Duke Energy's Rogers discusses impact of air regulations on energy investments

With new air regulations coming online and many utilities easing their use of coal-fired generation, what will the technology trends in the electric power sector be over the next 10 years? During today's OnPoint, Jim Rogers, chairman, president and CEO of Duke Energy, discusses game-changing technologies and the role subsidies should play in promoting these new energy sources. Rogers also weighs in on carbon tax discussions, changing leadership at U.S. EPA and his company's decision to shut down the Crystal River nuclear plant in Florida.


Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jim Rogers, chairman, president and CEO of Duke Energy. Jim, it's great to have you on the show.

Jim Rogers: Monica, I'm delighted to be here with you.

Monica Trauzzi: Jim, we're hearing that EPA will likely be delaying finalizing its new source performance standards, and that the agency could even be considering revising the rule. What's your take on what may be happening behind the scenes at the agency right now?

Jim Rogers: I think there's some recognition, and this is all conjecture, that the rule they had contemplated would not stand judicial scrutiny, and so they stepped back to see if they can design a rule that will pass appeal. And so that I think is the challenge they face. Quite frankly, we all know they really don't have the authority to do this. It's Congress that should be the ones addressing the climate issue.

Monica Trauzzi: One of the things that EPA may do with an NSPS revision is separate coal plants and gas plants into distinct source categories. Do you think that that's a viable option?

Jim Rogers: Well, the - each has different emissions of CO2. Emissions of CO2 from gas is about 50 percent of coal, but they both emit CO2. And so maybe the distinction is the amount of CO2, and that's why there are two classes, but other than that, I don't see the basis for it.

Monica Trauzzi: You said that EPA doesn't have the authority to be moving forward with these regulations. Explain that. I can't let you go with that one. Don't they have authority under the Clean Air Act to do this?

Jim Rogers: I think the Clean Air Act when it was passed in 1970, and then you had the Clean Air Act amendments in 1990, they didn't really envision carbon regulation. The bottom line is I've always believed we need to put a price on carbon, but I think the EPA doesn't have the ability to put a price on carbon. And so what we need to move to a low carbon world is we need a price on carbon. Only Congress can do that.

Monica Trauzzi: And so then what's your view of the carbon tax discussions that we've seen around town, legislation being introduced? Is that a good route for the U.S. to be taking?

Jim Rogers: I'm old school. I believe cap and trade is the appropriate approach, even though it's been demonized. But if you look at a carbon tax, we need to be realistic about it. Every person that I've heard that's talked about carbon tax, they talk about taking those revenues and using it to fund entitlement programs, to deal with the deficit, deal with the debt, deal with anything but climate change. My belief is if you're going to do a carbon tax, then that money should go back to the utilities in the states where it was collected so they can de-carbonize their fleet, invest in energy efficiency. That would be the fair thing to do, and it would be consistent with why you're collecting the money. So when a politician tells me they want a carbon tax because they think there ought to be a price on carbon, and then they want to use the money for something else, I don't believe they are committed to solving the climate change problem, and they view this as a way to generate revenue, not to deal with the issue.

Monica Trauzzi: Moving any type of carbon legislation at this point is highly unlikely. I mean, it's just not politically viable with the current Congress. So EPA will be acting. Gina McCarthy is the President's nominee to head up EPA. What's your view of her? Around town we're hearing that folks are thinking she's going to be willing to listen to industry, sit down at the table with folks. What do you think?

Jim Rogers: I have a strong belief, given her past experience in leading the EPA equivalent at the state level, that she will be open to all ideas, she will balance the interests, and I think she's a true professional and has a history of being able to regulate in a thoughtful way. So I have a lot of confidence in her, and I believe she will be a strong leader of the EPA.

Monica Trauzzi: As head of the largest electric power holding company in the US, what will the technology trends be in your sector over the next 10 years, as we see regulations or possibly legislation coming online and coal fired power plants shutting down?

Jim Rogers: To answer your question, I take kind of a quick look back. We couldn't envision five years ago that shale gas would play the role that it's playing today, and as we talked about carbon a moment ago, think about it. Today, our emissions of CO2, we've reduced it 16 percent off 2005 level. If Waxman-Markey was in place, the goal line was to reduce it by 2020 to 17 percent. If you look at our country, because of shale gas and shale oil, the bottom line is that we're at a 1992 level. Now the falloff in our economy is part of that answer, but the reality is we've used technology to get to where we are. If I look out to the future, shale gas is going to continue to play a major role, but there is a development of small module reactors. We're going to have to start building new nuclear to replace the retirement of nuclear plants in the late '20s and '30s. But also, the thing that's so amazing is the amount of new technologies that are going to translate into productivity gains in the use of electricity. So I think the demand of electricity, there's going to be a lot of downward pressure on demand, and the era in the nineties and before of two to three percent growth is gone. Growth in demand for electricity is going to be about a half a percent. That's kind of a consensus, to one percent. I believe, I'm more bearish than that over the longer term, because of these new technologies that's going to help you, help others, use energy more efficiently.

Monica Trauzzi: What role should subsidies be playing in promoting these new technologies?

Jim Rogers: Well, that's, you know, the interesting thing is, take solar. A dollar a watt was the holy grail. Now we're at about $0.60 a watt. There's visibility into $0.40 a watt. We're reducing the cost of installation. So we're going to reach a point where a subsidy is not going to be necessary, particularly in some states where rates are higher. We operate about 1,700 megawatts of wind and solar, and in fact, we have used battery technology, the largest battery unit at our Notrees site in Texas. It's a 34 megawatt battery. But I think there is a role for renewables, wind and solar, in the future. The subsidy question as the price comes down for solar, as I described, it's coming down for wind, I think the subsidy goes away when they become competitive.

Monica Trauzzi: I want to get one final question in here. Your company has decided to shut down the Crystal River nuclear plant in Florida. Folks down there are unhappy. They believe rates are going to be going up as a result of that. Is the shutdown of that plant any indication of what role nuclear will be playing in your energy portfolio moving forward?

Jim Rogers: I would say that Crystal River is a one off and not a indicator of what's going to happen in the future in the role of nuclear in the United States. The unique situation there is they attempted to repair it and failed, and we looked at the risk and the cost of repair and made a decision that the cost would be too great if we reduced the risk to the appropriate level, and as a consequence we made the decision to retire it. But I look at the new technologies, like the AP1000, I look at 25 nuclear plants being built in China. When we get ready to build new nuclear in this country, we're going to have the cost right, we're going to have experience with building it, and I think it will play a critical role in the future.

Monica Trauzzi: All right. We're going to end it right there. Thank you for coming on the show. Nice to see you.

Jim Rogers: Nice to see you, Monica. Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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