Climate and energy

Good morning. Today the House and Senate Committees on Energy and Utilities are meeting jointly in the Old Supreme Courtroom on the third floor of the Capitol.

The occasion is two pretty cool presentations. The first is by electric industry group Edison Electric Institute - they have both an industry side website, and a public portal. The latter is kind of an idiot’s guide to electricity, which Lord knows many of us need, but I also prefer the issue briefs they give on the industry side.

The other presentation is by investment bank JP Morgan. Not only is that the bank that just got a serious deal (I think) when they bought Bear Stearns, but more germane to the Energy committees of the KS legislature (maybe!), JP Morgan is also one of the Carbon Principles signatories, a deal also endorsed by Morgan Stanley and Citigroup. This agreement essentially said that since carbon regulation is coming, the power companies who come to them for financing for new plants need to have a plan to deal with greeenhouse gas emissions.

EDIT - Hey, guess what. The second presenter is from Morgan Stanley, not JP Morgan. Unlike what was announced earlier…? The audience debates in low tones.

We await the committee(s). Hit refresh on your browser to check back in when need be. Kick-off is at 9:15 or so. Members of the House committee include: Representatives Johnson, Flora, Mast, Sloan, Long, Moxley, Faust-Goudeau, Swanson, Proehl, Keuther (Ranking Minority), Holmes (Chair), Olson (Vice Chair), Svaty, McLachlan, Fund, Knox, Hawk, Light, Neighbor, Morrison, and Myers.

I might be wrong about the Senate Committee being invited… am I? Could be. Thought I read it somewhere, but maybe no. If I’m in the ballpark,

Everyone is here early!!! We start early. Joint meeting starts at 9:30, apparently. First, they will consider SB 586, the Senate side nuclear power bill. A little bonus here.

Rep. Knox has an amendment from KCPL comments. The issue today is where we’re headed. We’ve seen energy prices increase in last years. COnstruction materials increase as well. Seemingly driven by increased demand, and lack of new sources of energy. My grandkids will say to me some day - you burnt that stuff? OIl, natural gas. We are moving away from those days. And, what are the prospects… definitely increasing prices. No easy fix. In the meantime we have to deal with where we are. So I think it is wise - me, personally - I;m looking to spend money now to save money in future on energy. I think materials and energy prices will go even higher. I support this bill, and offer amendment to front load these expenses. It will increase prices for consumers now, but make it more bearable down the road.

Sloan - in existing bill, Commission allows utilities to recover prudent expensditures. How do you determine that.

Knox - you know more than I - but it will come thru a rate case. This does not eliminate oversight by commission. It just allows these costs to be considered.

Sloan - do you want to have prequalification criteria in there? Does utility have to approach KCC first to see? $100 million for a Japanese containment piece of equipment, that’s a signficiant investment. Is it prudent? I know you want to minimize risk to utility -

Knox - so you want expenditures to be made before they ar ereviewed?

Sloan - no. (MH misses rest)

Svaty - on page 2, line 15 - looks like docket can be initiated any time.

Sloan - this is a larger philosophical question. DO you want review for prudence before you spend the money? What about prior authorixation? MH - bascially, he wants to know how to determine what is prudent. For Wolf Creek - prudence was detrmined after construction, not all costs went into rate base, caused financial hardship.

Kuether - Rep. Knox - please help me how this decreases costs to ratepayer.

Knox - this means expenses could be expensed out to ratepayer earlier. In larger context of increasing prices, this is prudent. rather than making them pay more later, you get started paying those expenses earlier.

Kuether - I have difficulty with this, because it will be increase to ratepayer no matter what. And we haven’t decided on nuclear yet - that should be an open debate. I support nuclear being part of our overall mix. This bill is just a little piece, but it has a lot of sections that need more debate openly. I’m not comfortable with the bill or with what you want to do at this point.

Holmes - further debate on amendment?

Knox - yes, this is a little piece, and yes, there is a larger deabte. My intention is to save ratepayers in the big picture, with a small increase now, rather than down the road.

Vote - division vote. 12-4 motion for amendment passes.

Technical amendment from revisers.

Sloan asks for amendment on defining “prudent.”

Swanson - asks how this is different than what is in bill already.

Sloan - in the bill is retroactive prudency. Need to protect the utility, allow them to voluntarily approach KCC to see if expenses are prudent before they make them. I don’t like retroactive.

Swanson - I think this is in the bill already. You know more about this than I do, but I think it is in there.

Sloan - I don’t think its clear enough.

Svaty - I see what you are trying to say. I don’t mind retroactive in this case. Prudency is nebulous, but you still have an incentive to make sure you are doing everything possible to do it prudently. If you have prudency up front, then that is potentially carte blanche for them to spend whatever. I think its better left the way it is.

Hawk 0 in rate cases, is there ever any informal action between KCC and utilities? Where a utility might ask…

Sloan — yes, there is often advisement on large investments. But there is no binding decision or commitment by KCC. Its like going to IRS and not getting it in writing.

Hawk - if there is such a thing as legislative intent (laughs) I was siding with Sloan, but this discussion clarifies the substantial costs, and I think — as long as there is informal communication, I dont think its a problem.

Flora - we ae headed downt he same road that we went down back when Wolf Creek was built. Why wouldn’t the utility want the decison made before facility is built - not a good idea to let the KCC decide after the fact. Much more prudent to have KCC make decisions ahead of time, before money is spent.

Sloan - look at line 17, lines being stricken, study and feasibility - giving the utility the opportunity to go in for pre-approval for ratemaking purposes is prudent.

Division vote on amendment to define prudence. Motion fails, 6-9.

Svaty - I think we should roll language from 2632, capitalization of energy efficiency costs, into this bill as well (MH - that’s the KCPL bill right? on partial decoupling?)

MH is laughing.

Olson - I think this language will spur investment in energy efficiency. I ask them to pass it.

Kuether - Svaty, what is your rationale? We already passed it out.

Svaty - this - MH missed it. Actually she just couldn’t follow it.

Svaty closes on amendment.

Vote. Motion carries. Almost all aye.

Sloan - back on prudency, another related amendment… utility could approach KCC for pre-dtermination on anything over $20 million.

Myers - that review could really slow down a utility if they need to move fast.

Sloan - I still don’t like the retroactive part. Utilities need the flexibility.

Knox - qucik question. I agree with the principle here, but I would like “non-refundable” expenditure inserted into the langiuage. Some of these expenses can be recovered.

Vote - division. 6-7 motion fails.

They suspend debate to get on with morning’s program. Now Chairman Sen. Emler takes over.

David Vice-Owens, Edison Electric Institute

Electricity faces some daunting questions these day. SO is our society. Four major issues (1) capital expenses for upgrades of existing facilities, (2) rising cost environment for all commodities and manufactured goods, (3) climate change, environment, GHG emissions - daunting global issue, and will be very expensive to address (4) energy efficiency - low-hanging fruit. We can do a lot to improve building and appliance standards.

Energy Info Administration (EIA) project energy demand growth of 30% thru 2030. Increasing population, increasing consumer producsts - especially plasma TVs - very high energy usage. NERC shows that we will fall below minimum electric production levels. Energy CEOs agree. Also lots of congestion on electric system - need new investment. Our assets are also getting older. Transmission, power transformers, circuit breakers, etc. Aging infrastructure. Investments required to keep supply and demand in balance. Same goes for gas system, not just elecric.

Rising costs in prices. Copper alone has incresed over 400% since 2003. Input costs all going up significantly. We are in worldwide compeiton for raw products with India and China. Fuel costs going up as well. Coal up 43%, Resideual oil up 220%, Natural gas 193%. We depend on natural gas as bridge fuel. Much has to be imported.

Gloomy, huh? We also have aging workforce. Less skilled workforce. Problematic. All this during time when we have great needs.

China GHGs probably exceed US. For electric industry in US, we need nuclear. Little to no GGs.

No silver bullet to these problems - we already have a rising cost environment, and that’s without even dealing with climate change. Climate change will take renewables (wind solar biomass geothermal), energy efficiency, clean coal (advanced) technologies - possibly viable by 2020/ 2030 - not viable on large scale today, carbon capture and storage, as well as nuclear, and plug-in hybrid technology. All these are necessary to reduce GHG emissions.

(MH - the division between clean coal and CCS here probably has to do with within the stack - what doesn’t get emitted, good combustion technologies, and out of the stack - what is emitted) (FYI, clean coal is a really problematic term, since ignores mining process etc.)

We need much greater role for energy efficiency. (EPRI graph) also need RPS - renewable portfolio standards. 26 states plus DC. But energy efficiency is most viable options - smart buildings, smart appliances, smary ekectruc meters, smart thermostats.

Key elements in climate change debate - whatever we do, it will be expensive. To deal with it, we just need to go ahead and make the investments in the technologies. Also need cost containment mechanism to avoid major price volatility. There will have to be plenty of offsets.

Questions - Sen. Reitz - cost containment - ie, the nuclear bill. Nuclear costs so much on front end, less on back end. SO you have suggestions?

EEI - I am not going to take position on earlier bill - but I have experience in nuclear. You need process where yu can revisit costs early, adn have continous review of costs. In prior years, investments were made and then second-guessed in another climate. You need ongoing dialogue about costs between key decisionmakers and utilities.

Sen Lee - re increased reliance on natural gas, I have concerns. When we use gas for electricity, we increase cost of home heating. We are also importing most of our gas by ship, not from Canada. Importing gas has lots og GHG produced.

EEI - it really depends on techbnolohy used to re-gasify from liquid. You need to know those sources - and those can be powered by renewables. natural gas in and of itself still has lower GHG emissions than other fossil fuel combustion processes.

Lee - where does this re-gasification happen? EEI - usually on East Coast, and is powered by nuclear, which has no GHGs. You have to take into account sources of energy.

Lee - you talked about climate change and GHG controls - I have been doing some reading, and a concern with carbon tax is negative influence on business, businesses will go overseas - and it might need to go more to residential than commercial.

EEI - all sectors of society contribute to GHG emissions. So the solutioon has to be economy wide. Next, carbon tax or cap and trade. Bills oending in congress move toward cap and trade. Tax is probably more effiicient, would hit everyone equally. Bottom line, we need (1) all sectors of economy make contribution to reducing GHGs (2) we want to reduce price volatility (3) other nations - global issue - also need to be acountable, they have to make changes as well. If you do this, whatever scheme, it needs a pot of dollars that goes to accelerating the development of technologies. We need to invest in techniologies, like we did during space age.

Rep. Sloan - smart grid - can you say more about that. Second, Europe has cap and trade - and I understand their price of carbon has fallen.

EEI - smart grid- President signed into bill a provision that would allow smart grid for energy efficiency. We need to make our energy delivery system much more real time, so our controls are more comprehensive, more instantaneous repsonse by utilities. Utilities and customers can interact more. Meters can interact - result is interoperability standards. Much better data and study about actual use. Revolutionary bill. Will be very expensive. Requires investment in transmission infrastructure.

On Europe’s cap and trade - they did it wrong. They gave some allowances away free. Also, they didn’t have a way to understand - a register - to track reductions. They also had no dialogue about starting price of carbon. They think their system is viable, though. Test - are they stimulating investment in technology, and is the public behind. We can learn a lot from Europe.

Swanson - looking at nuclear, deployment of nuclear can’t be until 2015. We can’t get it going until then?

EEI - 3-5 different nuclear reactor designed out there. NRC has to choose. COngress also trying to remove restraints on companies wanting nuclear - the subsidies were iffy for a bit. We have to choose a nculear reactor desing - maybe three - have to get the dollars there - then individual companies have to go to state commissions, make their case, need to recover some of the costs.

Karen Bird, Morgan Stanley

Lots of investment needed all throughout energy industry - $900 billion over next 15 years. (WOW) about $30-$40 billion yearly. For this one industry, its capital needs. Conservation and efficiency - $50 b, Environmental retrofits - $50 b, Generation - $350 b for 230+ gigawatts, Distrivution - $300 b, Transmission - $150 b
YOu will have big rate increases across the board - you and your constituents. An era is over. You in Kansas will feel this. Rate cases and pending and filed, these are mostly for old construciton, not even new needed expenditures.

Americans electric rates will double if we keep up on our industry and infrastrucutre.

Climate change must be addressed. RPS jump start investment in clean energy, but renewables not yet economic, need subsidies. Enery efficiency is good, but rules must be carefully laid out. Baseload will eventually be required, but we need more wind and solar. We will have to turn back to coal as a resource, make clean coal and IGCC and CCS work. Nuclear is something the investment community will support, but it is really expensive.

Technology is critical - advanced/ smart metering, smart grids, etc. These can offset some fo the challenges.

For future - we need collaboration, not cofnrontation, especially in regulatory policy. We need long-term, pre-approvals, for rate recovery. We need incentives to encourage, not penalize, energy efficiency. Investors do not want to be penalized by state regulators. They just want a fair return. It is going to be a tough haul going forward.

From policymakers, investors want positive, constructive discusion of infrastructure. And they want educated and informed public.

Questions?

Kuether - you raise interesting questions - recent article in Standard and Poors, about utilities impelmenting RPS, will this be burden for them. Wht will RPSs do to companies?

MS - RPS are new to all of us. They look good, but there could be unintended consequences - ie, not having transmission to move wind to markets. FERC will have to get involved and addresses the issue. KS is making headway on transmission, unlike on East Coast. Also, potential second-guessing - if states can’t make RPS targets, will utilities be penalized?

Taddiken for EEI - please explain slide.. EEI - NERC collected info, by 2009, Upper Midwest will face some problems with meeting electric demand. By 2015, SPP region (MH which includes KS) could face problems.

Taddiken - 2009 - that’s one year away.

EEI - that’s why companies are coming to you and KCC asking for rate recovery. Including for natural gas. This is why it is important.

Lee - KS faces new investments in transission - which direction?

EEI - both directions. It;s all important. And it depends at the pace upon which demand grows.

Lee - my earlier question on natural gas, you didn’t answer my first question about negative effect on household heating.

EEI - we are all concerned about natural gas, but we don’t have any other options. Renewables will take time to ramp up. Natural gas is our bridge fuel till clean coal and renewables kick in. A utility CEO has tough set of choices to make. The options are limited. Natural gas is a concern, but options are limited.

Sen. Emler closes - Senate COmmitte adjourns.. HOlmes adjoiurns House committee.

— Maril Hazlett, www.climateandenergy.org