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2007 CEO Forum: Greenhouse Gauntlet

Tackling climate change is a monumental challenge. Power-company CEOs discuss long-range plans for a climate-friendly energy economy.

Fortnightly Magazine - June 2007

minimally penalized by carbon legislation. That’s the result of a structural decision. It wasn’t an accident. The value of our fleet will continue to increase with carbon regulation.

On the other hand, in terms of growing our business, we are situated like every other company.

On the margin we could build coal, gas, or nuclear capacity. We’d be very unlikely to build coal that didn’t have carbon capture associated with it, because it doesn’t make sense in this environment. Personally, I think new nuclear will prove cheaper than carbon capture. But whether it is new nuclear or coal with carbon capture, the cost of the next generation of power capacity, including wind and other renewables, will be significantly higher than the prices prevailing in most parts of the country. That is an economic challenge for all of us.

I’d like to say it’s good news because the value of our power plants goes up, but this will be a source of stress for our customers as we go forward. Carbon regulation isn’t necessarily a windfall for nuclear because there are costs in the markets and regulatory structures affecting their value. And gas is no longer the free lunch it once seemed to be.

We’ve been working on allocation systems, looking for ways to make sure customers are fairly treated. Some of our customers have carried extra costs for a long time by being nuclear dependent, and customers who had low costs from coal historically will have to pay a little more to bear this cost going forward. The whole issue of the allocation system will be very complicated.

Michael Chesser, Great Plains Energy: As a coal-based utility we potentially will be impacted by GHG regulations more than the average utility in the United States. Prices will go up, but there also will be some positive consequences for our stakeholders. I believe the focus on GHG will allow us to pursue strategies that will add value for our customers, continue predictable growth in shareholder value, and provide our employees with an even more stimulating work environment as we apply new ideas and techniques.

We are in a growing service area. We will have to add capacity between now and 2015, and we have some older coal-fired plants that will be affected. As we look to our options, we have opportunities for wind-power development in Kansas and Missouri, but we also have significant potential for energy efficiency improvements and conservation.

The economics of conservation are compelling. By upgrading a typical building with high-efficiency lighting, windows, and HVAC, we can reduce energy consumption by about 30 percent, and we can do it for substantially less per megawatt-hour than it would cost us to build a new base-load plant. The customer value proposition is compelling too, because the building owner gets new equipment with less maintenance headaches, better comfort and better lighting. This is a real opportunity for utilities to add value for their customers.

A financial regulatory structure is necessary to incent us to do that, but with the proper regulatory structure, we could handle