Better Bricks Low Cost/No Cost O

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Carbon Regulation How, What and Why?
Presented By Brendan J. McCarthy State
Government Affairs Specialist Portland General
Electric
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Portland General Electric

• 4,000-square-mile operations area
• 807,000 average customers, or 1.6 million people,
  43 of Oregons population
• 52 cities served (Portland and Salem are the
  largest)
• Population growth in PGEs operation area exceeds
  rest of state
• As a result of steady state population growth,
  PGE has achieved compounded annual customer
  growth and load growth of 1.6 since the end of
  2003

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Question is not whether global warming is
happening or not

• While some continue to debate the question of
  global warming and its causes, we know
• 7 in 10 Oregonians say they would tell their
  Congressional representatives to support
  legislation to reduce global warming
• Including majorities in each major political
  subgroup (Republicans, Democrats and
  independents)
• 83 of Oregon voters agree with the statement I
  understand that reducing global warming will take
  sacrifices from all of us, and I am ready to make
  some changes.

Public Opinion Strategies, May 2008, for The
Nature Conservancy
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People are changing habits and demanding change
from others

• We know that people are moving to reduce their
  Carbon Footprint, motivated recently by higher
  fuel costs
• 7 in 10 people are trying to drive less or are
  buying more fuel efficient vehicles and are using
  less electricity
• 41 motivated by price and environment equally
• 8 in 10 people think that global warming is
  happening and 63 of people think it is caused
  mainly by things that people or businesses do.
• And over 60 of people think the federal
  government should do more about it.

ABC News/Planet Green/Stanford University poll,
August 2008
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Most willing to pay more

• We know that people are willing to pay more to do
  something about it, PGEs own polling shows 68
  of people willing to pay more

Statement A I would not support any law or
regulation to address global warming if it
increases my electricity bill
Statement B I would support a 3 to 5 increase in
my electricity bill to help address the issue of
global warming
Statement C I would support a 10 increase in my
electricity bill to help address the issue of
global warming
Statement D The state should take action to
address global warming, not matter how much it
might increase electricity bills
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What are greenhouse gases?

• Generally six main gases are counted
• Carbon Dioxide
• Methane
• Nitrous Oxide
• Hydro- fluorocarbons
• Perfluorocarbons
• Sulfur-hexafluoride

Oregon totals
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A national picture is pretty much the same
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Where do they come from?
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US Sources 2003
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Energy consumption of buildings
Source US EIA
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Architecture 2030 estimates the building sector
can dramatically affect emissions

• The total US building stock equals approximately
  300 billion square feet.
• Annually, 1.75 billion square feet are torn down
• 5 billion square feet renovated annually
• 5 billion square feet built new, annually

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PGE Strategies for Oregons Energy Future

• Invest in renewable power
• 1 billion Biglow Canyon RFP for more voluntary
  power purchases
• Make existing generation more sustainable
• Plant upgrades, low-impact hydro, Boardman
  emission reduction
• Empower customers
• Energy efficiency, smart meters, distributed
  generation
• Explore new technologies
• Solar Plug-in electric vehicles
• Wave energy Carbon sequestration
• Engage in public policy decisions
• Federal, regional, state

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Why PGE is concerned about climate legislation
and allowance allocation
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CO2 Price Impacts Electric Market Price and
Generator Net Revenue
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Greenhouse Gas Regulation Basics

• Three basic styles for regulation
• Regulatory or command and control mechanisms
  that simply mandate carbon reduction
• Carbon Tax set a price on carbon and let people
  adjust their behavior based on price signal
• Cap and Trade set a cap on emissions and let
  the market set the price

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Cap and trade basics

• Its a little like musical chairs

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How Cap and Trade Works

• Government sets overall cap on greenhouse gas
  emissions that ratchets down over time
• Point of regulation can be upstream where
  fossil fuels enter the economy or further
  downstream at plants or end users, or a
  combination of both
• Limited number of tradable emission allowances
  are auctioned or provided without cost by the
  government, or a combination of both
• Emitters must turn in allowances equal to their
  emissions
• Emission allowances are eventually phased out
  altogether as overall cap is reduced
• Trade mechanism provides flexibility to achieve
  targets in the most affordable way possible,
  while cap sets a clear limit on overall emissions

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Regional Carbon Initiatives
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Design Matters Cost Containment

• Flexible compliance mechanisms (offsets, banking,
  borrowing)
• Help manage compliance obligations, moderate
  costs
• Safety valve - a hard cap on price of allowances
• Protects customers from price shocks
• Wards against market manipulation
• Allocation of allowances should mitigate effects
  on utilities customers with actual carbon
  reduction costs
• Avoid stranded costs for existing fossil-fueled
  power plants

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Seek Negative Cost Opportunities First
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Source McKinsey and Company, December 2007
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What else do we need to do?

• Achieve real reductions, at reasonable pace and
  price
• Increase energy efficiency and renewable supplies
• Improve building codes and appliance standards
• Expand geographic territory for renewable energy
  in RES
• Adopt pricing options that support energy
  efficiency
• Build grid capacity for improved transmission,
  innovations
• Smart meters, distributed generation, net
  metering
• Allow technology, investments to accelerate CO2
  reduction
• RD focus on high-capacity, low-carbon
  technologies.
• New technologies to market.
• Adopt reduction strategies for all sectors of
  economy

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Things to Avoid

• Policies at a high price that achieve little
  reduction
• Putting Oregon businesses at a competitive
  disadvantage
• vs other states that have done less, have less
  ambitious goals
• Increasing the disparity between Oregon and
  Washington
• BPA-supplied utilities in Washington vs IOUs in
  Oregon
• Incurring unaffordable rate impacts
• Especially hard on industry, low-income
  customers
• Turning Oregons non-binding, economy-wide goals
  into a mandate on the electric sector

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Summary thoughts

• Were all in this together
• Greenhouse gas emissions come from virtually
  every sector and every person.
• Our customers expect and deserve
• reliable supply, reasonable costs, environmental
  stewardship.
• We will work with our stakeholders
• to develop plans, policy positions that impact
  the environment and economic well-being of Oregon
  and our future power supply.
• We need a legislative and regulatory framework
• that is forward-looking, enables us to achieve
  future reductions in emissions.

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