Arkansas Electric Coop CEO favors carbon tax

Duane Highley was named as the new CEO of the Electric Cooperatives of Arkansas in November 2011. Since coming on board with the state’s second largest electric utility, Highley has kept a low-profile as he’s bonded with his management team and immersed himself in Arkansas culture and the enterprise he now leads.

A 29-year veteran in the utility industry, Highley served as director of power production at Associated Electric Cooperative in Springfield, Missouri before assuming his current post.

He is a registered professional engineer with bachelor’s and master’s degrees from the University of Missouri-Rolla and has completed the Harvard Business School’s Advanced Management Program.

In an exclusive interview with Talk Business, Highley says he’s been amazed at the friendliness of Arkansans at work and in his outside-work activities.

He’s also pretty opinionated on how to keep the Coops in its low-cost leadership role. And Highley isn’t afraid to discuss controversial issues, such as global warming, energy independence, renewable fuels, and carbon dioxide taxes.

The following is a transcript of our radio interview, which aired statewide this week on Arkansas’ NPR stations.

Talk Business: Energy consumption is driving a lot of economic and political decisions, especially at the federal level and obviously at the state level. We hear people talk a lot about energy independence. What do you think is the most important debate we should be having about energy today?

Duane Highley: Without question, it would be what we’re going to do about carbon. Carbon dioxide emissions have been a great concern because of their link to global warming. Whether you believe global warming is happening because of fossil fuels or not, I think we’re making a mistake if we move in the direction of regulation of carbon dioxide as it’s been proposed. That affects our energy independence because if the EPA continues to implement what they’ve started, they’re going to shut down the operating coal units in this country, where about half our electricity comes from coal in the United States.

In Arkansas, more like 80% of our energy comes from coal. It’s the reason our rates are the fifth lowest in the nation. If that goes away, our rates will go up. And if you’re doing it because of a policy decision to regulate carbon dioxide, it’s a mistake because that coal — instead of being burned in the United States, the coal producers are already planning to export that to foreign countries. The same amount of coal will still be burned.

China has plans today by 2030 to have two times as many coal plants operating as we have now in the United States. India, by 2030, will have as many coal plants operating today in the United States. That’s all new construction that’s occurring in those countries’ plans. So even if we could turn off the entire grid in the United States today, we wouldn’t have any impact on global carbon dioxide emissions because those other countries are growing so rapidly, and they’re going to burn coal, and that carbon dioxide, if we don’t burn it here, it’ll be burnt overseas.

That kind of policy initiative that says we can’t burn it, I don’t think gets us where we want to be either on a global perspective and it crushes our economy here and basically shifts all our jobs overseas as well because no one will be able to manufacture if their energy costs double.

TB: So should we be going after a more incremental approach to transfer from coal to nuclear, hydro, natural gas, other renewables?

Highley: I think because of the need for keeping our costs low and our energy reliable, we’re going to have to rely on a very balanced portfolio of assets. We can’t continue to rely 100% on coal, we can’t even continue to rely 80% on coal. We do have to balance that portfolio.

Part of it’s happening naturally today just because the United States has discovered a large amount of new gas in this form of shale gas – and that’s lowering gas prices. That by itself is causing gas to displace coal and that’s a good thing. Gas is a cleaner burning fuel, it has more flexibility for rapid start-ups and rapid shut-downs of plants. And they compliment intermittent resources, like wind, better.

As we increase our penetration of wind and other renewables, those resources aren’t there on a schedule and they’re not the kind of energy we can store, so we have to have other assets that can move quickly to chase those. All that said, we need to continue to press on nuclear energy. This is another domestic energy resource that we can develop in this country that is baseload 24/7. It’s the kind of energy we need to power servers and the Internet unless everyone just wants to choose surfing the web only when the sun is shining and only when the wind is blowing. We’re going to have to have baseload resources that can provide that energy at other times.

TB: Are you optimistic that we can strike some sort of compromise, strike some sort of balance? You’ve got such hardcore positions on the corporate side, the environmental side, Republicans and Democrats, and a divided nation in so many respects politically on this issue. Or is one side going to have to win and just keep playing it out?

Highley: I’m actually very optimistic that we’re going to find a compromise. The utilities a year ago went to Congress and the White House with a proposal for what we’d call a ‘well-controlled unit.’

Some of the EPA rules are very difficult for us to meet because of the very short schedules that are imposed. As a result, members at the end of the line wind up paying more for their electricity when we’re forced to all go out as a group and compete for limited engineering resources, limited construction resources, and the EPA says you have a 3 or 4 year time window to build hundreds of millions of dollars of new pollution controls on a given plant — trillions of dollars of nationwide investment.

There’s not enough engineering and construction resources to do that on that time schedule. When you do that, you just drive the price up.  There’s not enough welders, there’s not enough steel, and that’s a misguided approach.

If we could say we have to be ‘clean or closed’ by 2020 or ‘clean or closed’ by 2024, that’s a schedule we can plan to meet. It’s when you’ve got 3 years from tomorrow to get this pollution control installed and spend $300 million, well you know that’s going to be a haphazard project at best.

I think next year is our opportunity. This is an election year. Nobody is going to take a position, we’re not going to be able to get a bill through on one side or the other because things are too polarized going into the election. I think post-election, regardless of who wins, we’ll have an opportunity to sit down with the administration and put together a proposal  that says we want to come up with a well-controlled unit plan that says they’ll either be ‘clean or closed’ by a certain date.

And if you want to impose a carbon control rather than a cap-and-trade, which shifts our jobs overseas, I think a modest carbon dioxide tax would do a lot for this country. I’d say not a lot of utility leaders are willing to talk about a carbon tax at this point in time, but it levels the playing field in a much more fair manner. It sends an appropriate price signal to everyone who is using any kind of carbon-based resource and it will naturally cause coal and gas to re-balance.

So if you put a small carbon tax on, that tax would affect coal twice as much as gas because coal emits twice as much carbon as gas. That tax would favor renewables because they have no carbon behind them. So the market would sort these things out in a more efficient manner by having that price signal than if the government just says you have to put a cap and forces things.

Any time the government gives you a plan, that’s not going to be the economic optimum and we’ll be forced to make non-economic decisions. Our whole purpose in being with the Electric Coops is to keep rates as low as possible. We’re out there fighting for the consumer, so we want flexibility to meet these rules.