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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Greenhouse Gas Regulations and their Effect on Local Communities and the Poor  Posted: December 18, 2013

GHG Regulations and their Effect on Local Communities and the Poor
Presented at the Kentucky Chamber of Commerce
Energy Management Conference
December 18, 2013

The holidays are a time for small miracles, and today Jon and Brack witnessed one. I was actually early for a speaking engagement, and will be collecting affidavits from them both attesting to that event.

I appreciate this opportunity to be with you today, and the invitation from Tim Hagerty to engage in this conversation regarding energy, climate change regulation, and what potential regulation of greenhouse gases (GHG) such as carbon dioxide from electrical generating units might mean for communities, and in particular, for low-and fixed-income individuals and households.

Before offering my observations and thoughts, let’s begin with full disclosure, so that you can appropriately discount anything I say after “hello.” The environmental movement is not a monolith, but is instead a range of interests, individuals, and organizations that are in some respects as similar and as different as are electric cooperatives and investor-owned electric utilities, and the interests of small commercial and large industrial customers. The perspective of the Kentucky Resources Council, a non-profit membership organization that I have directed since 1984, providing technical and legal assistance to individuals, communities, and local governments on a wide range of environmental, energy, and utility issues, differs from that of some of the national environmental groups and their state affiliates, although we share many concerns and viewpoints. Because much of KRC’s work occurs at the intersection of poverty and environmental damage and injustice, we tend to be a bit more attuned to the economic implications of policy choices and regulatory decisions on residential and other ratepayers and the public.

I appreciate the attention that the conference organizers are giving to the impact of potential future regulation of GHG on communities, and particularly on the poor. In the 4th poorest state in our nation, by per capita income, it is a legitimate and timely matter of inquiry. For we start with a baseline situation that is very problematic from a social, moral, and economic standpoint.

I have lived in Jefferson County since 1984. At some point during the school year, there are some 12,000 students attending Jefferson County Public Schools who face homelessness. And JCPS has only 81% of the school-age children in that community.

While the causes of homelessness are varied, a common thread is the rising cost of essential utilities and the impact of utility costs on the poor and very poor.

Average blended price of electricity, in 2010, was 6.73 cents per kwH, making Kentucky the fourth-lowest, behind Idaho, Washington, and Wyoming. But blending the price tends to blur the trend in electricity costs by sector:

Residential rates have risen from 1990 to 2010 from 5.69 c/kwH to 8.57, with much of that increase coming after 2003, when rates were still at 5.81 c/kwH.

Commercial rates from 1990 – 2010 rose from 5.37 to 7.88, and industrial, from 3.58 to 5.05. The average blended rates rose from 4.48 in 1990 to the 2010 level of 6.73.

And the impact of these rising costs, reflecting the internalization of costs historically borne off-budget by those downhill, downstream, and downwind, fall heaviest on those least able to bear the burdens.

According to one study, the average household spends 2% of income on electricity, while low-income households spend 8% and the very poor (1/2 of federal poverty level) spend some 23% of income on utilities. According to Housing and Urban Development, utility costs disproportionately burden the poor, with people receiving SSI spending 19-25% just to keep warm and to keep the lights on.

The increasing inability of those on low- and fixed-incomes to meet utility costs is a dire situation that affects the health of those individuals and families, and also has financial impacts on the remaining ratepayer base, since the “poverty costs” associated with the inability of individuals to pay bills and the transaction costs associated with utility disconnection and reinstatement of services, are borne by the larger rate base.

There is also a profound moral dimension at issue, since, at the end of the day, in answer to Cain’s question, we are our brothers and sisters keepers, answerable to each other and to God for the compassion we show towards those less fortunate than ourselves.

In a recent conversation with LG&E and KU employees regarding the dramatic changes occurring in the electric utility industry, I reflected on significant upheaval occurring within that sector and in our nation at large regarding energy production and consumption – upheaval that the Edison Electric Institute euphemistically called “disruptive challenges.” For coal-fired utilities, and for the coal industry in our Commonwealth, those challenges include the development of shale gas from the Marcellus, Utica, Bakken, and other formations, resulting in a dramatic shift from coal to natural gas as the fuel of choice for new electric generation facilities. The increased availability of inexpensive natural gas-fired electricity in the wholesale market, coupled with the increase in coal-fired electricity due to a combination of production costs and cost increases drive by the internalization through regulation of historically off-budget costs related to coal combustion and waste management, invite increased tension between major industrials seeking cheaper power, the utilities who invested in generation capacity to serve those customers, and other ratepayers, who face the prospect of paying the stranded costs of those investments if other industrials are allowed to exit the system. The fight between the smelters and Big Rivers during the last session could be a harbinger of other legislative battles, as the General Assembly is asked to balance economic development and maintenance of electricity-intensive industries with fairness to other utility customers and investors, who are being asked to bear the costs of investments in capacity made for the large industrials and now stranded and imposed on the backs of remaining ratepayers.

Against this backdrop, we face the prospect of the internalization of the costs of carbon dioxide emissions from fossil-fueled, and in particular, conventional coal-fired utilities.

There are few who believe that carbon controls will not be required within the lifecycle of new generation units now under consideration, as well as existing units that continue to burn coal after 2016. EPA has indicated that it will, within the next year, propose and finalize standards for both, and the recent acceptance by the United States Supreme Court of several petitions seeking review of the EPA’s actions to date, will increase the certainty and set targets for carbon management that will affect new capacity, and could result in retirement of existing units or retrofitting units. Because the electric power sector is the largest single source of U.S. and global carbon dioxide emissions, responsible for approximately 40 percent of total emissions, controls on carbon dioxide are inevitable and appropriate, and as the cost of addressing emissions are factored in, the economics of producing electricity with large, centralized fossil-fueled generation will change considerably. As have the current compliance costs, the impact will fall disproportionately on those least able to absorb them. In clinical terms, the capability to respond to these “disruptive challenges” is called “adaptive capacity,” and across the board we as a Commonwealth have invested little in that regard.

What can and should we do to develop more “adaptive capacity” to address both climate change and the possibility of additional climate change regulation?

First, we must recognize that doing nothing is not an option. Climate change is occurring, the rate of GHG emissions are a significant factor, fossil fuel (and in particular, conventional coal) combustion in utility boilers is a significant contributor to those emissions, and the costs of adaption increase over time. As noted by the Climate Action Partnership, a veritable who’s who of the Fortune 500 and several national environmental organizations noted in its “Call to Action”:

“each year we delay action to control emissions increases the risk of
unavoidable consequences that could necessitate even steeper reductions in the future, at potentially greater economic cost and social disruption. Action sooner rather than later preserves valuable response options, narrows the uncertainties associated with changes to the climate, and should lower the costs of mitigation and adaptation. of major industrial sectors[.] “

Perhaps the most frustrating aspects of Kentucky’s energy and environmental policies is that we act as if we have time and energy to waste.

The General Assembly as a body has begun to understand and acknowledge that there will be a national policy response to climate change and specifically, towards a mandatory program of controls on emissions of greenhouse gases from fossil fuel utilization. In the 2007 Special Session and the 2008 Regular Session, the General Assembly under the leadership of Majority Floor Leader Adkins, Representatives Moberly, Pasley and Pullin, and Senators Stivers, Jensen, Harris, and Leeper, took several very important steps towards a rational energy future, commissioning a report on carbon emissions, research and strategies; creating a center for renewable energy and energy efficiency; requesting a study on reform in utility regulatory policy; enacting a set of incentives for renewable energy and energy efficiency; and using the financial clout of the state to set the bar much higher on the performance of state-funded buildings.

Unfortunately, a bill that would take the next step by creating a renewable and energy efficiency portfolio standard – sending a signal to the utilities to diversify as a hedge against rising coal-fired power, by investing in wind, hydro, solar, geothermal, combined heat and power, and by mining out inefficiencies on both sides of the meter – and a feed-in-tariff that would pay generators of distributed renewable power a premium for electricity fed into the grid, has yet to receive a committee vote. The current Administration’s response to the challenge of climate change has been, to be gracious, tepid.

So what do I recommend that the Chamber’s membership do to address the prospect of increasing utility costs and their impact on the poor?

1. Help to jumpstart economic growth and empowerment by supporting a modest line assessment on electric generation, a public benefits fund that would fund real investments in energy efficiency, particularly in rehabilitation of rental and older housing where energy use is the most inefficient. Programs such as LIHEAP and energy assistance efforts by communities of faith are critically important because they help to turn back on the lights and heat, but they do nothing to solve the underlying problems that create these periodic crises.

What would be the benefits of a modest assessment per kWh dedicated to low-income efficiency?

They would be many. A steady stream of income to support the sort of home energy performance work that was done in Kentucky with ARRA funding, but which has since ramped down due to lack of continuation funding, would lead to kWh saved, participating customer bill savings, savings to other ratepayers in poverty costs, saved moving costs, increased earnings for children who stayed in school without becoming homeless, avoided fire damage, saved uninsured medical costs and lost work, gains in net GDP, wage and salaries, families saved from homelessness, net new jobs, CO2 emissions avoided, natural gas saved, and a return on the investment many times over.

Recognizing that energy efficiency can cost as little as 3 cents per kilowatt hour saved, while generated electricity costs 6 to 12 cents per kilowatt hour, we are foolish not to invest in energy efficiency measures that avoid unnecessary energy supply investments, moderate increases in customer bills and create jobs for electricians, plumbers, laborers, and engineers, while reducing carbon emissions. Weatherization work is always local, custom work, and in collaboration with community colleges, retraining for energy auditing, weatherization, and energy efficiency improvements can provide new employment opportunities. With structural unemployment in rural areas, and in particular the southern Appalachian region of Kentucky, predicted to grow, use of such a fund to retrain workers, to refurbish and replace substandard housing stock and to increase meaningfully the efficiency of use of heat and power, is a path forward.

2. Join with KRC in encouraging EPA to craft an approach to imposition of GHG controls on existing EGUs that provides maximum flexibility within and among the generating units, as well as among different sectors, so that the most efficient reductions can be achieved as rapidly as possible, while capture and management technology matures. One aspect of the now-maligned McCain Liebermann bill was that it enlisted the agricultural sector as an ally in sequestering and reducing atmospheric GHG levels, allowing crediting across sectors. We must recognize that Co2 capture and sequestration technology has not and may not mature as a viable strategy, and that in setting needed targets for reductions in CO2, enlisting generators of GHGs from other sectors in overall reduction, and encouraging improvements in efficiency by existing EGUs without triggering new source review, are strategies that could help bring significant reductions at reasonable cost.

3. Finally, investment in diversification of utility energy portfolios is an important tool to increase our adaptive capacity. While the current Energy and Environment Secretary and I don’t agree on much, he was correct in noting yesterday that diversifying portfolios is a hedge against uncertainty and rising costs of combusting fossil fuels. While I believe that splitting atoms in order to boil water is not the solution, I agree that additional investment in renewables, and expanding opportunities for distributed generation through feed-in-tariffs and other mechanisms, will help strengthen our energy agility and ability to weather the changes that GHG regulation will bring.

Thank you again for the invitation to be here.

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