Cap-Trade on Carbon May Push Up Costs

Argus Leader
March 28, 2009

Federal regulation of carbon emissions with a cap-and-trade system will
increase South Dakota residential electric bills a minimum of 41 percent
by 2015, utility and cooperative managers said Friday.

Their comments were directed to state Public Utility Commissioners, who
brought together national carbon experts and utility officials for a
forum, "Carbon Cap-and-Trade: National Policy, Local Impact."

"You can't have a tax on coal without a profound impact (on consumers),"
said Steve Willard, executive director for the South Dakota Electric
Utility Companies, which includes Xcel Energy and MidAmerican Energy and
serves 55 percent of the consumers in South Dakota. "Global warming is
basically a political movement. With that said, we want to be part of the solution."

President Obama and some Democratic leaders in Congress want to create a
cap-and-trade system to regulate greenhouse gas emissions and ease global
warming. Companies, especially coal-burning power plants, would have to
get government-issued pollution permits. As permissible emissions drop
over time, companies would have to reduce releases or buy offsets.
Utilities that adopt carbon-capture technology or invest in wind or solar
power could sell those offsets for a profit, or pass the savings onto consumers.

"The price of greenhouse gas is coming, and states like South Dakota will
be impacted," said Karen Bridges, a lawyer with the Environmental Law &
Policy Center. "But how do you benefit from this scenario? There will be
costs to regulation that can be offset - that's the beauty of cap-and-trade."

Climate legislation is expected to be introduced next week in the House of
Representatives. Add to that the Environmental Protection Agency's
declaration that greenhouse gas emissions pose a health risk. The ruling,
made March 10, would regulate carbon dioxide emissions through the Clean Air Act.

Carbon dioxide is a leading greenhouse gas that traps heat in the
atmosphere. It is generated by burning fossil fuels such as coal in power
plants and gasoline in cars.

Obama has indicated he would like a climate bill on his desk before
December, in time for the U.N. climate change conference in Copenhagen, Denmark.

"It's coming; the question is when and the question is how," said Chris
Mele, legislative director for energy issues for the National Association
of Regulatory Utility Commissioners. "I don't think anyone wants to see
the EPA make carbon rules. I think everyone wants to see it legislated."
The crux of the issue is coal, which generates 40 percent of all carbon
emissions in the U.S., according to the federal Energy Information Administration.

Offsets, along with wind development, will be critical for utilities to
keep costs down in South Dakota, managers said. Farmers who use
eco-friendly farming techniques could sell offsets to the electric
cooperatives where they are members. And new transmission lines will allow
the state's wind potential to flow, in tandem with coal.
"Wind only works with a base load, and that base load is coal," Willard
said. "Coal plus wind is the ticket."

Commissioners on Friday said information presented at the forum will lead
to better state regulation going forward, as Congress, the president and
the EPA wrestle with the greenhouse gas question.

"No one today argued for inaction," said PUC chairman Dusty Johnson. "The
flavor of the regulation matters. We need to work with legislators,
consumers and power generators so the flavor of that regulation makes sense."


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