Utility Interests Varied

Utility Interests Varied

January 20, 2010

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

The utility culture is mixed. And with varied viewpoints, each is pushing Congress to enact their brand of climate legislation.

But a central message that runs through the assorted arguments is that any final laws should keep cost under control. As such, most utility groups favor giving away most of the initial allocations that would allow them to exceed carbon emission limits while at the same time, passing along any revenue gains from the sale of those credits to consumers.

"Under any scenario, reductions in greenhouse gas emissions will be expensive," says Dominion's CEO Tom Farrell, in congressional testimony. "The most cost-effective way to achieve them in the power sector is through the development and deployment of a full portfolio of climate-friendly technologies and measures over the long term, and by allocating emission allowances during the transition to a low-carbon economy."

The House, which passed a climate change bill last summer, would require cuts in carbon levels by 17 percent by 2020, based on 2005 levels. The Senate, meanwhile, is still debating its measure, although the most prominent bill to pass through committee would require cuts of 20 percent during the same time frame. Under both bills, the expectation is that the credits would be initially given away until the technologies catch up.

President Obama and key Democratic leaders are insistent that there will be no broader energy bill without a greenhouse gas reduction provision in it. To pass any legislation, though, requires 60 votes in the Senate so as to defeat stall tactics there. It's a big question as to whether the party can even rally its troops, given that some of its members represent major coal producing states. Therefore, any final legislation is likely to make major concessions to coal interests.

But some contention exists over the types of utility businesses that would receive the free credits. Under the House bill, 30 percent of them would go to local distribution companies that are regulated by state utility commissions, which can control how the proceeds would be used. However, merchant coal generators, which produce 20 percent of all power in this country, would also get about 5 percent of them. Still, some say that any policy to give away credits to those merchants is wrongheaded because they are not regulated by state officials.

We support legislation on climate," says Rob Thormeyer, communications director for the National Association of Regulatory Utility Commissioners. "But we have concerns. We are not scientists. We are economic regulators. We approve rates. And right now, the uncertainty over climate legislation is killing investment. We think that once Congress clarifies the rules, certainty will come into place."

Redirecting Revenues

Regulators, generally, have come out in favor of a market-based approach to curb greenhouse gases. Cap-and-trade is an obvious solution -- a program that creates a market place whereby entities could buy and sell credits amongst themselves. State commissioners favor at the start the free allocation of credits to local distribution companies so that it can assure that all revenues are redirected back to consumers.

That's a view supported in part by the National Rural Electric Cooperative Association. Because the size of the utilities that make up its membership is small, the group says that it must have more flexibility so as to comply with any mandates.

It's concerned, for example, that the allowances would go primarily to entities that use low-carbon fuels such as hydro and nuclear and thus hurt its members in the Midwest or Southeast that rely on coal and which would "pay twice": once for the credits and again to build new generation. It's also worried about a national renewable energy standard that would require certain thresholds, noting that while many of its members are from areas that are rich with such resources there are still many others that are not.

"We understand new costs are needed to meet challenges," says Dena Stoner, vice president of government relations for the cooperative group. "But where we are is that some of the proposals make it much more expensive to meet these challenges." While she says that the group likes the idea of sharing revenues with consumers, she says that it also wants the latitude to use of those funds to build modern, clean generation.

Not everyone, however, favors the free allocation of carbon credits. Seven Northeast states have developed their own program that sells such allowances. Under the so-called Regional Greenhouse Gas Initiative, they have started a cap-and-trade program to lower carbon dioxide emissions. It is the nation's first mandatory cap-and-trade program and one that has opted to sell credits so as to motivate its utilities to take immediate action.

The Northeastern region has conducted five carbon credit auctions. Altogether, the sales have raised around $432 million, which has been divvied up among the 10 participating states that have already begun using the money to promote clean energy technologies. The Northeastern states say that method could become a national model.

"The states participating in the initiative are investing auction proceeds in energy efficiency programs as the most effective way to manage energy demand while making the transition to a clean energy economy," says Mark Mauriello, commissioner of the New Jersey Department of Environmental Protection.

Utility interests are not always aligned. But they understand that carbon constraints are making their way into the American mainstream. Companies are no longer bucking the trend. They want to be part of the solution. And while the president and the Democratic leadership would prefer a more aggressive approach, the reality is that any future laws will be watered down to accommodate the divergent causes.