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Can We Afford Climate Regulation?

Lawmakers are rushing a costly decision.

Fortnightly Magazine - December 2009

(see Figure 2) . This is a staggering amount, considering the company’s current peak native system demand is in the range of 1,550 MW.

Because of the renewable requirement, most anticipated GHG-emissions reduction mandates for El Paso Electric likely will be met already by virtue of having significantly more renewable, zero-emission resources installed or purchased.

In total, El Paso Electric estimates that the H.R. 2454 could cost the company roughly $2 billion more than it had planned to spend on capital generation investments over the next 10 years. To put that number into perspective, El Paso Electric’s total current plant-in-service is approximately $2.3 billion. 11

Regardless of the methodology used for estimations, it seems safe to assume that climate legislation will cost end-user consumers in the years to come. The question is to what level that cost will climb. The company believes it must prepare itself, its regulators and its customers for a scenario in which rates might rise by perhaps 40 percent by 2020, directly related to the House version of legislation.

El Paso Electric understands, accepts and embraces its social responsibility to reasonably ensure an environmentally friendly model of operation. In fact, the company has a good start on that effort already. Its carbon footprint intensity from generated sources in 2008 was approximately 0.31 tons of CO 2 per MWh, less than half the national average of 0.67. 12 This is primarily because El Paso Electric’s energy mix is weighted heavily with nuclear and lightly with coal. In addition, by 2018 El Paso Electric plans to have replaced approximately 75 percent of its existing natural gas-fired local generating capacity with new, more efficient (and therefore less emission intensive) gas units.

From a legislative solution perspective, many utilities would prefer a mechanism that sets an absolute per-unit value on emissions limits in future years, rather than a requirement that all emitters reduce by a given percent, as required in the proposed cap-and-trade model, so that customers and utilities, such as El Paso Electric, aren’t effectively penalized for having a low carbon footprint already.

For example, if a limit of 0.50 tons per MWh were established as the national intensity target to be met by 2020, the resulting national emissions reduction could be on the order of 500 million tons of CO 2 from electricity generation annually. Entities not meeting prescribed targets could be assessed an ACP commensurate with the overrun on a per-ton basis that’s returned to end-use consumers in the form of energy efficiency incentives. There might be other reasonable alternatives to a cap-and-trade structure as well.

Treading Cautiously

The underlying scientific intent of climate legislation is to provide future generations with a greener planet. But what really will be the price and the effect? What cost should consumers be asked to pay for an environmental benefit that might be difficult to measure? What will consumers find acceptable in terms of cost for a solution that, at best, might slow the onset of a climate-altering Armageddon, and, at worst, might have little if any actual environmental impact?

The struggle for