Wednesday, May 16, 2007

Up Up and Away…An Electric Power 2007 Recap

Have you checked your electricity bill lately? Chances are your rates have gone up. From east to west, north to south, electricity rates in America are on the rise. Although no one specifically addressed rate increases, the bulk of the speakers at the recent Electric Power 2007 Conference reported on issues that directly impact the escalating costs of power generation.

So what are these issues? There are three basic factors at play here:

1. Public demand for solutions to global warming
2. Increased global demand for commodities
3. Tight labor market.

Global warming. In the past, environmental concerns have come and gone. Will this time around be different? With the prospect of global warming on the horizon, many think so. Strategists at major power companies across the country are recognizing that the public demand is real and that they must be a part of framing the solution. As Duke Energy’s CEO has stated in the past, “If you are not at the table, then you are on the menu.” Today Duke’s strategists, among others, are calling for carbon legislation at the federal level to avoid fifty states imposing their own plans.

Although many recognize that automobiles also contribute to the problem, accounting for almost 25 percent of CO2 emissions, it is pretty clear that it is easier—politically—to hold the electricity industry’s feet to the fire rather than the auto industry—and the nation’s drivers of autos. After all, as Robert Peltier, Editor in Chief of Power magazine said, “Cars vote, power plants don’t.”

So, the most likely scenario is that the big energy companies are going to continue to carry the largest regulatory and financial burden for decreasing greenhouse gasses even as the economy grows and the demand for power increases. And at every step of the way, as regulatory and financial burdens increase, they will be passed on to the ratepayer.

Commodities. Part of those burdens are reflected in the rising costs of building new plants to meet increased demand and of bringing existing plants up to original design efficiency with new technologies. From time spent in the permitting process to construction and operation, everything costs more. And with tough competition for commodities coming from rapidly-developing China—where a new power plant comes on line practically every week—we’re going to see costs escalate even more. Because China is building so many new power plants, the demand for commodities has escalated dramatically. In fact, here at home, project costs are being dramatically revised upward well before ribbons are cut and ground is even broken.

Labor. As the global economy grows, the demand for power increases and more power plants are in the planning stages around the world. The big question is who’s going to run them. The supply of qualified labor in the U.S. is shrinking as the existing talent pool ages and fewer qualified personnel move into the market. Drawing new talent into the workforce is a daunting task that requires increasing pay incentives and opportunities.

While there are other issues impacting rising rates, these three are the fundamental drivers that are reflected in higher costs to end users as well as long-term challenges to the industry at large.

All of these issues are dissected and analyzed in "Lights Out: The Electricity Crisis, The Global Economy, and What You Can Do About It," now available at www.amazon.com or your local retail bookstore.

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