Climate Legislation: a Better Alternative

By Richard C. Kelly, Chairman, President and CEO of Xcel Energy

After years of scientific research and public debate, America has reached the practical consensus that we must address climate change. Our company, Xcel Energy, agrees –and so do our customers, who have joined us in promoting cleaner energy alternatives for the future.

If the debate about whether to act is over, however, the debate about what to do is just beginning. As Congress begins to create a national climate policy, I believe a few simple principles should guide its deliberations.

First, any program to reduce greenhouse gas emissions must focus on the deployment of the new, cleaner technologies that are emerging today. Second, the nation should not abandon our domestic energy resources and become more reliant on natural gas imports and other foreign sources of energy. Finally, no national climate change policy can be successful unless it reduces emissions at a reasonable cost.

The easy way out
Today in Washington, the preferred climate change policy appears to be placing a ‘cap’ on the nation’s carbon dioxide emissions and allowing companies to ‘trade’ permits to emit at levels that decrease over time. Under a cap-and-trade system, many of the nation’s utilities would face a difficult choice: purchase expensive carbon emission credits, or switch to a low-carbon fuel to generate electricity. The easy way out would mean a switch to natural gas. Natural gas emits approximately half the carbon that comes from a traditional coal plant in order to produce the same amount of electricity. Problem solved, right? Hardly.

Energy prices would rise dramatically if a significant portion of the nation’s coal-fired generating fleet were scrapped in favor of natural gas. According to a recent study by the Department of Energy’s Energy Information Administration (EIA), even modest carbon cap-and-trade legislation could increase a typical family’s future electricity and gas bill by $366 per year or more. The impact on individual commercial and industrial energy users could be measured in the millions of dollars. According to an MIT study, some of the more stringent cap-and-trade policies now being proposed would cause electricity prices to increase by 36 percent.

Moreover, to meet increased natural gas demand, our country would have to import significantly more gas from foreign countries, further hampering our efforts to attain energy independence. At the same time, utilities would have little incentive to develop the new, clean technologies critical to meeting the challenge of climate change.

But the true unintended consequence of a carbon cap and trade program would come in the form of home heating costs that would hit low-income families the hardest. These families spend a large percentage of their income on heating, and they could face dire circumstances if natural gas prices skyrocket because of a cap-and-trade program.

In other words, a carbon cap-and-trade scheme will inevitably fail the three principles set forth above.

A better alternative
I believe there is a largely overlooked alternative that will reduce utility greenhouse emissions at low cost while protecting the nation’s energy security. The alternative is a clean energy portfolio standard (CEPS), similar to that proposed by Senator Pete Domenici (R-NM) on June 13.

Similar to the successful renewable portfolio standards already found in many states, but unlike a cap-and-trade plan, the CEPS would mandate that utilities generate a portion of their electricity using renewable energy. Unlike a renewable portfolio standard (RPS), the CEPS would also encourage them to pursue other clean energy resources, including low-emission coal technology and advanced nuclear generation. These technologies would allow utilities to reduce carbon dioxide emissions far more than renewable technologies alone. In addition, a CEPS would enable utilities in regions without access to renewable sources like wind to aggressively seek alternative generating resources instead of relying solely on purchasing renewable energy credits (REC). Most importantly, the CEPS would directly promote the best energy resource of all: conservation.

This flexible combination of options would spur technological development for long-term carbon emissions reduction without adversely impacting customer electricity rates. The Department of Energy predicts that a CEPS would affect electricity prices imperceptibly – only two hundredths of a cent (0.02¢) per kilowatt-hour. And natural gas demand and prices would actually be lower when compared to business as usual. The need to import new natural gas supplies would be reduced, and home-heating costs would likely go down. In short, CEPS would help transform the utility industry and its technological base, reduce reliance on imported energy sources, and reduce carbon dioxide emissions at very low cost.

Our customers tell us that they are concerned about the environment and that they want to make the planet a better place for future generations. Our nation has always taken pride in its innovative spirit. I believe we can apply the same spirit to the challenges of climate change and energy security – with the right public policy. CEPS is just such a policy, and it should be on the Congressional agenda.

Recent investments
Xcel Energy is investing $1 billion in Minnesota to convert two coal plants to natural gas and refurbish a third with state-of-the-art equipment to control emissions. It’s a voluntary effort that’s going to add 300 megawatts to the utility’s capacity, improve air quality and generate a solid return. In fact, the projects are progressing so well that Xcel recently proposed a similar effort at its Sherco plant near Becker.

In Colorado, the company is building a coal unit at its Comanche facility that will add 750 megawatts of new power. “Even though we are more than doubling the generating capacity of the entire facility, emissions of sulfur dioxide, nitrogen oxide and mercury will decrease,” says CEO Richard Kelly. “That’s because we’re adding advanced emission-reduction equipment to all three of the plant’s units.”

Investment in transmission is just as important. In the Upper Midwest, Xcel is making great strides on a major construction project to bring wind power from the Buffalo Ridge in western Minnesota to the Twin Cities metro area. In both Minnesota and Colorado, it’s teamed up with other utilities to take a proactive and regional approach to transmission needs. The effort is further along in the Midwest, where Xcel will soon be seeking regulatory approval to build more than 600 miles of transmission lines.

Committed to energy efficiency
The Clinton Global Initiative announced today that eight utilities – Con Edison, Duke Energy, Edison International, Great Plains, Energy, Pepco Holdings, PNM Resources, Sierra Pacific Resources and Xcel Energy – are committed to seeking regulatory actions to increase their investment in energy efficiency by approximately $500 million annually from 2010 to 2016.

This commitment will raise their total investments in energy efficiency to about $1.5 billion annually and reduce carbon dioxide emissions by 30 million tons by 2016 – equivalent to removing six million cars from the road. It also will avoid the need for 50 500-megawatt peaking power plants.

The eight utilities, which represent nearly 20 million customers in 22 states, also committed to the creation of a national institute for electric efficiency to develop regulatory models and convene supporting conferences in the power sector. This institute would be formed within the Edison Electric Institute, which represents the nation’s investor-owned electric utilities. The new institute will be open to interested parties – both domestic and international – who share its commitment to energy efficiency.

“Increasing our energy efficiency goals is an important step in reducing greenhouse gas emissions. Energy efficiency is often the clear first choice our customers can make to reduce our impact on the environment and manage energy costs,” said Richard C. Kelly, Xcel Energy Chairman, President and CEO.

Xcel Energy spends more than $85 million annually on energy efficiency programs for its residential and business customers. Overall, Xcel Energy’s efficiency projects save enough energy to satisfy the electricity needs of 39,500 homes annually. In Minnesota and Colorado, Xcel Energy also recently backed successful legislation that increases its energy efficiency goals. As part of its environmental leadership strategy, Xcel Energy looks for additional opportunities, and partners with state agencies and regulators, to identify additional energy efficiency goals beyond current regulatory commitments.