some of the concepts I’ve heard discussed might do that.

I think it’s very speculative at this point. The devil truly is in the details, and it’s going to be a divisive issue for the industry. It’s possible for the industry to come together and strike a balance, but we have some fundamentally different starting positions for the discussion.

Bill Johnson, Progress Energy

Fortnightly: What’s your perspective on federal greenhouse gas regulation?

Johnson: Carbon regulation is a certainty. We believe that a well-designed cap and trade system will have the least negative impact on our customers and the overall economy, and will help us make real progress toward a low-carbon economy. An effective climate change policy must be achievable with timelines that are in harmony with technology. It must also be affordable, with reasonable allowances that put all states and players on a level field, and include provisions that protect consumers from rate shock and limit the damage to the economy.

Fortnightly: What would a level field look like for a ratepayer in a state that already has a relatively small carbon footprint, and has been paying high rates for a long time? Should their climate friendly infrastructure pay off in this level field?

Johnson: This whole subject is pretty complicated. When allocating allowances, those most affected by the new standards should get the most mitigation. Coal dependent customers will carry the brunt in two ways, paying for emissions and paying for new infrastructure. We need to have no-cost allowances in the early years, and more costs as technology develops.

Allocation of allowances ought to be based on emissions levels. Carbon emissions is where the allowances ought to go. I don’t think it’s a good idea to try to increase rates in some parts of the country because rates in other parts are higher. That doesn’t seem like a sound public policy basis for addressing carbon emissions.

Mark Jacobs, Reliant

Fortnightly: What’s your position on federal GHG regulation?

Jacobs: We’re committed to environmental stewardship. The best approach is a national policy rather than state by state. We believe a cap-and-trade system is the best approach, because it has worked incredibly effectively for SOX and NOX, and we also think it’s important that any legislation provide enough lead time to allow new technologies and market forces to work.

Energy efficiency is one of the easiest and most cost-effective approaches to addressing GHG emissions, and the smart energy things we’re doing will have a meaningful impact on the carbon footprint.

What happens to credits and allocations of allowances will get a lot of attention and debate, but we believe there should be a bridge provided for existing generation, and some of the proceeds raised by the auction need to go into development of new technology. We don’t think it’s appropriate to be taking proceeds and subsidizing known technologies. Someone might say they ought to get a price break for building a nuclear plant, but the prices are such today that people will build it without the incentive. We ought to take the proceeds and put them into the technology solutions to store CO2.

Dennis Wraase, PHI Holdings

Fortnightly: Given your experience in RGGI states, what’s your perspective on federal greenhouse gas regulation? How can various utilities and generating companies, with different resource strategies, reach compromise on things like allocation methods?

Wraase: As someone who operates in four states—which fortunately are somewhat together in RGGI—I think it would be far better to have a federal standard than to have 50 states doing 50 different things. Also the sooner we get to this, it will solve an awful lot of problems with power plants that need to get built and technology that needs to get developed.

A lot of the efficiency projects we do don’t include social cost. So once a dollar value is assigned to carbon, there may be more efficiency projects that become cost beneficial. That would be helpful.

As for a compromise, I’m not sure the industry will ever come around to agreeing, and neither will the states. This is a winners-and-losers proposition. That’s why I’m one of those who’d be more in favor of a tax as opposed to cap and trade. It avoids a lot of problems associated with how you allocate allowances, which is highly controversial. A tax is easily understood and can be applied economy wide.

Posted: June 24th, 2008 under carbon regulation, climate change, energy policy.
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