State Utility Commissioners Agree Environmental Compliance Will Be Costly; Believe Public Willing to Pay More for Cleaner Energy.
– By Abby Gessner –
April 20, WASHINGTON, A majority of energy regulators agree that reducing greenhouse gas emissions will increase the costs of electricity, however according to a survey from the Deloitte Center for Energy Solutions, the public is willing to pay as much as 5 percent more for green energy.
The survey, completed by 60 state regulators in March and April 2009, found that 70 percent of the regulators surveyed believe that the cost of electricity is likely to increase next year; 50 percent identifying environmental compliance as the strongest contributing factor to these increased electricity costs.
Additionally, more than 80 percent of surveyed regulators think that the Obama Administration's proposed cap and trade system for carbon dioxide emissions will result in higher electricity costs in their states.
"For the second year in a row, our survey demonstrates that state utility regulators, while concerned about climate change, also understand the cost implications and viabilities of the various policy options," Branko Terzic, Energy & Resources regulatory policy leader for Deloitte said. Terzic is a former state regulator, a former utility executive and a former commissioner with the Federal Energy Regulatory Commission (FERC).
He went further pointed out that surveyed regulators showed a continued belief in the green benefits of nuclear power: 55.2 percent of claiming that nuclear power is "extremely effective" in reducing greenhouse gases associated with power generation in their state.
The survey also revealed that more than two-thirds (71.7 percent) of responding state regulators, despite recent decisions by the Administration to look for alternatives, believe that the U.S. should continue to develop Yucca Mountain.
So who will be responsible for paying the increased green energy costs? Regulators who responded to Deloitte's survey indicates that the public, for one, is willing to pay more for greener energy. The survey finds that more than half of the respondents (53.3 percent) believe the public would pay as much as 5 percent more in electricity rates to ease greenhouse gas emissions. Although only 16.7 percent of the regulators believed their consumers would accept a 10-percent increase in rates, compared to 29 percent of regulators who felt the same way last year — a trend that likely reflects regulators' sensitivity to the economic difficulties facing their rate payers.
"Regulators seem to believe that the rate-paying public supports a cleaner energy direction," stated Terzic, who also pointed out that in 2009, fewer commissioners (23.3 percent compared to 32 percent in 2008), believed that consumers would not support "any increase" in rates for cleaner energy. This, he said, may indicate that commissioners see higher public acceptance of the tie between climate change and power plant emissions. "Consumers understand that some increase in electric rates tied to cleaner energy may be inevitable," Terzic concluded.
"Almost 55 percent of surveyed regulators believe end-user efficiency and conservation would be 'extremely effective' in addressing the reduction of greenhouses gases associated with power generation in their states — compared to a much lower 42.3 percent in 2008," Terzic said, indicating that regulatory belief in the public's support for cleaner energy is in synch with the Obama Administration's focus on energy efficiency at the individual homeowner level.
To this end, the vast majority of regulators (68.3 percent) who responded to the survey believed that regulated electric utilities should have the ability to earn income on investments in end-user efficiency just as they do on generation, transmission and distribution assets.
Regulators also showed growing support for renewable power sources, with 42.4 percent ranking them as "extremely effective." In contrast, clean coal, seems to be the most polarizing source of power generation among regulators in 2009: only 25.4 percent felt it was "extremely effective," while a nearly identical amount (23.7 percent) view it as "not effective at all."
The survey also looked at the frequency with which U.S. utility and power companies cited business risk factors in their SEC filings and contrasted these findings against regulators' opinions on the same risk factors.
Companies and regulators both seem to agree that carbon regulation is the leading risk factor for both power and utility companies. Power and utility companies often assess their risk factors differently from the regulators who oversee them. Power and utility companies see "regulator recovery" as a risk factor in their business performance far more often than regulators do. Regulated companies see it as the second most mentioned risk factor just behind carbon regulation, affecting their credit and debt levels. In Contrast, Regulators see it as the ninth most cited risk factor, with most of them viewing their cumulative authority as having little influence on credit rankings and debt levels for the companies they regulate.
"The results of our survey are very insightful in identifying perception difference between regulators and the companies that they regulate," Greg Aliff, Deloitte's U.S. Energy & Resources leader said. "It will be interesting to see if regulators view their impact on company performance differently in coming years, as they face an increasingly inevitable volume of rate cases."
About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, ground-breaking research and industry collaboration to solve the most complex energy challenges. Through the Center, Deloitte's Energy & Resources group leads the debate on critical topics on the minds of executives — from legislative and regulatory policy to operational efficiency to sustainable and profitable growth. The Center provides complete solutions to Deloitte's clients through a global network of specialists and thought leaders. With locations in Houston and Washington, D.C., the Center offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate.