Cinergy Corp. today released its report on the potential impact of regulation of greenhouse gas (GHG) emissions on the operation of its electric generating system. The Air Issues Report to Stakeholders was prepared in collaboration with the Committee on Mission Responsibility through Investment of the Presbyterian Church USA.
Although passage of GHG emission controls does not appear to be imminent, Cinergy said it plans to work proactively with its shareholders and other interested parties in shaping the climate change debate. Its goal is the development of a reasonable long-term reduction strategy that can be managed effectively by the company and by the larger economy in which it operates.
The report explains that any reasonable GHG reduction strategy would first slow and then halt the growth of emissions until new technologies are ready for deployment that might permit overall reductions in GHG emissions. It encourages more support of research and development on these technologies by the federal government.
The report says that Cinergy supports a GHG management program that would include all sectors of the economy, not just the utility industry, and would use market-based cap and trade principles with an escalating cap on carbon allowance prices; allow compliance flexibility with reforestation and other sequestration projects; incorporate bi-lateral or regional international carbon trading and promote public/private partnerships in research and development.
"We are planning the future of our company around our belief that we will eventually be required to operate in a carbon-constrained world," said James E. Rogers, chairman, president and chief executive officer of Cinergy. "We are preparing for that future through active leadership and participation on the climate change issue and by execution of our voluntary pledge to reduce our greenhouse gas emissions."
The Rev. William Somplatsky-Jarman, speaking on behalf of the Committee on Mission Responsibility through Investment, said: "We believe that shareholder value and environmental responsibility go hand-in-hand, and seek to have both reflected in our investments. Cinergy's response to our request for the report modeled leadership in corporate social responsibility and partnership. While the report is very much Cinergy's, the process was very much a collaboration with investors and stakeholders."
Mindy S. Lubber, executive director of Ceres, a coalition working with investors and companies such as Cinergy to analyze climate change risks they are facing, added, "This report is a clear testament to the financial risks and challenges electric power companies face trying to make capital-investment decisions in a regulatory void.
"We applaud Cinergy for recognizing the inevitability of carbon controls and for joining the growing number of companies seeking regulatory clarity sooner rather than later, so that unforeseen financial risks can be avoided and shareholder value preserved."
The report, which was approved by the Public Policy Committee of the Cinergy Board of Directors, evaluates the legislative, regulatory and legal issues surrounding the global climate change issue. It also discusses the company's risk mitigation strategy, including its strategy with regard to complying with pending regulations to further reduce sulfur dioxide and nitrogen oxides emissions and, for the first time, mercury emissions. There are also chapters discussing the potential impacts on electricity prices charged to customers and a review of the public perceptions of environmental issues.
Cinergy has already pledged to reduce its GHG emissions by five percent below 2000 levels between 2010 and 2012. Earlier this year, it announced the first in a series of projects that will total $21 million by the end of this decade that will assist it in reaching a goal of reducing GHG emissions by a total of 30 million tons versus a business-as-usual approach.
The company is also pursuing the construction of a commercial integrated coal gasification combined cycle generating station and has previously announced a letter of intent with General Electric and Bechtel Corp. to construct such a facility. This technology is an example of a process that deserves additional federal funding because it produces significantly fewer GHG emissions than traditional coal-fired generating stations and carries the potential for additional reductions through sequestration in underground formations.
The report predicts that the impact on the company's customers can be minimized by the prudent design of future regulations and recommends an increasing CO2 price cap within a cap and trade program. This would prevent rate "shocks" and negative economic impacts and is especially critical in the early years of a reduction program. It would also reduce the risk that the program would be overturned because of unexpected adverse economic impacts.
"We've attempted, in this report, to advance the dialogue and suggest how best to build a foundation for a successful greenhouse gas reduction program," Rogers said. "We believe that the frank detail in our report demonstrates to our stakeholders that we're thinking seriously about these issues and planning accordingly. We are prepared to work with public policy leaders across the country on this issue."
Cinergy Corp. has a balanced, integrated portfolio consisting of two core businesses: regulated operations and commercial businesses. Cinergy's regulated public utilities in Ohio, Indiana, and Kentucky serve 1.5 million electric customers and about 500,000 gas customers. In addition, its Indiana regulated company owns 7,000 megawatts of generation. Cinergy's competitive commercial businesses have 6,300 megawatts of generating capacity with a profitable balance of stable existing customer portfolios, new customer origination, marketing and trading, and industrial-site cogeneration. Cinergy's integrated businesses make it a Midwest leader in providing both low-cost generation and reliable electric and gas service.
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions. These forward-looking statements are identified by terms and phrases such as "anticipate", "believe", "intend", "estimate", "expect", "continue", "should", "could", "may", "plan", "project", "predict", "will", and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to, unanticipated weather conditions; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes in costs; environmental incidents, including costs of compliance with existing and future environmental requirements; electric transmission or gas pipeline system constraints; legislative and regulatory initiatives; additional competition in electric or gas markets and continued industry consolidation; financial or regulatory accounting principles; political, legal, and economic conditions and developments in the countries in which we have a presence; changing market conditions and other factors related to physical energy and financial trading activities; the performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities; availability of, or cost of, capital; employee workforce factors; delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures; and costs and effects of legal and administrative proceedings, settlements, investigations, and claims. Please refer to the company's SEC filings for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements. The Company undertakes no obligation to update the information contained herein.