Power Costs Would Dramatically Increase under Lieberman-Warner Legislation

According to an analysis by Duke Energy, the plan proposed by U.S. Sens. Joseph Lieberman and John Warner to require an auction for a large portion of carbon emissions allowances would hit customers hard in the 25 states that generate more than half their electricity from coal.

“Having to obtain allowances for existing coal plants through an auction is nothing more than a carbon tax,” Duke Energy Chairman, President and CEO Jim Rogers said. “It should be called what it is – a disproportionate tax on consumers in the 25 states that depend on coal.

“I am unwavering in my support for mandatory federal action on climate change,” said Rogers. “The science is clear that we must move ahead and act quickly. But the legislation must not pit one region against another and create regional winners and losers in our nation’s economy.

“Duke Energy supports an ambitious national target – to reduce greenhouse gas emissions by 60 to 80 percent by 2050,” Rogers said. “We are grateful to the senators and the Senate Committee on Environment and Public Works for moving climate change legislation forward, but this bill unduly penalizes consumers in the Midwest, Great Plains and Southeast who depend on coal for much of their electricity. These regions are more heavily industrialized and have suffered as these jobs have moved overseas in recent years.

“Customers in coal-dependent regions are being asked to pay twice to deal with climate change,” said Rogers. “They would immediately pay for allowances to keep electricity flowing on day-one of the program. Then they would pay again to retrofit or replace power plants as new technologies become available. This is an unwarranted and counterproductive ‘double hit.’

“The focus of climate change legislation must be to protect Main Street consumers rather than to enrich Wall Street traders, who are eager to participate in a carbon auction and who profit from volatile markets,” Rogers said.

The Clean Air Act should be the model for climate change
“A more effective approach to reduce our national carbon footprint is to follow the principles in the highly successful 1990 Clean Air Act Amendments. This legislation allocated allowances based on utilities’ emissions, with the number of allowances declining over time. That system provided a transition period to protect consumers and regional economies while cleaner technologies were developed and commercialized,” Rogers said.

Under the Clean Air Act Amendments and related legislation, Duke Energy’s sulfur dioxide and nitrogen oxide emissions will be reduced by 70 percent by 2010. Similar reductions are occurring at utilities throughout the nation, substantially reducing acid rain and smog.

Based on its analysis of the Lieberman-Warner proposal and potential allowance prices at $30 and $45 a ton, Duke Energy estimated its customers’ power bills could increase by up to 53 percent when the legislation became effective in 2012. Power bills would continue to escalate in subsequent years as allocations decreased and more allowances had to be purchased through auction.

Under a system that allocates allowances based on historical emissions, the benefit of allowances is passed on to electric customers, not utilities. This will hold down price increases as utilities transition to cleaner technologies as they are commercialized. It would also provide the financial incentives needed to advance new technology and achieve the ultimate goal of carbon-free electricity.

Duke Energy is one of the nation’s top five electric utilities in market capitalization. It generates 71 percent of its power using coal, 27 percent using nuclear and 2 percent using hydro and natural gas.

Based on the Lieberman-Warner legislation, Duke Energy would have to purchase between 44 percent and 57 percent of its emissions allowance requirements in 2012.

* Based on a price of $30 a ton, power bills would increase 13 to 35 percent.
* Based on a price of $45 a ton, power bills would increase 20 to 53 percent.

Consumers in Indiana would be hit the hardest, followed by Ohio, Kentucky and the Carolinas.

According to the analysis, auctioning 100 percent of the emissions allowances, as some have proposed, would cause even more severe rate impacts in the Midwest, Great Plains and Southeast states. In Indiana, Duke Energy’s most coal-dependent state, an allowance price of $30 would increase power bills by 63 percent. A $45 allowance price would increase power bills by 94.9 percent.

Based on Duke Energy’s emissions levels, having to purchase 100 percent of the emissions allowances would increase customers’ power bills by an additional $1 billion annually for every $10 price increase in allowance prices.

“The Clean Air Act has shown that we can improve our environment and not damage our economy,” Rogers said. “Let’s leverage the principles of that legislation and go to work on climate change.”