How will industries be affected by the new climate plan being crafted by Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.)? During today's OnPoint, Ralph Izzo, president and CEO of PSEG, explains how utilities will be affected by a tiered approach to emissions regulation. He also discusses concerns over U.S. EPA's move to regulate emissions.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Ralph Izzo, president and CEO of PSEG. Ralph, thanks for coming on the show.
Ralph Izzo: My pleasure, Monica.
Monica Trauzzi: Ralph, as early as this week we could be seeing language for a new draft climate bill that will step away from the cap and trade that we saw passed in the House last year. From what we've heard so far, this new bill would tackle separate industries. What's your take on how utilities would fare with this approach that Senators Graham, Kerry, and Lieberman are sort of talking about right now?
Ralph Izzo: Well, utilities have long realized that we're one of the primary competitors to greenhouse gas emissions. Some estimates are 35 percent, others are 40 percent, some estimates have us ahead of transportation, others have us behind transportation. So, I think we've known for years that we're going to be an integral part of combating climate change, so to have us featured in it, to me, is not a big surprise and it's something that the industry needs to step up to.
Monica Trauzzi: We're already hearing a lot of opposition though to this type of approach because many believe that the utilities are being unfairly targeted because they're going to be controlled and regulated from day one, as opposed to some of the other industries that might have a little extra time. Do you think that that's a fair argument?
Ralph Izzo: No, I don't. I am a huge proponent, for example, of creating electric vehicles wherever possible; so, by extrapolation, I'm a huge proponent of going from utilities being 40 percent of the issue to being 80 percent of the issue if we electrified all the transportation. So how can I say that the 80 percent shouldn't go until the other 20 percent comes along? Now, having said that, I do think the problem is so big that an economywide approach is important and the legislation should phase in when the other parts of the economy will have to participate as well. I don't think we should leave that to be ignored, because there may be some low-cost ways of reducing carbon in other parts of the economy.
Monica Trauzzi: How concerned are you though that this kind of approach may lead to higher energy prices for consumers?
Ralph Izzo: Well, to the extent that it leads to higher energy prices I would hope that we'd have the policy foresight to figure out ways to use those revenues to either offset those energy costs or to offset our tax burden or to offset our deficit. So, the reality is the market right now is not pricing in the long-run costs of the environmental consequences of using fossil fuels. So we need to get that in there if companies like ours are going to make smart decisions about what assets to build and operate for the next 40 to 60 years.
Monica Trauzzi: So, would your company support this sort of tiered approach that they're talking about now in the Senate?
Ralph Izzo: Yes. Our company would, yes.
Monica Trauzzi: Senator Lindsey Graham was recently quoted as saying that cap and trade, as we know it, is dead and he received some heat for this. Would you agree with that, that cap and trade is dead?
Ralph Izzo: It certainly seems if not dead, it's on a respirator that is run by batteries that are running out of their ability to deliver energy. So, to us, the most important thing is that we get a price for carbon that's visible to investors and to users, whether that's cap and trade or some other approach is secondary. The price signal is what's essential.
Monica Trauzzi: With utilities having such a major influence on the Hill do you see this new approach getting enough votes?
Ralph Izzo: Well, I think that it will if utilities do what we've always done so well, which is say, OK, we understand where policy wants to go, now, let us help you understand what the implications of that are for your voters, our customers, they're one in the same, and how we can help make this something that's better for everyone. And I do think that there are some things that we can do to the existing legislation that's been discussed about how emission allowances are allocated to reduce the economic impact on customers. And I do think that there's some things we can do to simplify the overall bill that had gotten fairly unwieldy.
Monica Trauzzi: Can you go into some specifics there?
Ralph Izzo: Sure, sure, I mean, utilities, as I said before, right now produce about 40 percent of greenhouse gases. Well, if you want us to be the only ones who are regulated, you probably ought not give us only 35 percent of the allowances. Who's going to get the other 5 percent if we're the only ones being regulated? So then you should give all 40 percent of the emissions allowances to our customers so that their cost impact is not as severe as it would otherwise be. That's the simplest example. The second one that you should think about is no one really knows how this is going to work, so let's make sure that there's some upper limits and some lower limits on how much carbon can cost. The lower limit will give people some encouragement to say, well, I know I should invest because it's never going to go below that price. And the upper limit simply says, wait a minute, if technology isn't ready to meet that emissions reduction, do I really want to pay that much more and impose that much of an additional cost burden on customers so quickly?
Monica Trauzzi: EPA regulation is obviously another big factor that we're all watching. What are the main questions that you have about how EPA regulation may impact your industry?
Ralph Izzo: Well, I think that many of us realize that best available control technology is something that is a little bit tougher to define in the case of CO2 emissions. My early engineering days suggests that a perfect combustion results in two things, water and CO2, but now CO2 is under the endangerment finding a pollutant. So, what control technology is there that minimizes or eliminates CO2? The reality is the Clean Air Act is not the optimal tool to regulate carbon. I give the agency credit in saying I've got a problem here, I'm going to use whatever tools are at my disposal to solve this problem, but it's a far distant second to legislation that creates a more applicable tool to this.
Monica Trauzzi: But they are moving forward with it.
Ralph Izzo: And I think that they should. I think that the longer we wait the bow wave of challenges that we create will only become that much more expensive to combat. And let's just set aside the environmental issues for a moment; let's just talk about the fact that some of us, companies that are investing in new technologies, are having conversations nowadays with suppliers. And, unfortunately, those suppliers all have addresses that read China, France, Israel, Germany, Japan, and very few have addresses that read Nebraska, New Jersey, California and New York. So we're really forfeiting a long-term, clear economic opportunity. Whether you believe cap and trade has to happen or pricing carbon has to happen in this Congress or the next Congress, everyone knows that environmental forces are pushing us in a certain direction. Why forfeit such a huge lead to other economies?
Monica Trauzzi: If some form of climate legislation does not pass it's possible that the Democrats will try to push an energy-only package and that could include a renewable electricity standard. New Jersey has its own in place at this point. How would a national RES impact the progress that your state has made and that your company has made?
Ralph Izzo: So, based on the numbers that I've heard, our state won't be affected by that because our targets are more aggressive than most of the targets I've heard people describe for a national standard. Having said that, I think the benefit of a national standard is that it will attract suppliers and producers and entrepreneurs and that will help us in New Jersey gain access to technology that will come down in price. So, if the market opportunity is $5 billion and the market opportunity becomes $500 billion, then I will avail myself of the participants in that market to be able to deliver those same technologies at a lower cost.
Monica Trauzzi: And what percentage of the energy that you guys are producing is coming from renewables at this point?
Ralph Izzo: Well, right now it's in the low single digits, Monica. I think it's about 2 percent and the aspiration is to be more like 20 percent.
Monica Trauzzi: OK, we're going to end it right there. Thank you for coming on the show.
Ralph Izzo: My pleasure, thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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