As U.S. EPA prepares to regulate emissions from large stationary sources early next year, what will the impacts be on utilities? How will the switch from coal to natural gas affect the industry's bottom line? During today's OnPoint, Mark Crisson, CEO of the American Public Power Association, discusses a new study that examines the costs of switching from coal to natural gas for electricity production. Crisson explains how Congress can address the issue legislatively and talks about why utilities may benefit from a lack of regulation in the short term.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Mark Crisson, CEO of the American Public Power Association. Mark, it's nice to have you back on the show.
Mark Crisson: Thanks, good to be here.
Monica Trauzzi: Mark, your organization recently commissioned a study that takes a look at how the use of natural gas over coal will impact electric utilities once some type of emissions regulation is in place. What did you find?
Mark Crisson: Well, what we found was that there are significant issues associated with the transmission, storage, and operation in the natural gas system if there's a significant increase in demand in the future due to the use of natural gas for electrical generation. The study doesn't focus so much on the supply side of the equation. As you may know, there's been a lot of talk and a lot written about increased reserves on the natural gas side. So we want to understand more of the nuts and bolts, whether there were some other issues associated with delivery and operation if, in fact, there was increased reliance on natural gas in the future.
Monica Trauzzi: So, basically, what we're finding out here is that investments will be very costly in order to get to the natural gas capacity that will be required.
Mark Crisson: Well, that's one of the conclusions, that's correct. We didn't really look at the cost of drilling and production and that sort of thing. We did touch on some issues related to the supply. We think there's some questions that aren't entirely answered yet, both environmental and economic in nature. But most of the study focuses on the delivery question. And it's not so much that we can't build pipelines for example. In fact, I think the industry has been very successful in building new gas pipelines over the last 20 or 30 years. But there is a significant investment that would be required if, in fact, we're looking at significant increases in demand.
Monica Trauzzi: So, what conclusions do you draw then? Should we not move forward with as much natural gas development?
Mark Crisson: Well, the piece wasn't intended to advocate a position. What we were trying to do was identify potential speed bumps or barriers in the road ahead. We're interested in preserving all fuel sources going forward to maintain a diverse fuel supply for our membership. But the study was really undertaken at the urging of our membership, who is increasingly concerned, because what they were seeing on the one hand was a lot of talk about natural gas as being a bridge fuel to a low carbon future. But that was happening against a backdrop, as you alluded to, of increasing regulation, particularly on coal plants. And that regulation is underway today and is impending in the near future. And as those regulations are implemented by the Environmental Protection Agency, I should say these are under existing statutes, you know, the Clean Air Act, the Resource, Conservation, and Recovery Act, it raises real questions about the financial and economic viability of coal plants. So, one alternative would be gas and so we wanted to understand, given the potential reliance on gas, what were some of the practical issues we'd have to confront? And so we're not saying they're insuperable. The report doesn't say they can't be addressed, but it raises, I think, a lot of questions that need to be taken into account as policymakers move forward with the development of energy policy for the nation.
Monica Trauzzi: OK and so what can they do in the policy that's being crafted to address some of these issues?
Mark Crisson: Well, I think they need to recognize that all resources come with their pros and cons and then there may be practical limitations to the amount of reliance we ought to place on natural gas for electrical generation. So, without specifying a specific number, it's just something that ought to be factored into the thinking and planning as we move forward.
Monica Trauzzi: So, what does this mean? Be a little more lenient when it comes to coal? Use a little more coal?
Mark Crisson: I think, as we look at…as the regulators look at how these regulations are implemented, the timetable in which they're implemented. I think there needs to be a recognition of how this could affect our base-load thermal supply. So they have a job to do. There are laws in place that need to be recognized and acknowledged and implemented in the form of regulation, but I don't think we can ignore the reality that over the last three decades, both because of policies that are in place and the absence of policies, we've developed a resource base that produces 50 percent of our electricity with coal. And our membership is no different than the rest of the industry, we have a number of members that have heavy reliance on coal and that needs to be taken into account in our planning.
Monica Trauzzi: Is there a difference in the impact if we see legislation versus regulation through the Clean Air Act?
Mark Crisson: Well, there could be. Certainly, there's been some legislation discussed about potentially delaying the implementation of regulations under the Clean Air Act that address greenhouse gases, for example. I'm not sure whether that's going to move forward or not. We think that makes a lot of sense, because, among other things, I think there's a recognition the Clean Air Act wasn't really designed or intended by its authors to address something as ubiquitous as greenhouse gases. So, yeah, that would be something that we would, I think, support, taking a longer look at the issue and making sure we come up with what I would say is a response, a creative and thoughtful response to the problem that we're all confronting.
Monica Trauzzi: So, it sounds like there are still some significant hurdles for utilities to overcome, but, at the same time, we're seeing the majority of utilities backing cap-and-trade legislation or some form of climate regulation. Why do you think that is?
Mark Crisson: Well, our members, we represent over 2000 publicly owned power systems around the country and we support federal legislation to address climate change. We have some reservations about cap and trade and I'm not sure it's accurate to say that most utilities support cap and trade. I know some do, but most of them I think support it with specific conditions and reservations. Our concern on cap and trade, besides the mind-boggling complexity of the markets that would be created, are the impacts on the consumer. You know, we're consumer owned. We tend to view issues through that lens. And we have been dissatisfied, I would say, with the kind of cost controls that have been presented in most of the bills and legislation that's been discussed and acted on to date.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Mark Crisson: OK, my pleasure. Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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