Last week, the Federal Energy Regulatory Commission released a proposed rule on cost allocation for new transmission lines in the United States. During today's OnPoint, Ralph Izzo, chairman and CEO of PSEG, gives his take on the proposal. He also explains how the Senate's upcoming energy legislation should address transmission of renewable energy.
Monica Trauzzi: Welcome to the show. I’m Monica Trauzzi. Joining me today is Ralph Izzo, chairman and CEO of PSEG. Ralph, it's great to have you back on the show.
Ralph Izzo: Thank you, Monica. It's nice to be here.
Monica Trauzzi: Ralph, the battle over who should pay for power lines needed to expand renewable energy continues and FERC just proposed a rule that would require transmission providers to participate in regional transmission planning and use cost allocation to find new transmission lines. The bottom line there being that those who benefit from the new energy should be paying for it. So, does the rule provide the clarity that you all have been seeking and ultimately who is going to pay?
Ralph Izzo: So, we want to make sure that we see the language of the rule because this is, I guess in technical terms, just a notice of a proposed rule, so we’re two steps away. And as long as they stick with language that says the beneficiary pays, then we would be supportive of it. We're worried about the opposite extreme, where everyone pays. In other words, the costs get socialized, both for those who benefit and those who do not benefit. That, I think, would be a mistake.
Monica Trauzzi: But any in the end, years down the road, won't all consumers be benefiting from renewable energy?
Ralph Izzo: Well, yes and no. There are some people who will benefit a heck of a lot more than others. So, the question is do you have everyone pay equally even though the benefits are higher for a particular group? Specifically, transmission is not an end in and of itself. Transmission is something to be pursued only if it brings electricity from a generator to a user. Those two constituencies, the generator producing it and the user using it, are the primary beneficiaries. And that's what we'd like to see, is that the economics of transmission gets spread between the actual users of that and the folks who are proposing the installation of whatever the supply is.
Monica Trauzzi: Do we have a sense of how much that might cost an individual consumer?
Ralph Izzo: Well, it will vary from location to location. There are parts of the Northeast where we operate where we're spending close to $10 million per mile and there are other parts of the country where that number can be 1/10 of that, so it's a very difficult question to answer.
Monica Trauzzi: Does it hurt the prospects for pushing for more renewable energy?
Ralph Izzo: No, I don't think it does. I mean there are easier ways I think to push for more renewable energy. One would be the creation of a national renewable portfolio standard. Second, and associated with that, is a national renewable portfolio standard that has in it something that you can call a national renewable energy credit, which allows someone in one part of the country to support a renewable project in another part of the country by buying credits from that and using the credits to meet their obligation. So you then bypass this whole need to build massive transmission lines and the sociopolitical costs that they engender.
Monica Trauzzi: So, FERC Chairman Jon Wellinghoff has said the proposal is just part of a natural progression. Would you agree with that?
Ralph Izzo: I think it is just that, part of a natural progression and as is so often the case, we need to see the detail.
Monica Trauzzi: So, the issue also comes up in the climate and energy discussions we’re seeing in Congress. How should comprehensive energy legislation take up this issue?
Ralph Izzo: So, comprehensive energy legislation has to begin with a very simple first step. There needs to be a price signal for carbon. Once you have a price in place for carbon, there are all kinds of solutions that the market will bring to the table to fit underneath that price and, in fact, try to beat that price. That could be renewables with transmission. It could be energy efficiency. It could be generation built closer to the load. Absent that price signal, what you really have are smart people thinking they have the answer and commanding it and trying to control the economy and I'm just not a big fan of industrial policy. I'm a much bigger fan of identifying the environmental imperative, carbon reduction, then letting the market bring solutions.
Monica Trauzzi: So, you get to the crux of the debate right there. Is cap and trade dead? I mean what's your take on that whole debate?
Ralph Izzo: I understand that the respirator is still plugged into the wall and that the patient still has a heart beat, but we don't count votes. We don't get inside the Beltway to that level of detail. I'm hopeful that with the president's push, with the recognition that, yet again, we have challenges associated with dependence on fossil fuel, with the recognition that the nation needs to develop its supply chain for the sustainable economy, and the majority leader in the Senate calling for action that we can have some compromises take place this summer.
Monica Trauzzi: So Senator Lugar has introduced legislation that focuses on efficiency and does not include a cap and trade. How would that fare for utilities?
Ralph Izzo: So, Senator Lugar is an incredibly thoughtful person. My concern about it is that once again what we're saying is the way we should reduce carbon is to have in place the following amount of renewables, the following amount of energy efficiency. So granted they’re broad categories, but we’re picking the solutions. Maybe the way we reduce carbon is that I improve what's called the heat rate, the efficiency of my existing power plants. Let's unleash the creative genius of the American entrepreneur to beat the price as opposed to saying to that American entrepreneur here are the four areas I want you to pay attention to. I just think that's limiting.
Monica Trauzzi: But in terms of getting the votes, would a proposal like the Lugar proposal have a better chance of passing than Kerry-Lieberman?
Ralph Izzo: It may. It may. The irony of it is that the reason why we can't seem to get the votes for Kerry-Lieberman, which we support, is that people are worried about the cost and the effect on the economy. My response to that is the market will deliver the solution at the lowest cost. Cap and trade is the lowest cost. If you pick technologies, if you favor a command and control approach you may solve the problem. I guarantee you it would be more costly.
Monica Trauzzi: So, at the end of this year, when all is said and done, what would you consider a positive outcome on an energy and climate versus a negative outcome for utilities?
Ralph Izzo: Well, clearly, the worst outcome would be complete indecision and just remaining on the current path to EPA regulation through the Clean Air Act. The best outcome would be clear regulation for the utility industry. That's not the best outcome for the environment. The best outcome for the environment is economy wide, but I know that my industry needs clarity as to how we will be regulated and hopefully that's not through the Clean Air Act, because there are lots of investment decisions that we make for the next 10, 20, 30 years that are difficult enough under the normal circumstances, but not knowing what kind of carbon regulatory regime we're going to be under will just introduce paralysis.
Monica Trauzzi: OK, we’ll end it there. Thanks for coming on the show again.
Ralph Izzo: My pleasure, thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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