Energy Markets:

NARUC President Jim Kerr discusses state regulators' take on global warming legislation

As lawmakers focus their attention on addressing climate change, how are utility regulators on the state level responding to global warming and the push to cap emissions? And how might climate change legislation affect ratepayers? During today's OnPoint, Jim Kerr, president of the National Association of Regulatory Utility Commissioners, explains why he believes state regulators should be involved in climate talks on Capitol Hill. Kerr also urges lawmakers to take a more holistic approach to addressing climate change, by considering options such as Yucca Mountain for storage of nuclear waste.


Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Joining us today is Jim Kerr, president of the National Association of Regulatory Utility Commissioners and a member of the North Carolina utility commission. Welcome to the show.

Jim Kerr: Thank you, Mary, glad to be here.

Mary O'Driscoll: I wanted to talk to you, global warming as the overriding issue that's just, everything energy and environment related is focused on global warming. You've got Congress talking about getting ready to act, both Republicans and Democrats. You've got industry trade associations talking about trying to work with Congress on doing something on global warming. What about state regulators? Where are the state regulators on the global warming issue?

Jim Kerr: Well, Mary, as your question suggests we, as an organization see the level of activity both on Capitol Hill and in the trade associations and we are an organization not of environmental regulators, but economic regulators, but these issues affect us because they ultimately because they ultimately affect the ratepayers that we serve, both in terms of the cost of such efforts to deal with global warming, but also have direct effects on the resource decisions. And we are responsible for citing and planning resources. So while we're not environmental regulators we certainly are affected by these discussions and feel like we should be prepared for them and that we should have a seat at the table as these discussions go forward on Capitol Hill. I would also add that some states and some regions have already been working on these issues, so to some extent we bring some level of experience to these discussions. And so what we looked at within the organization was that this was an issue that would cut across several of our disciplines and so we have announced the formation of a task force within our organization looking at the key committees; energy resources and environment, electricity committee, gas committee, critical infrastructure, as well as our executive committee. And I've announced this group, appointed this group, and tasked them with looking at, from a policy perspective, as bills start moving on Capitol Hill, what policies do we currently have? If we don't have what we need, let's get it. So we're going to develop policy in order to respond Congress. The other piece of that is I think to educate our membership. These are very complicated issues. So while we are seeing trade associations and others come out with fairly high-level principles, and I suspect we'll come out with some high-level principles, there's also a lot of detail in terms of the various approaches, a carbon tax, a cap and trade system. And we need to get up to speed educationally, so we're tasking this group with putting together the right educational resources programmatically for our membership. And then also we've been actively involved in the national action plan on energy efficiency. We are actively involved in some efforts in working with our colleagues at FERC. And so to some extent, to coordinate how we, as an organization work with these other efforts on efficiency, on related topics. And so we are trying to get organized, to get caught up a little bit to all this activity on the Hill because, ultimately, what we want to make sure is as these policies are really environmental in their focus are looked at. That the voice of the rate payer and those of us who stand between these policy decisions and those who will be asked largely to pay for them, that our voice is part of that discussion. It requires us to get prepared and then to participate and so that's what we're trying to do.

Mary O'Driscoll: Well, as state regulators you're really on the front end of these things. The state regulators are the ones who approve or deny the utilities ability to build these power plants.

Jim Kerr: Right, exactly right.

Mary O'Driscoll: And so this is something that's really very urgent for you because a lot of companies are talking about building power plants.

Jim Kerr: Right.

Mary O'Driscoll: So, you know, state regulators have to make these decisions kind of on-the-fly, even without any kind of guidance, because there's no real policy coming out of Washington.

Jim Kerr: I think that's exactly right. That level of uncertainty, you know, when you look at, you know, we have kind of a confluence or the timing is not optimal. We are experiencing increasing demand in this country. We have a need for new generation. We have a need for new baseload generation. At the same time, there's this growing concern about carbon. You know, we've effectively dealt with other emissions, SOX and NOX and whatnot. But now there's this concern about carbon, yet we're trying to meet demand out in a three to four to five year time frame and there's uncertainty about how carbon might be regulated. So how do you factor that into these decisions? The cost effectiveness of various technologies. There's a lot of talk about potential technological solutions, but none of those, IGCC for instance, none of those have been scaled up commercially.

Mary O'Driscoll: Right.

Jim Kerr: You look at nuclear as a potential solution on the climate issue. But then what do you do with the spent fuel problem? You look at natural gas as a potential solution, certainly more benign from a carbon footprint standpoint. But we've had high and volatile commodity costs, which those cap costs are reflected in the end-use price. So, as I think I said from the bench in a recent citing case we had, you know, to some extent you're being asked to choose your poison or choose between some not very good options. Or each option has its pluses and its minuses. And I think, in particular with carbon, until Congress does something it's hard to know how to price that into those decisions. And so, to some extent, there's a lot of guesswork involved.

Mary O'Driscoll: Well then, I guess what do you do? I remember at the recent NARUC meeting here in Washington that a lot of your colleagues were very concerned about this because they're stuck. They have these utilities that have these plans that are before them and they've got to make decisions before Congress is even going to start addressing this issue.

Jim Kerr: Yeah, and I think, well, first of all, no one said when we took these jobs they were always going to be easy. Some days they are, some days they're not, so you just do the best you can. I think what most reasonable people would say is that the best approach in the midst of such uncertainty is to try to diversify your approach. The answer - there's no silver bullet, so what you try to do it is put a portfolio of good answers. And that is that if coal, pulverized coal is the best option, move forward, but move forward cautiously. Move forward in a way that you hope will lessen the risk or at least create the opportunity that if technology comes in down the line you have the opportunity to take advantage of that. But to try to have a diverse set of fuel supplies coming into your generation portfolio is probably the best you can do in this environment. But I also think you also inform the policymakers here on Capitol Hill. I mean I think you try to make sure that folks understand that while there is momentum or growing concern around an issue like that there are real practical limitations, especially in the near term, or even in the intermediate term, to what you can do. Efficiency is a good idea, but certainly renewables, but they're not cost competitive or, you know, across the board. So you try to make sure that the policymakers understand that and don't get so enamored by the carbon issue that they forget that there are practical limitations. But also too, I mean if you look at the juxtaposition of Congress taking on global warming or carbon policy and yet not also acting on Yucca Mountain, the funding of Yucca Mountain. Or taking on carbon and still impeding access to additional supplies of natural gas, I mean these issues aren't isolated. And what I would hope we could bring to the discussion is a more complete picture of how these various policy positions, if not handled holistically and reasonably, could really create a disaster for the end-use rate payer. And its residential ratepayers, it's consumers, it's industrials, it's the global competitiveness. I mean the cost of energy is a big part of these industrial bills, cost structure. And, you know, Congress needs to understand that before they get too enamored with the carbon issue.

Mary O'Driscoll: OK, well, tell me, on the subject of rising costs, you know, the costs have been rising. There have been concerns about many things, everything from the lifting of the price caps in states that have gone competitive to concerns about coal supplies and the fact that there have been some problems with the rail system in getting coal to the power plants, which, of course, then raises questions about whether the power plants will have enough coal, whether they're going to have to switch, that kind of thing. You were part of a recent event that highlighted the concerns about coal.

Jim Kerr: Right.

Mary O'Driscoll: What's going on with that?

Jim Kerr: Well, we did participate in CURE which is a group of rail customers which have banded together to seek some action in Congress to help bring some reasonable regulation of what is not really a very competitive industry, the freight railroad industry in the country. And some folks on the Senate side have introduced a bill that would take away the antitrust exemption that the railroads have enjoyed. And then there's another bill and their companions on the House side, and the second bill hasn't been introduced on either side, but I think will be today, which would look at the Surface Transportation Board and try to bring some more reasonable regulatory approaches to what really isn't a particularly competitive industry. But the way this affects electricity is that coal is a predominant generation source. Unreasonable freight regulation leading to higher prices and unreliable service have really affected electricity consumers, be they munis, co-ops, or vertically integrated customers, in a couple ways. First the transportation element of coal, it affects the all-in price of coal. Secondly, unreliable service means you can't run the coal-fire generation has often, and so you must run oil, gas, more expensive generation sources. All of these additional costs are passed through to the rate payers through fuel adjustment clauses in most situations. So the customers are bearing them direct. It's a straight rider pass-through on an annual basis. It's not in the utilities cost structure, rather it goes straight through to the customers in a state such as mine or Arkansas or Louisiana. So we think it's important, especially, as I mentioned, global competitiveness. There are challenges facing the electricity industry that we can't ignore. Whether it's environmental policy, the need for new baseload generation, other rising cost elements of their business, ratepayers will end up paying for those. It seems ridiculous to have additional costs thrown on top of all that because we simply have failed in our regulation of the transportation of these commodities to the burner tip. So that's our interest in it. The co-ops are supportive of this as well. The municipal electric suppliers are, as well as a number of other businesses and customers of the railroads.

Mary O'Driscoll: OK. Well, that's about all we have time for today. Time sure does fly doesn't it?

Jim Kerr: It does.

Mary O'Driscoll: I'd like to thank Jim Kerr from the National Association of Regulatory Utility Commissioners for joining us. And thank you for watching. This is OnPoint.

[End of Audio]