(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
CEO Roundtable: Debating The Boucher Bill
Utilities consider imposing a retail surcharge to fund clean-tech R&D.
When OPEC boycotted the United States in October 1973, the resulting energy crisis rocked America’s economy. Among the many consequences of that crisis, American industries and consumers began burning more natural gas instead of oil. Consequently gas prices doubled, tripled and then quadrupled over the decade from 1974 to 1983.
In the midst of the energy crisis, the American Gas Association (AGA) assembled a coalition of gas utilities, pipeline companies, gas producers and political leaders to address a fundamental problem—namely, the industry was spending too little on research and development (R&D) into technologies that would improve efficiencies all along the value chain, from gas well to water heater. R&D funding suffered because regulators in many states wouldn’t allow pipelines and utility companies to recoup research costs in retail rates, and unregulated gas producers had little incentive to invest in research that would benefit their competitors.
AGA’s solution was to ask the Federal Power Commission (FERC’s predecessor agency) to create the Gas Research Institute (GRI), and to finance it with a nationwide surcharge on interstate gas sales. GRI invested the proceeds in more than 100 private-sector R&D projects, many of which paid off handsomely for the industry and its consumers. (See “ Cultivating Clean Tech ,” Fortnightly, May 2008.)
Now, America’s electric utilities face circumstances similar to what the gas industry faced during the 1970’s energy crisis. But this time, instead of a multi-national oil cartel, America itself is the culprit—staging what amounts to a boycott against its most important power-generation fuel: coal.
Most recently, the EPA’s environmental appeals board ruled on November 13 that regulators in EPA’s Region 8 must reconsider developing a CO 2 emissions limit as part of the region’s New Source Review process, and “develop an adequate record for its decision.” (See In re Deseret Power Electric Cooperative, Nov. 13, 2008.) Whether or not the decision “freezes the coal industry in its tracks,” as a Sierra Club representative asserted in a Time article on November 14, it deepened the industry’s uncertainty about the future of coal in the U.S. power mix.
Of the more than 150 coal-fired power plants on the drawing board just a few years ago, all but a handful have been canceled or indefinitely delayed as a result of converging forces—most notably, the looming threat of future greenhouse-gas (GHG) regulation, and a tidal wave of popular sentiment favoring alternative ( i.e., non-fossil) sources of energy. Additionally, carbon capture and sequestration (CCS)—coal’s high-tech white knight—has suffered a barrage of bad press and policy setbacks. In January 2008, the U.S. Department of Energy (DOE) “restructured” the zero-emissions FutureGen project, effectively killing it as originally envisioned, and at least two coal-rich states withdrew support from CCS demonstration projects—raising fears that even coal’s allies were having doubts about the viability of CCS. Electric Power Research Institute (EPRI) President Steve Specker told the New York Times in May 2008, “A year ago,  was an