Investing in the Nation's Electric Future

Richard McMahon, Executive Director, Alliance of Energy Suppliers, Edison Electric Institute

AMERICA'S ELECTRIC POWER INDUSTRY IS moving toward a low-carbon future. At the same time, we remain dedicated to fulfilling our primary obligation—delivering a reliable, affordable electricity supply. To achieve both goals, we are turning to a full suite of climate-friendly technologies—energy efficiency, renewables, advanced coal and new nuclear, carbon capture and storage (CCS), and plug-in hybrid electric vehicles (PHEVs).

Expanding energy efficiency and renewable energy use is possible today, and we are addressing the challenges to doing so. Construction plans for advanced coal-based power plants have been announced, and CCS demonstration projects are beginning to take place. Both hold great potential for enabling the country to continue using its abundant, domestic coal reserves.

Applications for new nuclear energy plants have also to be filed. These will allow the industry to continue using a technology that can meet the nation's base-load demand for electricity with no carbon emissions. And we are working with auto manufacturers and industry allies to make PHEVs a reality. With Congress now considering proposals for lowering the country's carbon dioxide (CO₂) and other greenhouse gases (GHG) emissions, we are also advocating for policies that will help us achieve our goals.

Our course of action is ambitious. But with demand for electricity already at record levels—and predictions calling for it to increase another 30% over the next 20 years—it is essential for reaching our destination.

Efficiency and Renewables

Energy efficiency and renewable energy sources will clearly be vital in achieving our twin goals. Energy efficiency enables us to realize significant and immediate benefits for the environment, the customer, and the industry. We have been promoting the efficient use of electricity since the first oil embargoes of the early 1970s. To achieve our goals, though, we need to transform energy efficiency's role in our energy mix. Energy-efficiency must be factored into the portfolio of resources that each utility holds for meeting demand.

I am delighted to say that this process has already begun. A number of electric companies and their state regulators have begun to adopt business models that enable efficiency to take on a larger role. They are developing a new business model that:

*Allows for the recovery of the costs associated with promoting energy efficiency.

*Addresses the impact on revenues and the recovery of fixed costs that arises as a result of the sales lost due to the efficiency programs.

*Offers a financial return for pursuing energy-efficiency goals that is on par with building generation and transmission assets.

We are also expanding the use of "smart" meters and advanced metering infrastructure to enable us to use real-time pricing to open the door to greater savings in energy and money, as well as a variety of potential new services.

And recently, we formed the Institute for Electric Efficiency under the auspices of the Edison Foundation (www.edisonfoundation.net). This new organization will act as a forum to share energy efficiency information, ideas, and promote effective efficiency programs among electric utilities. The formation of this Institute further emphasizes the critical nature of energy efficiency in all we do and the commitment that our industry is making to it.

Along with expanding energy efficiency, we are transforming our supply options by expanding the use of renewable energy sources. Wind, solar, geothermal and new hydro technologies all enjoyed record growth in 2007. But to continue this growth, the nation needs to extend existing federal tax incentives for renewables. The production tax credits and incentives in the Energy Policy Act of 2005 (EPAct 2005) are set to expire at the end of this year.

More Transmission

Greater transmission capacity is also vital for expanding renewable energy sources, especially wind projects, which are typically located far from the population centers demanding their electricity. Shareholder-owned electric companies have begun investing heavily in building more transmission.

In 2006, we spent almost $7 billion, and we plan to invest another $37 billion by 2010. That is a 55% increase over the amount invested between 2003 and 2006. And the total number of transmission miles is projected to increase by almost 9% over the next ten years. This represents more than a 30% increase from the previous assessment.

But even with this progress, building transmission today faces many hurdles. Public opposition as well as differences in state statutes and regulations have made transmission lines among the most difficult energy facilities to site. Besides the extra costs, the delays raise reliability concerns as well.

Congress has recognized these problems and gave the Federal Energy Regulatory Commission a limited role as a backstop siting authority in EPAct 2005. However, even though this backstop siting authority was the result of a carefully balanced federal-state framework, there have been votes in Congress on numerous amendments to try to overturn this authority.

We have formed coalitions with businesses and industries who understand the critical need for new transmission to help get these amendments defeated. We will remain active and vigilant in protecting this siting authority as the controversy continues.

New Nuclear Energy

The industry is actively expanding its nuclear capacity and developing advanced nuclear designs. Ownership of more than a dozen plants has changed hands. And at the close of 2007, a number of plant applications had been filed. Existing plant capacity figures are improving as well, and are now in the 90% range, after being in the 70% range during the mid-1990s.

Even with this progress, some challenges remain however, including how to dispose of spent fuel from nuclear plants and the plants' high capital costs. Moreover, nuclear plants take a long time to permit, plan and build. And even with public acceptance, it is reasonable to expect at least 8 years.

Advanced Coal Technologies

Greater energy efficiency and renewable energy use are essential for reducing our carbon emissions. So too is new nuclear energy. But to meet projected demand we need to continue to keep coal in the fuel mix. Today it generates about 50% of the country's electricity. We are now beginning to develop, demonstrate and commercialize coal plants that use supercritical pulverized coal, ultra-supercritical pulverized coal (USC/PC), integrated gasification combined cycle (IGCC), and circulating fluidized bed technologies.

Along with these advanced coal plants, we will need technologies that can capture, compress, transport, and store their CO₂ emissions. The potential is there, as CO₂ is now being injected underground in some areas to extract oil or gas from depleting reservoirs. And electric companies are beginning to hold CCS demonstration projects on power plants, but there are significant cost and performance challenges facing large-scale capture technologies and permanent underground storage. The projections are that CCS technologies for fossil fuel power plants may not be commercially deployable on a large scale until around 2025.

Given the difficulty in some areas of building new coal plants, we also expect to see more natural gas projects for new power plants. About 20% of the US electric industry's generation capacity is powered today by natural gas. That is expected to increase to 22% over the next ten years. This will continue the price pressures on natural gas. More importantly, to sustain this growing use of gas, not only for electric generation but for all other uses, we must develop and expand our access to our domestic supplies. We also need to increase our capacity for gas imports.

PHEVs

The widespread commercialization of plug-in hybrid electric vehicles is a further component in our strategy to address climate change. A comprehensive study by the Electric Power Research Institute and the Natural Resources Defense Council found that PHEVs would result in significant reductions in GHG emissions and an improvement in overall air quality, with a small increase in electricity demand.

We are encouraging auto manufacturers to accelerate their efforts to cut emissions, improve gas mileage, and develop alternative fuel sources for their fleets of the future. PHEVs have the further, very significant, benefit of reducing our dependence on oil and adding to our energy security as well.

While considerable progress has been made to date, PHEVs still face challenges to reaching full-scale commercialization. Specifically, high battery costs increase the cost of PHEVs and remain a significant hurdle to bringing PHEVs to the market. Transmission infrastructure upgrades to enable their recharging is another major concern.

Public Policies

Public policies that support our efforts to develop and deploy these technologies are essential. The passage of the Energy Independence and Security Act of 2007 is a positive step in that direction. In particular, the new law includes:

*More stringent efficiency standards for a wide variety of appliances. Notably, the new energy law effectively starts to phase out the incandescent light bulb in four years.

*An aggressive and expanded federal research development and demonstration program for carbon capture and sequestration technologies.

*Incentives for plug-in hybrid electric vehicles.

Regarding the climate change issue, policies to reduce the nation's GHG emissions should be focused on reducing the emissions of the economy as a whole, and not just the electric power industry. GHG emissions sources are widespread in the US, with electric generation accounting for about a third. Policies that concentrate only on the power sector would create disproportionate increases in energy costs, and would not yield the environmental results of an economy-wide program.

We are also calling for an economic safeguard, or upper limit, on the price of carbon emission allowances. This is essential for protecting electricity customers and country's international competitiveness. The robust use of offsets is critical as well for both reducing compliance costs and maximizing reductions. And from both an economic and environmental standpoint, it makes sense to have the option to undertake these activities anywhere in the world.

Finally, policies to reduce the nation's GHG emissions must seek out meaningful participation by developing nations such as China and India. According to data provided by the International Energy Agency's (IEA) World Energy Outlook 2007, carbon dioxide emissions from China are estimated to have surpassed those from the US in 2007. The international aspect of climate change must be addressed for any policy to be effective and fair. The electric power industry is moving ahead with a comprehensive plan to meet the challenges that lie ahead. With time, and the support of policymakers, regulators, and our customers, we are confident that we will be able to achieve it.