Natural gas utilities are no friends of Big Coal

In the fight against coal, crucial support may come from another fossil fuel: natural gas. A price on carbon emissions, bane to the big coal utilities, will advantage gas utilities, at least in the short-term. As coal gets more expensive, nat gas is the cheapest alternative ready at hand.

Will their contrary incentives lead them to open warfare? To some extent it already has. Remember those xenophobic ads Sunflower ran in against Gov. Sebelius in Kansas? They were premised on the notion that opting for natural gas means cuddling with Hugo Chavez.

Recently another contretemps spilled over into public.

The Edison Electric Institute (EEI), trade association for the big utilities, commissioned a report on the economic impact of the Lieberman-Warner climate bill, out of concern for their profits ratepayers. Consulting firm Charles River Associates (CRA) gave them what they paid for: a report so apocalyptic that it was cited with pride by Inhofe’s house hack, Marc Morono. As related in Congressional testimony by CRA VP Anne Smith, it foretold wrenching economic disruption, plummeting GDP, and worst of all, the triumph of effete liberal coast elitists:

Using that set of allocations and formulas for recycling of auction revenues, we find that New York, New England states, and California would experience welfare impacts substantially less than the US average, while regions heavily reliant on fossil fuel energy sources would face impacts somewhat greater than the US average.

Lo, horrors and calamity.

That didn’t sit too well with some EEI members, who earlier this month banded together as the Clean Energy Group and wrote EEI president Thomas R. Kuhn, strongly encouraging him to address some of the report’s bullshit exaggerations. (I’ll paste the full letter below.) EEI subsequently said it will, ahem, "fine tune" the analysis.

The interesting angle on all this is the list of signatories:

This is Big Gas and Big Nuke, which have no particular interest in sandbagging the Lieberman-Warner bill. They are coming from a place of pure self-interest — they stand to do well under a cap-and-trade program — but in this case, their self-interest lines up with the public interest.

One additional twist. Nat gas and nuclear both stand to gain from policies that put a price on greenhouse gas emissions. But nat gas stands to gain from another environmentally beneficial trend as well. The enormous capital costs that face coal plants also confront nuclear, but nat gas plants can be built smaller, faster, cheaper, and closer to loads. That’s how we greens like our power, no?

Is working with natural gas utilities to beat coal utilities making a deal with the devil? Eh. Natural gas costs are already rising, and that’s likely to continue. Add the rapid development of renewables under a cap-and-trade system and nat gas will probably get pushed out of the electricity game regardless. Might as well make use of this rump coalition while it’s around.

Here’s the full letter from the Clean Energy Group:

March 4, 2008
Mr. Thomas R. Kuhn
President
Edison Electric Institute
701 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2696

Dear Tom:

We are writing about the modeling prepared by Charles River Associates (CRA) of the Lieberman-Warner Climate Security Act. We understand that, as a result of questions asked and concerns raised, the modeling effort will now turn to conducting some sensitivities of alternative scenarios and a revision of some of its inputs and assumptions. We think this is a positive and important development, and we believe the CRA analysis will be both more robust and received as more reliable with the additions you have indicated. In our view, it is critical that EEI be viewed as a credible voice in the climate change debate. It is our hope that EEI’s work will allow EEI members, Congress, the Administration, and other interested parties to make informed decisions about various policies and proposals before them in terms of impacts on our industry and our customers.

In the revised analysis, we believe that it will be important to accurately estimate the costs associated with the Lieberman-Warner Climate Security Act, fully characterize the regional impacts of the Lieberman-Warner Climate Security Act, and fully incorporate the policies in the legislation and existing law. In EEI’s revised analysis, we want to be sure that the modeling:

• Reflects the provisions of the recently passed energy bill, including the contributions that its energy efficiency, Corporate Average Fuel Economy, and Renewable Fuel Standard provisions will make to reducing the “business-as-usual” emissions projections.
• Makes realistic assumptions regarding the actions the Carbon Market Efficiency Board will take to limit the allowance price based on the provisions in the bill that authorize the Board to increase the use of offsets and to transfer use of allowances from future periods to reduce cost pressures.
• Makes realistic assumptions regarding the impacts of the emission allowance banking and international credits provisions in the bill.
• Evaluates the potential implications for technology advancement and deployment and assistance to low-income consumers based on the bill’s distribution of auction revenues.
• When evaluating the regional cost impacts of the bill, apportions the costs associated with state-specific renewable portfolio standards for each region so that the costs accurately reflect the impacts borne by those regions most responsible for the contributing reductions.

In evaluating such a complex policy package, we also recommend preparing sensitivity scenarios designed to test the influence of the key modeling and provisions in the bill, including expanded use of offsets or international credits. This is standard practice in public policy analysis, and we believe will better inform the policy debate.

Finally, we understand that the Environmental Protection Agency (EPA) and the Energy Information Administration (EIA) will be releasing their assessments of the bill in the coming weeks, and it will be important to understand any differences in the assumptions used so that there can be a reasonable comparison of the modeling results.

We appreciate the opportunity to share our recommendations with you. We are committed to making our staff available to work with you and CRA in developing a revised assessment of the bill that is comprehensive and robust.

Thank you for your consideration.