Saturday, May 17, 2008

More talk of rising rates

As we've been saying here for well over a year (much longer in print and speeches), rates are going to head higher--in some areas, much higher. Recently bloggers and industry analysts have picked up on this issue and are also writing about the coming increases. Here's a piece first reported in the South Florida Business Jouranl and then picked up by MSNBC:

Global warming bill could raise natural gas, power costs
By Kent Hoover
South Florida Business Journal
updated 7:00 p.m. CT, Sun., May. 11, 2008

High gasoline prices may be today's energy crisis, but electricity rates and natural gas prices could become even bigger headaches for businesses in the future.

Pending legislation to cap greenhouse gas emissions would increase the cost of electricity and natural gas, according to a new analysis by the Energy Information Administration. The federal agency studied the potential impact of the Lieberman-Warner Climate Security Act, which would cap emissions of carbon dioxide and other gases tied to global warming. EIA projects the legislation would reduce carbon emissions in 2020 by up to 36 percent below what they would be under current regulations.

More than 80 percent of the emissions reductions would come from the electric power sector, EIA projected. This would be achieved through expanded use of nuclear power and renewable energy sources, as well as deploying carbon capture and sequestration (CCS) technology at fossil-fuel power plants.

If cleaner sources of power and CCS technology are not developed quickly enough, electric utilities would increase their use of natural gas as a substitute for coal, according to the study. This would result in "markedly higher" natural gas prices, EIA predicted.

That would impact Florida Power & Light Co., which relies on gas to generate 50 percent of its energy. The company gets 20 percent of its power from nuclear power, and recently announced plans to add two reactors to its Turkey Point plant near Homestead.

FP&L only gets 5 percent of its power from coal; the remainder is from oil or purchased from other utilities.

FP&L has filed to increase the average consumer bill by about $2.50 next year to help pay for the two reactors, according to news accounts of regulatory filings.

Nationwide, the proposed regulatory changes would increase the price by 5 percent to 27 percent by 2020, compared with what would happen under current regulations, according to EIA. By 2030, the price would be 11 percent to 64 higher.

These higher energy costs would hurt the economy, with the impact growing worse over time as the emissions caps become more stringent, according to the study. Manufacturing would be the hardest-hit sector, EIA predicted.

Higher costs worry manufacturers
The Lieberman-Warner bill "runs the risk of doing more economic harm than environmental good," said John Engler, president and CEO of the National Association of Manufacturers.

"Manufacturers are the most natural gas-intensive sector, and affordable natural gas is essential to the long-term competitiveness of manufacturing and the U.S. economy," Engler said. "We cannot continue to propose increases in the price of natural gas while failing to expand domestic gas exploration and increase investment in nuclear energy technology."

The U.S. Chamber of Commerce contends the bill's timetable for greenhouse gas reductions is unrealistic.

"In fact, the only way to get there - without shutting down economic activity - would be to use technologies that don't yet exist," chamber President and CEO Tom Donohue said.

'Price signals' to spur innovation
Development of these new technologies, however, would accelerate if Congress caps carbon emissions, environmentalists say.

The legislation would distribute allowances for carbon emissions and allow companies to trade them. Companies with low carbon emissions, for example, could sell allowances to companies with high emissions.

This cap-and-trade system would send "price signals" that would unleash investment in new energy technologies, said Eric Svenson, VP of environmental health and safety at Newark, N.J.-based energy company Public Service Enterprise Group (PSEG).

Economic projections often miss the impact of technological advances, said Dan Bakal, director of electric power programs at Ceres, a Boston-based coalition of investors and environmental groups.

"There is no model that can adequately capture the ability of our industry to innovate," he said.

Electric utilities are "on the cusp of making massive investments" over the next 10 to 15 years to meet future demand, said Melissa Lavinson, director of federal environmental affairs and corporate responsibility at PG&E Corp., the San Francisco-based parent of Pacific Gas and Electric Co.

(FP&L's new nuclear plants may cost up to $18 billion.)
Congress needs to enact climate change legislation soon so that utilities are "making the right investments," Lavinson said.

The impact of the legislation on electricity users, including businesses, could depend on how allowances for emissions are distributed. A report by Ceres, the Natural Resources Defense Council, PG&E and PSEG concluded consumers would benefit if as many allowances as possible were auctioned, instead of given to utilities. Proceeds from the auctions could be used for energy efficiency programs, investment in clean energy technologies and rebates for consumers, the report said.

Energy efficiency is the most cost-effective way to reduce greenhouse gases, Bakal said.

Reducing the gases could be critical to the local economy. Scientists have linked them to global warming and rising sea levels, which could threaten the coastline and water supply.

Global warming bill
Status: Senate will consider Lieberman-Warner Climate Security Act (SB 2191) in June

Establishes progressively lower caps on greenhouse gas emissions.
Distributes emissions allowances, which could be traded and banked.
Provides economic incentives for carbon capture and storage.
Tightens appliance efficiency standards and building efficiency codes.
Source: Energy Information Administration

© 2007 South Florida Business Journal

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