When regulators grant changes to utility rates of return, they estimate growth on the basis of gross domestic product (GDP). But do utilities have any chance of growing at the same pace as GDP?...
Risk Management Forum: Desperately Seeking Liquidity
Troubled markets drive defensive tactics.
develops options in resource acquisition, planning what steps we’ll take to accommodate load, higher or lower than what we’re projecting. Having those options in our planning process allows us to make sure we’re not trapped and acquiring too much or too little of the supply resource.
Fortnightly: What do you see as the most important political and regulatory risks facing Xcel? How are you positioning to address them?
Dybalski: I think the biggest risks we see for regulation are related to climate change and overall energy policy. This is true at the federal and state levels. We’ve expected this for some time, so for instance we’ve taken steps to add considerable amounts of wind generation to our mix.
The risk isn’t necessarily the need to reduce CO 2 and things like that, but the way it’s done and the potential that regulations could change. We could go down one direction—for example to meet a renewable portfolio standard that calls for X percent of wind generation—and three or four years into it the regulations could change out from under us. That potentially changes what investments we have to make, and that could change the whole cost structure, which would affect our customers.
From a financial hedging perspective, that would be difficult to manage. Realistically, the volumes and costs are too large. You can trade CO 2 credits and those kinds of things, but [financial hedging isn’t possible] for the magnitude of political risks that we’re talking about. It goes to the regulatory and political arena to manage these risks.
We have a vice president of environmental policy whose role is to work with regulatory bodies, legislators and political parties to ensure we have a seat at the table, and policies are developed that we understand. We’re pretty certain there’s going to be regulation and limits on CO 2. That’s fine, we can deal with that once we know what those regulations are and we know they’re unlikely to have material changes through time.