The U.S. utility industry has never faced a more uncertain legal and regulatory landscape. From FERC demand-response pricing to state ratemaking disputes, legal trends and decisions are reshaping...
Can We Afford Climate Regulation?
Lawmakers are rushing a costly decision.
per household median), the average residential customer could be expected to see a lesser overall economic impact than the national average—in the range of $11 a month per household. This amount is calculated based on El Paso Electric customers’ demographic distribution as estimated by the company’s load research department (see Figure 1) .
While $11 a month might not sound like a significant increase, it represents roughly 16 percent of the average El Paso Electric residential customer’s monthly bill in a region where 52 percent of the households are in the lowest 2 quintiles of national average income.
If the ERCOT estimate is used as a starting point, and given El Paso Electric customers’ lower usage in comparison to the rest of Texas, it could be surmised that the utility’s customers can expect an average increase of approximately $14 per month by 2013 just for electricity (an approximate 20 percent increase). El Paso Electric’s energy mix, however, is different from that of most utilities in ERCOT (of which El Paso Electric isn’t a member) and that fact likely would affect the cost to customers.
The analysis gets interesting and costly when El Paso Electric looks specifically at its own situation. Using one reasonable set of assumptions, the company utilized a costing model that addresses the issue in three sequential pieces—energy efficiency, renewables and carbon emissions. Per the model, El Paso Electric predicts a potential and significant rate increase for customers of 44 percent, or approximately 4.5 cents per kWh by 2020—equal to about $25 a month. El Paso Electric modeled a scenario in which it would achieve a 2 percent energy efficiency gain and a 9 percent gain in installed renewables. The remaining 9 percent requirement (of the total 20 percent for 2020) would be met by making alternate compliance payments (ACPs) at $32 a kWh.
Based on the proposed House legislation, it appears that the more allowance penalties El Paso Electric pays, compared to installing or purchasing low-emitting energy, the less its total bill might be. That is, the expected ACP cost should be cheaper than new, low-emission resource installations. It’s not altogether clear how available and what the exact cost of credits and allowances will be, however, and it might be dangerous to assume that low-cost, alternative emissions mitigation will even be an option.
Renewables and Reason
One interesting sidebar to this discussion is that the cost of legislation actually might be more affected by renewable energy requirements than by emission reduction mandates. H.R. 2454 requires that by 2020 utilities must supply 20 percent of delivered energy from qualified renewable sources—wind, solar, bio-mass, certain hydro, etc.10 (Nuclear doesn’t qualify.) Utilities may achieve 5 percent to 8 percent of the total requirement via qualified energy efficiency gains.
In order to achieve such a target, however, and as an example, El Paso Electric seemingly must install, enter into power-purchase agreements or purchase credits or allowances for nearly 800 MW of renewable energy by 2020, in addition to what it currently plans for in its most recent Loads & Resources planning document