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Gazette Premium Content Cap and trade would mean higher utility rates, officials say

R. SCOTT RAPPOLD Updated: October 30, 2009 at 12:00 am

“Cap-and-trade:” Polls show few Americans know what it means, even though it would be the most significant environmental legislation to come out of Congress in recent history.

Colorado Springs Utilities officials say they know what the proposed climate change legislation means: much higher utility bills for customers. Utilities officials are waging a battle, from YouTube to the halls of Congress, against cap-and-trade.

“The current bills have real winners and losers and unfortunately Colorado and Colorado Springs are net losers,” said Utilities CEO Jerry Forte, who last week went to Washington, D.C. to urge Colorado’s U.S. senators to back a different approach to climate change. His YouTube video on cap-and-trade has received 227 views.

The Senate held hearings last week on a Democrat-backed bill, and the House of Representatives passed cap-and-trade legislation in June.  Both would set a cap on carbon dioxide emissions, and utilities would have to buy credits on a credit market for emissions above what they are allocated, the “trade” aspect.

The financial impact for Utilities could be major. While many utilities have been moving toward renewable energy in recent years, Colorado Springs still generates 70 percent of its power from coal, compared to the national average of 56 percent, according to the U.S. Energy Information Administration.

Utilities has enough of a renewable portfolio to meet state requirements, but as the nation has moved toward new regulations on emissions of greenhouse gas carbon dioxide, Utilities officials have put their stock in developing technology to capture carbon emissions  from plants, technology that is not yet usable on a large scale.

Now that a cap-and-trade system is taking shape,  Utilities officials say they are alarmed at its costs.

“When the numbers are crunched and we begin to see the true cost of this kind of legislation to a nation that’s in the throes of recession or a real downturn economically, this could be the last straw that really breaks the back,” Forte said. “There’s a lot of momentum to ‘do something’ and that’s a concern for us, because doing something could be worse than doing nothing.”

A U.S. Environmental Protection Agency analysis said cap-and-trade rules would cost the average American household $100 a year.  Utilities officials say the cost here would be higher.

Allowances,  or the percentage of utilities’ current carbon emissions they could continue releasing, were calculated for each state. The EPA estimated that in 2012, 16 states would get allowances for 100 percent or more of their carbon emissions. But Colorado is 45th on the list of allowances, and utilities here would get allowances for just 55.8 percent. That means utilities would have to scale back coal-based generation or come up with credits for 45 percent of its emissions. It also means utilities in states such as Colorado would compete for credits on the market, sold by utilities and industries generating less emissions than allocated, and prices would skyrocket, said Andy Colosimo, Utilities’ manager of government affairs

Utilities officials could not provide an estimate of how much bills would go up here.

“We just don’t know, but I think, given our heavy reliance on fossil fuels generation, we don’t think that $100 figure is accurate. It may be accurate for some utilities that don’t have a carbon exposure, but we do,” Colosimo said.

A short-term solution would be to rely more heavily on natural gas for power, because it doesn’t produce carbon emissions and Utilities already generates 19 percent of its electricity that way. But Colosimo said that would also mean greater costs, because it takes more gas than coal to generate power, and prices would likely spike as other utilities did the same.

Utilities officials also say renewable energy could not yet provide full power for the city, and they question where the electricity would come from without coal.

Cap-and-trade proponents agree they system would cost rate-payers, but they say the utility industry is using scare tactics to fight the legislation.

“Yeah, there will be an impact. But what’s the impact of long-term burning of coal, how that impacts our mountain backdrop, our air quality, our way of life here?” said Richard Skorman, a former Colorado Springs councilman and one-time aide to former U.S. Sen. Ken Salazar, of Colorado. He lobbied against a Utilities’ proposal to build a new coal plant and opened a conservation-oriented hardware store here.

“The impacts are hard to quantify, but rates are going to have to go up, no matter what.”

Keith Hay, clean energy advocate for the group Environment Colorado, said the economic benefit to Colorado would outweigh the costs, because the state has ample renewable energy resources, including solar and wind power. As utilities move toward these renewables, it will mean jobs here, he said.

“The important thing is we are already moving forward to moving off of coal onto clean energy sources. This bill will certainly accelerate that change,”  Hay said. “Will there be a bump at the beginning? Absolutely. That’s why it’s important Congress looks at that and looks for ways to smooth out that bump.”

But Utilities says the “bump” would be a hardship on residents and businesses, and officials are urging lawmakers to adopt a more phased approach to carbon regulation, to give the industry time to develop technology to capture carbon.

“At some point, we all believed in American ingenuity, that we’re going to solve the problem with technology. But it’s going to take time to get that tested, developed and deployed,” Colosimo said.

The chance of climate change legislation being adopted in 2009 appears increasingly remote. Democrats in some states, particularly the Midwest, are beginning to express concern, and some have said publicly they doubt there will be action this year.

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