Rising electricity rates, global warming top concerns for consumers and regulators: Deloitte study

Washington, D.C., May 22, 2008 -- Recent concurrent surveys of residential electricity consumers and state public utility regulators reveal that while the costs of producing electricity are expected to rise, consumers are willing to pay higher rates if those costs mitigate global warming. The consumer survey was conducted by ICR for Deloitte, and the regulator survey was conducted by Deloitte.

According to the survey of 50 top state public utility regulators, 87 percent of respondents anticipate that the cost of electricity production is likely to increase next year. The regulators cited the following factors as contributing most heavily to the cost increases:

* fuel prices (35 percent)
* environmental compliance (23 percent)
* capital costs (21 percent)
* inflation (11 percent)

Despite the prospect of rising electricity prices, the majority of consumer respondents said they are willing to pay higher electric rates if it reduces global warming. Sixty-two percent of consumers would be willing to pay five percent more on their electric bills to stop greenhouse gas emissions. And when asked about specific technologies, 55 percent of consumers said they would pay five percent more to support "clean coal" technology. Also, 82 percent of consumers responded that it was important for regulators to impose laws reducing greenhouse gas emissions (although 45 percent did not know whether their state had passed such laws or regulations).

The state regulators who responded to Deloitte's survey also appear to be concerned about global warming. Eighty-three percent reported that they are "somewhat" or "very" concerned with greenhouse gas emissions. Seventy percent indicated it was important to mandate the reduction of greenhouse gas emissions through state regulation.

When asked to rank their preferences for various technologies that can reduce greenhouse gas emissions, the regulators indicated that nuclear power ranked first as the preferred technology. Energy efficiency technologies, renewable energy technologies, and clean coal technologies ranked second, third and fourth respectively.

The survey further explored the issue of renewable energy support by asking regulators who should receive incentives for renewables. Thirty-nine percent felt that providing incentives to power generators was the most effective use of incentives. Twenty-nine percent preferred providing incentives to consumers. Twenty-five percent preferred providing incentives to distribution companies.

The survey also asked state regulators to identify the most significant barriers to increasing renewable energy resources in their states. Responses were mixed and distributed. Twenty-six percent cited transmission constraints. Twenty-three percent cited high prices to consumers. Eighteen percent cited immature technology. Seventeen percent cited a lack of adequate incentives. Seven percent cited the current competitive market structure.

While commissioners were divided on the key barriers to renewable energy, 69 percent responded that their consumers would support an increase in rates (ranging from five percent to more than 15 percent per year) to mitigate greenhouse gas emissions. Similarly, the regulators were cost-sensitive to their jurisdictional utilities purchasing electricity from a source with carbon capture and sequestration. Seventy-six percent said the utility should do so even if the increase in costs is five percent. Fifty-eight percent supported such purchases with a 10 percent increase in costs. Thirty-eight percent supported such purchases with a 15 percent increase.

Deloitte's consumer survey was based on national telephone interviews with 1,000 adults.