Glenn English, CEO of the National Rural Electric Cooperative Association

Recently, Citigroup, Inc., JPMorgan Chase & Co. and Morgan Stanley announced new guidelines, called “The Carbon Principles,” for recovering from the financial risk that federal carbon cap-and-trade legislation would create for funding new power plants. 

These principles are intended, the banks contend, as a best practice to help protect them from bad debt.  Under the new process, banks will determine whether utilities can recover their costs through higher bills should they need to purchase carbon emission allowances as a result of legislation or regulation. 

Climate legislation hasn’t been enacted, but the announcement from Wall Street is one more sign that we are already living in a “carbon-constrained” world.

This is the new reality:  the coming regulation of greenhouse gas emissions will increase the cost of building power generation.  With that expectation, Wall Street is now assessing whether borrowers will be able to charge rates high enough to cover the cost of prospective carbon emission allowances.

The principles have been framed as an effort to promote low-carbon alternatives to conventional fuel sources.  The banks pledge, for example, to encourage utility customers to pursue cost-effective energy efficiency, renewable energy and other alternatives.  But let’s be clear:  the new guidelines for financing power plants are about self-protection in the face of regulatory uncertainty.

The expectation of greenhouse gas regulation, combined with uncertainty about the details, is not just driving the banks.  Electric cooperatives and investor-owned utilities alike must make decisions now about building base-load generation without a reliable basis for calculating the cost of fuel options.

As The New York Times pointed out, with “demand for electricity rising by 2 percent or so a year, the prospect is that utilities will be forced to build and use a new generation of gas-fired plants regardless of the operating cost — and consumers will bear the burden of higher electricity rates.”

Ultimately, these increased costs will be borne by electric consumers at the end of the line. 

In raising the bar for financing conventional power generation, the banks are working to protect their interests.  We would not expect them to do otherwise, notwithstanding their pledge of commitment to greenhouse gas reduction.

But who is looking out for the consumers? When Congress takes up the proposals to address climate change this spring, who will be speaking for the ratepayers expected to bear the burden of this legislation?

If electric cooperatives do not speak out for their member-consumers in this debate, no one will.

For consumer-owned electric cooperatives, charging higher rates is never welcome.  It means asking our families, our neighbors, our friends to bear a greater financial burden.  And in this case, it means being forced to send more money from Main Street to Wall Street.

The banks’ decision offers a timely preview of things to come if consumer advocates are left out of the room as in the debate over climate change, and electric cooperatives speaking on behalf of our members will be left out unless we fight our way in. 

This announcement comes as co-op leaders set out for NRECA’s annual meeting in Anaheim.  As we meet to set the agenda for next year, making the voice of the consumer heard in the national climate change debate must be the top priority.

Banks and private utilities are even now planning how to mitigate the financial risks of impending climate change legislation.  Co-op leaders must do the same for consumers because if we don’t, it’s clear, no one else will and the burden will fall to those who can least afford it.