Should the electricity sector be allocated more free allowances in the Senate's version of a cap-and-trade bill? What impact will a "price collar" have on price volatility and market manipulation? During today's OnPoint, Thomas Kuhn, president of the Edison Electric Institute, explains why his industry is lobbying for a "price collar" in the Senate bill. He also discusses why he believes allocating more free allowances to the electricity sector will benefit consumers.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Tom Kuhn, president of the Edison Electric Institute. Tom, great to have you on the show.
Thomas Kuhn: Great to be here, thank you Monica.
Monica Trauzzi: Tom, with Senate EPW gearing up to release its draft of a climate bill later this month your organization is pushing for some changes from the House version. And one of the things you're lobbying for you is a price collar. What benefits do you think we might see if something like that were implemented in this Senate version?
Thomas Kuhn: Well, Monica, I think what you're in right now in terms of this debate is what I call a battle of the models. The EPA model says it's only going to cost 100 or $200 a family. The NAM model says it's going to be in the thousands or whatever. So, I think that people really are very concerned about the ultimate cost to the customers and I think if you have a price collar you can put a number out there that says, well, the price won't exceed a certain number, say the EPA number in the studies and you can also have a price floor that says it won't go down below a certain number. That's very important because you need to incent technologies.
Monica Trauzzi: But would that have any negative impact on the environmental benefits of the bill?
Thomas Kuhn: Well, it depends on how you restructure it and I think if you structure it right you can use all the mechanisms first before you would hit that price, no additional allowances and additional offsets, taking some from the reserve allowances for example and things of that nature, borrowing from the future. So before you would actually hit that number you have lots of tools to use.
Monica Trauzzi: Midwest utilities are concerned with the current allocation of allowances because they'd be facing a higher burden because they get most of their energy from coal. So what can be done in the legislation to alleviate some of the pressure on these utilities or should something be done?
Thomas Kuhn: Well, I think, again, you're very worried about the price impacts to customers and in the Midwest, obviously the industrial heartland, you're worried about whether or not you'd lose jobs overseas. One of the things that we feel very, very strongly about is that more allowances should go to the utility sector. We are representing 40 percent of the overall carbon emissions and we are expected to do so a lot more than 40 percent in terms of reductions if you read everything that energy information administration and others say. So, because of that factor, to mitigate impacts in customers you should have the allowances at least up to 40 percent.
Monica Trauzzi: Several consumer groups though a re a little concerned about the impact that allocating more allowances to your industry would actually have on consumers. I mean it's not like more money would be pushed towards the utilities and that would directly trickle down to the consumers. I mean only a percentage would.
Thomas Kuhn: Well, I disagree with that 100 percent. You know, the whole idea of our plan was to make sure that the money did get to the consumers and through the local distribution companies with the oversight of the regulatory utility commissioners. Those regulatory utility commissioners are very used to dealing with the issues of how to make sure the money gets back to the customers and they certainly did that under the Clean Air Act.
Monica Trauzzi: What about the business and industrial users? Don't they get a larger percentage of the money?
Thomas Kuhn: I have never seen a regulatory utility commissioner make sure that the industrials were going to get a larger percent of the money than their constituents, the residential and commercial customers.
Monica Trauzzi: Outside of the Cabinet ...
Thomas Kuhn: But they need protecting too incidentally.
Monica Trauzzi: OK.
Thomas Kuhn: Because higher electricity prices for them mean that they might become noncompetitive and, again, shipping jobs overseas.
Monica Trauzzi: OK, outside of a cap and trade there are many other provisions in a climate and energy package that would have direct impacts on your industry. So should the Senate move to pass only the energy provisions? If it comes down to the line and it looks like cap and trade just doesn't have the votes, should they look at sort of those energy efficiency provisions, the renewable electricity standard and try to get those through?
Thomas Kuhn: Well, I think that basically there are many very good provisions that came out of the Senate Energy Committee that we would be very supportive. You know, we think that they should be melded with a climate bill and move forward together so that you have a comprehensive policy. If you just move an energy bill I think that people will say, well, let's deal with these issues via renewable energy standards or energy efficiency standards. We are pushing very, very hard on both renewables and energy efficiency, but if you try and mandate higher and higher numbers of renewables and energy efficiency you're not letting us use all the tools and all the technologies to encompass the least costly way to do reductions in climate change. We need all the technologies to make that happen.
Monica Trauzzi: So as prospects for passage of final legislation seem less likely for this year, EPA is sort of emerging as a more likely vehicle for emissions reduction. What will that mean for your industry if EPA does come down with some regulations?
Thomas Kuhn: Well, we don't think that the EPA regulation is the right way to go. I think that basically the administration agrees with us. I think people in Congress agree with us, most of the business community agrees with that too.
Monica Trauzzi: But they're still moving in that direction.
Thomas Kuhn: They are and they will tell you that they're mandated by the Supreme Court to do that, so we're not arguing that point. We're just saying that legislation is a lot better. If you have EPA regulation you have no trading, you have no banking, you have no borrowing. You've got plant-by-plant regulation as opposed to an overall comprehensive scheme as to how to try and do this with the least cost.
Monica Trauzzi: This is a transformative period for your industry. Is your industry ready to take on the challenges, a complete overhaul of your business models in order to adapt to a low carbon economy?
Thomas Kuhn: Well, Monica, I am very proud of the fact that our industry, again, three years ago came out and the first industry to do it, maybe the only industry to do it still up to this point in time, saying that we do agree to take on this challenge, that we are interested in going out there and trying to reduce carbon emissions by 80 percent by the year 2050 and that we need to move toward low-carbon technologies in order to accomplish that. But we've done a lot of analysis and a lot of work between now and that period of time that will show us that in order to do that you have to use all the technologies and that you should have the cost containment mechanisms to make sure that we don't get a backlash from customers in the future if the price is too high.
Monica Trauzzi: You're in close contact with all of the committees that have jurisdiction over this legislation. What's the tone from the committee members? What are you hearing about the prospects for this legislation, how far it might actually get?
Thomas Kuhn: Well, I think that basically there are a lot of people that are very supportive of dealing with the important issues of energy and climate change. We're the number two issue on the table, maybe behind health care, and so I think they want to find a way to get it done. And just like anything else it's important to find at the middle ground how to do things in a way that enables us to accomplish those tasks without major cost increase to the consumers. And that's why issues like a price collar and making sure the allowances get to the customers are so incredibly important.
Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show.
Thomas Kuhn: Thank you Monica, thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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