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Power companies vie for advantage under climate plan
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A struggle taking place behind the scenes could help determine how much Washington businesses and residents pay for electricity in the future.
Facing off are the state's two main kinds of power generators: those that draw most of their electricity from dams, versus those powered mostly by fossil fuels such as coal and natural gas.
Each group is jockeying for the most favorable starting position in a coming regime known as cap-and-trade, a gigantic marketplace that will offer big-money incentives to cut greenhouse gases through the trading of rights to emit carbon dioxide, known as carbon credits.
Under programs being created by lawmakers and government officials for the Western states and the nation as a whole, some of the carbon credits will be given away for free, while others get auctioned off. Those credits will set a baseline of how much carbon dioxide recipients may emit.
A key question is who gets the free credits.
If more credits go to producers that emit more, that would benefit utilities such as Puget Sound Energy that generate much of their power from fossil fuels, churning out greenhouse gases in the process.
If, instead, credits are based on megawatts generated or customers served, that would give the advantage to utilities with hydroelectric resources such as Seattle City Light and Avista Corp. -- which generate lots of power with low emissions.
Collins Sprague, manager of state government relations at Spokane-based Avista, said an emissions-based starting point isn't fair to hydro utilities like his that have a lower emissions baseline from which to cut.
"We're like the elite world-class marathon runner compared to a couch potato," he said. "Who has an easier time losing 100 pounds?"
In addition, he said, during low water years, hydropower utilities might have to go out on the market and buy electricity, probably fossil-based. Not only would that power be more expensive, but allowances would likely be pricey, too.
Hydro-heavy Avista, Seattle City Light, Tacoma Power and the public utility districts of Chelan, Cowlitz, Douglas, Grant, Pend Oreille and Snohomish counties all favor the output, or load-based, approach.
Fossil-fuel-dependent Puget Sound Energy and PacifiCorp, which operates as Pacific Power in Washington, favor an emissions-based approach
"They have a very different perspective because of the differences in their emission levels," said Craig Gannett, a partner at Seattle-based Davis Wright Tremaine LLP.
Two parallel cap-and-trade efforts are taking shape. Washington is a member of the Western Climate Initiative, a collaboration between the governments of Arizona, California, Montana, New Mexico, Oregon, Utah and Washington, as well as the Canadian provinces of British Columbia and Manitoba.
Utilities and other parties have already filed dozens of comments in response to the initiative's preliminary recommendations. The climate initiative is expected to release drafts of its proposal early this month, followed by a May 21 meeting in Salt Lake City to collect public input. The design is expected to be finished in August, but the recommendations would not take effect in Washington until the Legislature accepts them.
Meanwhile, Congress is working on a national cap-and-trade system. The most advanced piece of legislation so far is the Lieberman-Warner Climate Security Act.
"I think our members are convinced that regardless of who is in the White House, we're going to see a more aggressive approach taken to the climate change issue and to establishing a fed cap-and-trade system," said Chris McCabe, governmental affairs director with the Association of Washington Business.
To be sure, some combination of approaches may ultimately be chosen. The Lieberman-Warner bill, in its current form, would allocate some credits based on emissions and some based on load.
But, "In the event of a hybrid approach, the proportions of the components are obviously critical," Davis Wright Tremaine's Gannett said.
Here's how cap-and-trade systems work: A central organization sets a cap on emissions, and then members get allowances, or the right to emit. If a member's emissions are higher than its allowances, it must cut emissions or buy allowances from another member. The cap will gradually decrease over time.
The advantage of such a system is that is generally believed to "get the most reductions at the least cost to the economy," said Peggy Duxbury, director of government and legislative affairs with Seattle City Light.
In theory, companies that can cut emissions cheaply will do so, and can then sell their credits to entities that would have a harder time making cuts.
But many questions arise about the design of such a system.
The Northwest has relied for decades on the low-emitting hydropower system -- 70 percent of Washington's electricity comes from dams.
"As you design a cap-and-trade," Duxbury said, "an allocation system that looks at historic emissions makes absolutely no sense for a state like Washington."
The Northwest also has embraced strong energy-efficiency programs.
"We're doubly penalized in emissions-based system because we've conserved rather than built," Duxbury added.
Seattle City Light and seven other public utilities, along with Avista, sent a letter to Rep. Jay Inslee, D.-Wash., earlier this year outlining their concerns with the current draft of the Lieberman-Warner Act. The utilities have also filed comments with the Western Climate Initiative.
PacifiCorp is supporting an emissions-based approach.
"PacifiCorp's preferred allowance allocation method ... would be based upon historic emissions and initially free allowances," wrote Kyle Davis, the company's director of environmental policy and strategy, in comments filed with the Western Climate Initiative. Davis could not be reached for further comment.
Puget Sound Energy also, supports an emissions-based approach. Kimberly Harris, PSE's chief resource officer, said she wants to make sure that whatever mechanism is adopted will actually reduce carbon emissions.
"At the same time, if we're going to just talk allocations, my job is to protect my customers," she said.
PSE's portfolio is about 45 percent hydro, 34 percent coal, 17 percent natural gas, and 4 percent wind, solar, biomass and nuclear.
Harris downplays talk of a fight among utilities, and says climate change is a global issue and many parties will have to work together to address it.
"I don't think there's a war going on between the thermal-based and the hydro-based," Harris said. "We have different portfolios, and the rules will impact each one of us differently, but I don't think of it in lines of the hydro customers versus our customers."
Avista's Sprague has a different take.
"It's a very politically charged issue, not just within the region but within the state of Washington" he said. "It's the heart and soul and the most controversial aspect of the whole plan."
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