A climate change has been developing over the last few years that could dramatically affect the life of every Kentuckian. The “climate” is not atmospheric, but political and social — growing sentiment toward reducing the role of coal in electric generation. Whatever its ultimate course, this climate change carries enormous implications for Kentucky, including price increases that could outpace any seen in our history.
The climate change is reflected in an array of policy initiatives and proposed laws ranging from “cap-and-trade” energy taxes on carbon dioxide-emitting power plants to mandates for greater use of renewable sources of electricity, such as wind, solar, biomass or hydro.
The recent “cap-and-trade” proposal that was fiercely debated in Washington would have effectively been a tax on CO2-producing power plants — a tax paid by our customers and reflected in the many goods and services made or delivered using that same electricity. While the first of these proposals was recently blocked in the Senate, we expect the financial pressures on federal, state and local governments to generate revenue and reduce emissions will keep this issue at the forefront for some time. Additionally, there is much momentum for mandating greater use of renewable energy, which is considerably more expensive.
Why is this a uniquely difficult issue for Kentucky? It has more to do with Mother Nature than any lack of resolve.
Some current proposals will raise Kentuckians’ electric rates 40 to 80 percent, or more, over the next decade — for CO2 taxes and mandatory renewables alone. Once renewables are available and the transmission is in place, Kentuckians will pay 50 percent more than current costs of electric production. A fully implemented Smart Grid, now under consideration, will cost Kentuckians an additional $2 billion.
More than 90 percent of Kentucky’s electricity comes from coal. Because we are required to select the least-cost fuel options for our customers, coal is the logical choice. We have sought out reliable, independent studies and proposals on alternatives to coal, and they all show that Kentucky simply does not have alternate natural resources — sun, wind, agricultural waste and even hydro — that are sufficient to meet our energy needs.
We could buy power from places where renewable energy is more plentiful when the transmission infrastructure is in place. However, the costs to our customers will be staggering. Nuclear is an option gaining favor, but the costs, time involved and obstacles to overcome are enormous.
What, then, is the solution?
Although cost-effective solutions are years away, we have pledged to work with industry experts on technologies that could reduce or contain CO2. Our track record proves that we have found innovative solutions to tough problems in the past, while avoiding “sticker shock” to our customers and our economy. Rather than punitive taxes or arbitrary requirements, we believe the best approach is for the government to set ambitious goals, then let the industry apply its expertise, capital and innovation to find ways to achieve them — while balancing the interests of our customers and the economy.
What we are asking is that you, as a customer, interested party or policy-maker, carefully weigh the facts and make your own informed decision about what it means to you and to our commonwealth, and then speak up. The impact on Kentucky is so profound and dramatic, it is not a time to be naïve or misinformed.
On a personal level, energy efficiency must become central to our lives. The carbon footprint we leave from our electricity use is an issue that needs everyone’s attention. The hard reality is that using energy wisely will not reduce your bill — the federal mandates are coming faster than that — but they can help ease the hit. Working together, we can help delay the decision on future power sources until policy and technology come together.
Kentucky’s changes must be steady and purposeful, recognizing that our economy simply cannot absorb massive shocks. A balance can be struck, but not only as the tension between two strongly held views. Rather, it must be a practical appreciation that the issues at stake — the economy and the environment — are at stake for everyone.
Vic Staffieri is chairman, CEO and president of E.ON U.S., the parent company of Kentucky Utilities.