Working Together With Urgency

Ted Craver, Chief Executive Officer, Edison Mission Group

OVER A RECENT LUNCH, THE LEADER OF A respected environmental group and I were talking about our mutual interest in better educating consumers and policymakers about the challenges of providing for a reliable, clean and affordable supply of electricity. At one point, my friend said, "We do a lot of consumer surveys, and you know where people think their electricity comes from? The wall."

And therein lies the challenge.

Until the lights go out, or customer bills go up, the electricity that companies like ours generate or distribute is taken for granted. That may be nice while it lasts, but once the lights flicker or higher bills arrive in the mail, we've got a problem that is difficult to fix in a rational manner.

At Edison Mission Group (EMG), we've lived that scenario in Illinois. Last year we entered into a historic agreement with the state's governor and EPA to spend up to $3.5 billion on additional emissions controls at six coal-fired generating stations. This year, we watched a political crisis over higher utility customer bills result in a $1 billion rate relief package that partially rolled back market-based prices and created a state Power Agency that is going to take over utility procurement and is authorized to build new plants.

We understand society's strong desire for a cleaner environment; after all we and our employees live in the same communities where our plants are located. However, to install the complex environmental retrofits and make the substantial capital expenditures required, we need regulators to recognize the need to provide our company, shareholders and investors with long-term certainty to plan around. And we will be an active stakeholder seeking to make the state's new power procurement process successful and compatible with a competitive wholesale market, although there are far more questions than answers right now about how that will be accomplished.

However, like several others in the energy industry, we are increasingly concerned about the risk of a "train wreck" for our future energy supply, and, ultimately, for energy costs. To illustrate: in the PJM marketplace where we operate 7,500 megawatts of capacity, we believe that stricter environmental regulations already on the books could result in virtually every coal-fired generating unit with less than 200 megawatts of capacity being shut down over the next few years. We estimate this could take about 10 percent of current supply out of the market.

The risk of a train wreck comes with the reality that we see very little coming on-line to backfill those shutdowns in a timely manner.

Society wants more renewable energyand we do, too. In fact, we are about to surpass 1,000 megawatts of wind energy projects in our company's portfolio, and we have projects totaling about 3,000 additional megawatts in our development pipeline. But that alone is not the answer, especially in the next three to five years.

We also want to be a leader in developing clean coal generation with carbon capture and sequestration. Again, however, addressing technical, economic and legal issues associated with building and operating these plants is a long-term proposition. So is building more nuclear energy capacity.

In the meantime, now more than ever we need a vigorous public dialogue and agenda for how we maintain and clean up existing generation that remains economically viable, how we add renewable energy sources at a faster pace, and how we deal with the complex issues that stand in the way of making clean coal a meaningful contributor to our future electric supply.

This should not be an insurmountable challenge, but it requires us to take a truly comprehensive, long-term view that is realistic about what technology can deliver, how quickly it can deliver, and at what cost. It requires policymakers to recognize that there is an interrelationship between the debates that often occur in different silos about environmental regulations, power procurement, rate-setting policy, incentives to build new generation, and the permitting of new generation.

It is my view that we will only succeed through the joint efforts and the collective will of our industry, consumer groups, environmental groups, regulators and policymakers. We need an honest dialogue about the actions and reactions that occur when government intervenes in markets, about the true cost of well-intentioned and important environmental regulations to consumers and the overall economy, and about the opportunity for government and the private sector to work together to be catalysts for clean energy.

There is much to work on together. We need to get after it with urgency and resolve.