Striking the Right Balance: Climate Change and Cost to the Consumer
By Doug Johnson, Chief Executive Officer, Blue Ridge Electric Membership CorporationLooking out for our member’s best interests is a key principle for Blue Ridge Electric. One way we’re currently working to demonstrate this commitment is our work in the effort to strike the right balance between protecting our environment and the cost it will require of consumers. Perhaps more importantly, we are engaged in an ongoing dialogue with our elected officials to ensure they understand the potential financial impacts that energy legislation and policy decisions could have on electricity consumers.
It is important to represent the best interests of our members, our communities, and our cooperative because ultimately there will be a significant cost to us all to attain the environmental improvements suggested by carbon reduction goals being discussed in Congress. Based on what our members have told us, how much cost impact consumers can bear—or are willing to bear—should be an important consideration in the decisions surrounding climate change and the legislation to achieve it.
A recent announcement that highlights the cost side of this issue was made by Citigroup, JPMorgan Chase & Co., and Morgan Stanley. They announced new guidelines—“The Carbon Principles”—for recovering from the financial risk that federal carbon cap-and-trade policy would create for those funding new power plants. (Cap-and-trade means a cap, or limit, would be set and regulated for the amount of carbon a company could emit. Companies needing to increase their emissions over their given limit would have to buy “credits” from those who pollute less, which theoretically would reduce overall emissions by creating higher costs for companies that emit greenhouse gases into the atmosphere. Another alternative being debated is the use of a carbon tax instead of a market based capital trading system.
These principles by the banks are intended, with good reasoning, to help protect them from uncertain risks related to financing power plants that will be subject to a cap-and-trade or carbon tax. In layman's terms this means the cost of financing new fossil fuel plants will be higher because of this cost uncertainty.
There is no question that the regulation of greenhouse gas emission is quickly leading to increased costs for building power generation. With that expectation, Wall Street is now assessing whether borrowers (utilities building power plants) will be able to charge rates high enough to cover the cost of prospective carbon emission allowances.
The principles have been framed as an effort to promote low-carbon alternatives to conventional fuel sources, but it’s also about self-protection for the lenders in the face of regulatory uncertainty.
The expectation of greenhouse house gas regulation combined with the uncertainty about the details isn’t just driving the bank's view of risk. Electric cooperatives and investor-owned utilities alike must make major decisions about building base-load generation without a reliable basis for calculating the cost of fuel options and environmental regulations and cost.
As the New York times recently pointed out, with “demand for electricity rising 2 percent or so a year, the prospect is that utilities will be forced to build and use a new generation of gas-fired plants regardless of the operating cost—and consumers will bear the burden of higher electricity rates.”
The reality is that all consumers—including you and me—will share in these increased costs.
But who is looking out for the consumer’s best interest? When Congress takes up the proposals to address climate change this year, electric cooperatives across the country, including Blue Ridge Electric, will be discussing our concerns with our elected officials in Washington, DC. For consumer-owned electric cooperatives, charging higher rates is never welcome. It means asking our neighbors, friends, and families—to bear a greater financial burden.
The bank’s recent announcement offers a preview of things to come if consumer advocates are left out of the discussion as our nation moves more aggressively to address climate change. Each of us, like the banks, must plan how to mitigate the financial risks of implementing climate change legislation.
While Blue Ridge Electric supports working towards significant, lasting change for a cleaner environment, we are also speaking out to achieve this goal in a way that protects the pocketbooks our consumers. In the spirit of representing the best interests of our members, we believe our nation must strike the right balance between meeting growing electricity demand, achieving a cleaner environment, and keeping electric rates as low as possible for our member-owners.
