Diversify, Diversify: The Future of the Electric Utility Industry Will Depend on How Well We Balance Environmental, Energy, and Economic Goals
Rogers, James E., Forum for Applied Research and Public Policy
With the growing national demand for more electric generation, energy producers more than ever need the certainty that a comprehensive, longer-term multiple-emission reduction program would bring. In considering a long-term, comprehensive approach to power plant emissions, Congress must consider the uncertainties and challenges posed to the electric utility industry by the issue of climate change. If, indeed, legislation is intended to build some kind of certainty into our planning process, climate change must be on the environmental road map.
Some in the electric utility industry believe that any plan that considers climate change will doom our industry. I disagree and, in fact, am a firm believer that no climate change policy can be successful if it ignores coal, our most plentiful domestic natural resource.
With more than 250 years of proven recoverable reserves, coal is uniquely positioned to meet America's growing energy demands. In 1970, according to the Edison Electric Institute, America used 320 million tons of coal to generate electricity. By 1998, demand grew to 944 million tons, a l95-percent increase.
Generating electricity from coal is also significantly more affordable than the traditional alternatives: natural gas, nuclear power, and hydropower. On average, coal-based generation is about half the cost of natural-gas-based generation.
Coal-fired power plants supply more than half of the nation's electricity. But very few new coal plants are being built because they face a battery of existing and proposed emission-control requirements from federal and state agencies and even neighboring countries. The existing and proposed new requirements are focused primarily on the reductions of four power plant emissions: sulfur dioxide, nitrogen oxide, mercury, and carbon dioxide.
These requirements are unnecessarily duplicative, contradictory, piecemeal, and expensive. For example, the new requirements of the U.S. Environmental Protection Agency's current regulatory approach, including a 90-percent mercury reduction by 2008, would cost the electric industry and its customers more than $10 billion per year between 2010 and 2020.
As a result, the electric power industry faces enormous uncertainties as it tries to develop appropriate plans to upgrade plants and add pollution-control equipment. Utility planners are even more challenged by the need to ensure that their customers continue to receive reliable and affordable energy.
The unfortunate results of today's "regulatory soup" are unnecessarily high costs for both consumers and shareholders, longer down times for our generating stations, and continued uncertainty in an industry that is critical to human needs and the U.S. economy. The net result is that our collective progress toward cleaner air has not been what it could or should be.
As one of the nation's leading diversified energy companies, Cinergy has a lot at stake in today's regulatory climate. We have a total capitalization of $9 billion and assets of 12 billion. Our energy merchant segments (1) own or operate nearly 21,000 megawatts of electric and combined-heat plant generation in the United States and overseas. Approximately 13,000 of those mega-watts comprise our core system of 14 baseload stations and seven peaking stations, located in Ohio, Indiana, and Kentucky, where we serve 1.5 million electric and 500,000 retail gas customers.
We have made substantial investments in renewable energy; including such distributed generation systems as combined-heat-and-power plants, microturbines, and other emerging technologies. (2) But much of the electricity we produce here in the United States is generated by coal-fired power plants located in the Ohio River valley.
Last year, we burned 29.2 million tons of coal in our generating stations, and we project that our coal consumption will continue to grow in the foreseeable future. …