September 24, 2009

Missouris Electric Service Providers Voice Concerns Over Climate Legislation

The leaders of Missouris electric service providers (cooperative, municipal and investor-owned) are projecting average double digit electric rate hikes in 2012 as they announced the results of a joint analysis of the rate impacts of proposed federal climate change legislation.

The Missouri Energy Development Association (MEDA), which includes Tri-County Electric Cooperative, is also proposing some policy changes to reduce the impacts. This legislation may be considered by the Senate later this fall.

The letter and brief summary of findings that have been sent to policy-makers is posted on the MEDA website at www.missourienergy.org and can be downloaded by clicking on the Unified Missouri Electric Utilities Review of Waxman-Markey link.

The Missouri electric service providers group that conducted this analysis determined that as this legislation exists today, it will raise production costs. That means Missourians will experience significant rate increases just as they are beginning to shed some of the financial challenges imposed by one of the deepest recessions in the last half century.

The letter and brief summary of findings shows that the proposed legislation would cause Missourians to pay rate increases averaging between 12% and 26% starting in 2012. It also highlights the potential to reach rate increases of up to 50% should utilities be forced to switch from coal to natural gas for a significant portion of their fuel in order to comply with this federal legislation. The letter and summary go on to show that rate increases of between 25% and 42% may be experienced by 2020 and could reach 77% under the case where utilities are forced to switch to more natural gas fired generation.

Missouri ratepayers will pay significantly more than the national average under proposed climate change legislation because of the reliance on coal fired power plants. Over 80% of electricity produced in the state comes from coal. Nationally the rate is about 50%. The analysis released today does not address rate impacts from other causes.

The letter gives six recommended changes to the legislation that would significantly reduce cost impacts on Missouri residents and businesses and yet the key environmental policy objectives be maintained. These six recommended changes:

1. Reduce initial consumer price shock by providing sufficient allowances to meet allowed CO2 emissions, recognizing that allowances can be withdrawn over time.

2. Significantly extend the current timeline before reducing allocations to give utilities a reasonable time after federal legislation is passed to achieve meaningful reductions in carbon emissions. A more gradual glide slope for reductions of allocations is needed to avoid unprecedented and very expensive actions by the utility industry, which will be borne by their customers.

3. A price cap should be established to prevent price spikes caused by shortages or speculation in the trading of CO2 allowances that will ultimately shock consumers pocketbooks.

4. Create an enforcement off-ramp so that American industries arent forced to close or relocate to nations where there are little or no carbon regulations. Keep American jobs in America.

5. Allocate additional CO2 allowances tied to electric vehicle penetrations to speed the transition to electric vehicles. Electric utilities, and the electrification of vehicles, are the most obvious means of reducing U.S. dependence on foreign oil. The current provisions of this legislation penalize electric utilities and their customers for advancing this national interest.

6. Remove restrictions and limitations on the use of offsets. The proposed legislation contemplates the use of domestic and international offsets as a means of addressing carbon emissions. Missouri utilities are calling on Congress to ensure that offset rules for both domestic and international offsets are quickly finalized to ensure their immediate availability at the start of any carbon reduction program.

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