The heads of several prominent utilities say they would not necessarily object to the power sector being the first industry subject to carbon emission limits under proposed climate change legislation.
Utilities played a significant role in the House-passed climate bill (H.R. 2454) that set an economywide cap-and-trade mechanism, but Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) are moving in a different direction.
The "gang of three" is pushing toward a plan to set different requirements for different sectors instead of an economywide measure. Power plants would face a limit on carbon emissions first, followed by large manufacturers later. Transportation fuels would be subject to a separate carbon tax with the price linked to the compliance requirements for other industries.
That news is not necessarily bad news for utility executives, nor is the fact that their power plants may be the first sacrificial lamb under the bill.
"It could be a workable solution," Tony Earley, chairman and CEO of Detroit-based DTE Energy, told reporters yesterday at the Energybiz Leadership Forum in Washington, D.C.
But Earley, who is also chairman of the Edison Electric Institute, said timing is key.
"The risk is always, well, you go first and then no one else follows," Earley said. "It would have to be part of a comprehensive package that would make it absolutely clear that everyone is going to have to bear some of this burden.
"What we don't want to have happen is for the utility industry to bear the burden of all of the reductions," Earley added. Based on his discussions with Kerry, Graham and Lieberman, Earley believes their goal is essentially an economywide approach that is tailored to each sector.
Other utility executives taking part in the forum and in town for an EEI membership meeting on industry issues said the cost of uncertainty is significant and going first could be an acceptable solution.
"I think we are at the point now where uncertainty is more expensive than cap and trade," said Ralph Izzo, chairman, CEO and president of Newark, N.J.-based Public Service Enterprise Group Inc.
Izzo, a leading utility voice for passing a climate bill, said companies are already hesitating in investing in offshore wind, new nuclear, solar and other more expensive technology that makes sense in the long term because without a price on carbon, there is no economic parity.
"I need to see that before I boldly charge up this hill and I don't see anybody behind me," Izzo said.
"It makes enormous sense to me that if you can't get everything done in one time frame that you begin with the most significant parts of the economy and that would be electricity," Izzo added. "This is a multidecade challenge and to suggest that we are going to get it all right the first time we pass legislation is probably Pollyannish at best and so the option to revisit is always there."
But Izzo said going first must also be accompanied with support for the industry to meet the emission targets such as an allocation of at least 40 percent of the emission permits to start with.
"If the industry is united in saying, 'Look we understand the importance to the nation both from an environmental and economic point of view, and we have worked hard over the past few years to build a consensus among the industry,' it doesn't seem unreasonable to me at least that there would be additional consideration for our willingness 'to volunteer,'" Izzo said.
Similarly, David Crane, president and CEO of Princeton, N.J.-based NRG Energy Inc., said an economywide cap would be preferable, but the question of carbon prices "is such an impediment at this point ... that we are not going to be overly hung up" if the utility industry is the first to be placed under a carbon limit in a sequence of limits for industries.
A more reluctant crowd
But optimism is not universal.
Asked about the new Senate climate bill's direction, Rep. Ed Markey (D-Mass.), one of the main authors of the House climate bill, simply retorted, "What day are they passing that? Can you ask me on that date please?"
Markey said he is encouraging the Senate to move forward so the two bodies could work together on a climate bill but could not comment on a bill that did not exist yet.
Joseph Rigby, president and CEO of Washington, D.C.-based Pepco Holdings Inc., also more reluctantly agreed to the new framework.
"For cap and trade it is more important to get it in place so that the industry can react. You've got to start somewhere. But it troubles me" if it just starts with the power industry, Rigby said.
David Ratcliffe, chairman, CEO and president of Atlanta, Ga.,-based Southern Co., said he would reserve judgment until he could see the entire package but what was most important in any bill was that the industry's points of agreement is included in any legislation moving forward.
"I am certain as an industry we have not abandoned any of those fundamental concepts," Ratcliffe said.
Ratcliffe is the immediate past chairman of EEI who helped broker the utility's climate change framework that became the foundation of discussion for the power sector in the House bill negotiations. It lays out EEI's members' support for a cap on carbon emissions if certain industry needs were met such as 40 percent emission allocations, carbon price containment measures, funding for carbon capture and sequestration, and targets and timetables that paced with development of technology.
Southern Co., as a state-regulated utility that owns its business from generation to electricity delivery, does not have the same kind of uncertainty as other utilities in competitive markets, so it believes it is best to take additional time on the climate bill to get it right, Ratcliffe said.
"We have been very clear as an industry that we would love to have a definitive answer. But I have been very clear that I don't want a bad definitive answer," Ratcliffe said. "I don't want an answer quick that is definite and ill-informed, so if it takes time I am willing to wait on the answer, to get a well-informed answer."
Click here to watch Izzo explain how EPA regulation will affect utilities and consumers.
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