matching grants to nonprofit organizations in our service area who undertake tree-planting

projects.

At St. Joseph Light & Power Company, we take pride in our environmental stewardship and the service and prices we offer our customers. However, when confronted with the requirements inherent in the Kyoto Protocol, I have serious concerns about our ability to maintain that level of service and that level of prices.

The Administration, last December in Kyoto, negotiated a protocol that, according to numerous studies and analyses' would place great stress on the U.S. economy, lead to a significant loss of jobs, and force a reduced lifestyle on our citizens. These studies indicate that electricity prices could increase substantially and point to a scenario dramatically different from the Administration's own recent economic testimony. While Dr. Janet Yellen, head of the Council of Economic Advisors, has stated repeatedly that she expects the economic impact and electricity price increases to be minimal, those predictions are based upon extremely optimistic - and unlikely - assumptions.

One of the underlying assumptions in Dr. Yellen's testimony is developing country

participation in the Clean Development Mechanism (CDM), a new program included in the

1

For example: Resource Data International, Inc. At What Cost? Federal Environmental Regulations in a Competitive Electricity Marketplace, May 1998, and The Kyoto Protocol: Putting U.S. Electricity Supply and GDP at Risk, February 1998; WEFA, Inc. The Kyoto Protocol: Severe Economic Consequences, Testimony of Mary H. Novak, Sr. Vice President, WEFA, Inc., March 5, 1998, and Global Warming: The Economic Cost of Early Action, 1997; and Charles River Associates, Economic Implications of the Adoption of Limits on Carbon Emissions from Industrialized Countries, November 1997.

Kyoto Protocol. However, the success of that program is not assured. Furthermore, regardless of the CDM, developing countries, especially China and India, have steadfastly refused to make any commitments to limit or reduce their emissions - and even have refused to agree to any talks about future participation in any voluntary or mandatory initiatives.

Without the participation of developing countries, it is doubtful that reductions by the United States and other developed nations will have any positive impact on atmospheric concentrations of greenhouse gases. Bert Bolin, former chairman of the Intergovernmental Panel on Climate Change (IPPC) – the United Nations body charged with the science of climate change - first raised this point in February 1995 when he stated that the impact of proposals under consideration then for reductions only by developed nations “would not be detectable on projected temperature increases."

The Administration further assumes in its economic testimony that international emissions trading will reduce economic impacts in the U.S. While such a program could potentially reduce the cost of achieving the Kyoto requirements, trading is only a concept in the protocol and key details about principles, rules, and methods of verification and accountability are not addressed. The way the trading program is structured and administered will affect its usefulness in reducing costs. Given the difficulties that the U.S. negotiators had in Kyoto in simply getting a placeholder for trading in the protocol, it is far from certain that an international emissions trading program can be structured so as to render true benefits.

Furthermore, there are proposals, such as one by the European Union, which would limit the percentage of a country's reduction requirements that could be achieved through nondomestic programs like the CDM and trading. So, despite reassuring promises of minimal economic impacts, the Kyoto Protocol has a very real potential to raise significantly the cost of electricity and, in the process, to wreak havoc on our economy.

The impact of the treaty on the electric utility industry is clearly illustrated in a recent study conducted by Resource Data International (RDI). The study, just released last week by the Edison Electric Institute, assesses the impact of the Kyoto Protocol, as well as all the current U.S. Environmental Protection Agency air regulatory initiatives, on the electric industry. I will first address the Kyoto portion of the RDI study.

The RDI study estimates that to meet the 7 percent reduction below 1990 levels requirements of the Protocol, a “31 percent reduction from anticipated aggregated emissions” in our industry would be necessary. For St. Joseph Light & Power Company, we estimate the reduction will be closer to 40 percent, based on data for 2007, the last year of our current forecast. Of course, this assumes that all segments of society and the economy share equally in the burden; any policy decision that would not equitably distribute the burden could increase these estimates.

The RDI study also states that:

massive reductions in coal-fired generation would be required. Given the fact that there are no commercially viable CO2 removal technologies, replacement of coal-fired generation with lower C02 emitting sources of generation is the only reduction option

available to the electric industry. RDI's analysis indicates that 36 percent of current U.S. coal-fired generation may need to be removed from the generation mix in order to meet the Kyoto target.

The study points out, along with an earlier RDI study2, that natural gas generation would have to fill the gap. Given that about 57 percent of electricity in the U.S. currently is produced by burning coal, that gap would be significant. The most recent RDI study indicates that "the stresses to the electricity and natural gas generation would be enormous" and that "even if wind and solar generation increase by almost 500 percent and natural gas increases by 170 percent from 1997 levels, the nation would still be faced with a 19 percent gap in available generation to meet the projected electricity supply in 2010.”

Our estimates at St. Joseph Light & Power Company track closely with the RDI study. The company has a total generating capacity of 382 megaWatts, with 261 megaWatts produced by our Lake Road plant and 121 megaWatts from our 18 percent ownership in the Iatan plant operated by Kansas City Power & Light Company. The Lake Road plant is a multi-unit facility, with the largest turbine producing 95 mega Watts. All of our units use fossil fuels for generation, with coal accounting for 94 percent of our total fuel used in 1997.

Based on the 7 percent reduction below 1990 levels required in the Kyoto Protocol, my

company would likely have to make a complete shift to natural gas at the Lake Road plant.

2

Resource Data International, The Kyoto Protocol: Putting U.S. Electricity Supply and GDP at Risk, February 1998.

Such a shift to natural gas generation is a serious concern, both from a cost as well as a supply basis. One reason is that the cost of natural gas is higher than coal.

A February 1998 RDI study indicates that gas generation costs are 1.9 times higher those at existing coal-fired plants.' The Energy Information Administration recently estimated that the cost of natural gas will be about 2.6 times the cost of coal in 2010.* We anticipate that the shift at our Lake Road plant would result in an increase of nearly 150 percent increase in fuel costs by 2007, which translates into about a 41 percent increase in electricity prices for our customers. This forecasted number does not take into account higher natural gas prices that would result from increased demand as American industry as a whole shifts fuel.

Transportation of natural gas also is a concern, as the country's present pipeline network is inadequate to meet the new demand from utilities. For instance, the pipeline serving St. Joseph would not be able to meet the requirements of both the Lake Road plant and the other customers in the city.

An increase of this magnitude in fuel costs could be devastating to our small-business customers. I would like to discuss the impact on two types of customers that

every congressional district in the country - food markets and fast food stores.

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3 Ibid.

4 Energy Information Administration, Annual Energy Outlook 1998. Calculated from Table A3, Energy Prices by Sector and Source, p. 104.