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Electric Vehicles and Gas-Fired Power

A strategic approach to mitigating rate increases and greenhouse gas price risk.

Fortnightly Magazine - December 2011

there’s a cost to emitting GHGs, then the low-risk electrification scenario looks the most favorable to the electric utility. This scenario shows a forecast of low retail rates, moderate growth in the revenue requirement and low greenhouse gas emissions. It’s important to clarify that these results aren’t predicated on the existence of a carbon price in the form of a cap-and-trade policy. However, the electrification scenario only makes sense in the presence of some compliance costs associated with greenhouse gas emissions. Given that the U.S. EPA is already taking steps to reduce greenhouse gas emissions from power plants, it doesn’t seem like much of a stretch to assume that the future will hold increasing emissions abatement costs for electric utilities.

EV Policy Action

The Duke Carolinas case study demonstrates that utilities stand to gain from the deployment of electric vehicles due to increased sales and revenue. In some cases electric vehicles may help utilities reduce their average retail rates compared to a business-as-usual scenario. However, the carbon price risk associated with electric vehicles could far outweigh these benefits unless specific policies are implemented with respect to obtaining carbon offsets or credits due to the deployment of these vehicles. In the Duke Energy Carolinas service territory, the price risk of emissions from electric vehicles alone could represent a cumulative $11 billion dollars risk over the period from 2011 to 2030. This price risk is calculated as the difference in utility cost under the high-risk electrification scenario and the low-risk electrification scenario between 2011 and 2030.

There are a range of implementable solutions that would not only remove utilities’ financial disincentive associated with vehicle electrification, but which would also reduce emissions cost risk and help to reduce retail rates. Specifically, three policy changes would encourage utilities to embrace electrification and make state and federal electrification policy goals more likely to succeed:

1) Implement utility GHG emissions accounting rules to share emissions savings benefits from electric vehicles: A policy to encourage utilities to promote electric vehicle adoption could be implemented at the state level, and would credit the utility for a significant portion of the emissions savings generated by electric vehicles. In its simplest form, this might be a law or a regulatory accounting rule that gives a pre-determined emissions credit to the utility for every kWh of sales to electric vehicles. This policy would reward electric utilities for increasing electric vehicle penetration in their service territories, while mitigating emissions cost risk.

2) Allow electric vehicles to count as part of a utility’s flexible compliance strategy with other energy policies and emission reduction goals: As an example, renewable portfolio standards are generally defined as a percentage of total utility sales that must be met with renewable energy. These policies can create conflicting incentives for a utility when paired with a vehicle electrification program if the renewable electricity requirements increase in proportion to new electrification loads. To ensure that utilities don’t see new electrification as a RPS compliance cost risk, policymakers should provide flexible compliance options for meeting RPS standards that account for new vehicle electrification