Electric Power Industry Scrapping Over Government Handouts and Mandates

Peter Behr has written a thoughtful piece about the somewhat confusing – to outsiders – legislative battle royale over climate change/energy legislation that is working its way through the US Senate after squeaking through the US House of Representatives. You can find the report on the New York Times web site in the Energy and Environment section with the headline Power Industry Infighting Heats Up Over Climate Legislation.

Peter does a good job of describing how diverse the power utility industry really is. There are regulated utilities that have plants mostly burning coal, unregulated “merchant” suppliers whose generators burn natural gas, regulated utilities with a large nuclear power plant fleet, electric power cooperatives with a balanced mix of purchased power, coal, gas and hydro, and many other combinations of regulated versus merchant and various fuel sources/generating technologies. As Peter points out, there are many “sides” in this discussion and the specifics of the language adopted can have a large economic cost or benefit depending on the specific situation of the electricity supplier.

An unlikely alliance of public power providers, electric cooperatives, utility consumer advocates and utility commissioners joined together yesterday to attack the allotments provision of the House bill that they say would give windfall profits to merchant power providers with no assurance that the funds would be invested in reducing carbon dioxide emissions.

“The current provisions basically amount to a $4 billion annual giveaway” to the merchant generators, said Mark Crisson, president of the American Public Power Association, citing a study by Synapse Energy Economics Inc., of Cambridge, Mass., that APPA helped commission. It was released yesterday.

Those are, not surprisingly, fighting words for the merchant generators who have invested in lobbying efforts to help shape the bill to reduce its cost on their operations and to provide some recognition of their historical investments in lower emission generating sources. Near the end of the article, you can find this quote:

Matt Most, managing director of environmental policy for Edison Mission, criticized the Synapse study on behalf of the coal generators group, saying Synapse assumed that the current generation breakdown among coal, natural gas, renewable and nuclear power would remain unchanged if cap and trade and a renewable energy standard became law.

“Clearly, the cost of carbon will make fundamental changes in how electricity is produced,” said Most. Wind is going to continue to grow, and natural gas will displace coal, he said. “That is the very assumption this paper [Synapse’s study] is avoiding.”

There is a related article by Katherine Ling, also published by the New York Times titled Nuclear Title May Not Be Enough to Push Senate Climate Bill Over the Top that exposes another aspect of the debate – not only are electric utilities fighting each other for better positioning, but partisan politics is having a significant role. When it comes to generating massive quantities of electricity without producing any air pollution, it is hard to beat atomic fission, which produces 800 billion kilowatt-hours every year with zero production of CO2 while coal combustion produces about 2000 billion kilowatt-hours per year but also emits about 3 BILLION tons of CO2.

Some Senators, mostly Republicans led by Lamar Alexander, are distressed that the Waxman-Markey Bill (formally known as The American Clean Energy and Security Act of 2009 (ACES)) essentially ignores nuclear power as a major tool for addressing climate change while also enabling continued access to low cost energy. However, that is not the only concern that they have. Many, including Senator Bob Corker do not like the way that the ACES sets up the cap and trade marketplace with free allowances and fuzzy offsets that might send money out of the US to unmonitored tree planting programs. The partisan part of the discussion becomes quite obvious in the following quote from the article:

The underlying question for sponsors: If nuclear incentives are not enough to get undecided senators on board with cap and trade, what is the point of including them at all?

“I think the question is who do you get who you weren’t going to get?” Romm said. “I think that obviously there is no point in adding stuff to the bill if you are not adding more votes for it. Republicans like nuclear, but I don’t think they are going to vote for this bill.”

Romm believes it will be an agreement with China on reducing emissions or even natural gas that will get the necessary senators on board. For instance, the natural gas industry sat out of negotiations in the House but have said they want more input into the Senate bill. And Louisiana, Arkansas, Pennsylvania and “a lot of interesting states” — i.e. senators who may vote for the climate bill — have discovered a good reserve of potential natural gas recently, Romm said.

Yes, the Romm that is quoted is Joe Romm, a long time Democratic Party operative, natural gas promoter, and political appointee from the Clinton Administration. He completely ignores the questions about how the ACES treats nuclear power that have been introduced by Democratic senators like Tom Carper, Benjamin Cardin, and Amy Klobuchar.

Energy supply options, air pollution and climate change are all interrelated and terribly important issues that will not be solved if participants try to turn it into proposal that will follow party lines. As the 44 Democratic “No” votes on ACES showed, this is an economic issue that will set up a different playing field where winners and losers will be determined by new rules. My hope is that the rules are as fair as possible, that they do not reward long time polluters because their free pollution has provided them with economic power, and that they do not try to use legislation to turn uncompetitive energy supplies of opportunity into something that seems able to compete.

I know that many participants in the discussion are loath to provide atomic fission with access to the same kinds of encouraging incentives provided to other emission free power sources, so I have a modest proposal with three simple, low cost components.

• Get rid of “cap and trade” and its politically negotiated free allowances and reliance on the same traders who brought you our current economic conditions.
• Discourage air pollution by taxing it and using the revenues to provide payouts to the owners of our common atmosphere – every living person with a set of lungs.
• Provide the Nuclear Regulatory Commission with adequate resources so it is not the choke point that adds unnecessary, market-altering cost and delays because of insufficient capacity to review applications.