The Senate climate bill to be unveiled Monday is likely to give the electric utility industry a sweeter deal compared to last June's House-passed bill, even as it sparks a messy food fight among individual power companies.
Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) are expected to give the power companies that account for about 40 percent of annual U.S. greenhouse gas emissions more free allowances compared with the House cap-and-trade bill and impose a "hard price collar" that gives the industry greater certainty on what its costs will be over the environmental program's four-decade lifespan.
Final details remain under wraps, but industry officials familiar with the legislation like what they see when it comes to perhaps their biggest ask: more free allowances for the state-regulated local distribution companies that provide electricity to the public and larger industrial customers.
Electric utilities complained last summer after passage of the House bill (H.R. 2454), saying it left them short several hundred million metric tons of allowances annually that they had be forced to buy in the carbon market to comply with the program's emission limits.
But according to an internal Edison Electric Institute document obtained from outside the trade group, the Senate plan would give away between 260 and 310 million metric tons more allowances per year than the House bill for the climate program's early years of compliance from 2012 to 2015. This is important for the industry as it faces few options to help them meet the new environmental limits given projections of another decade or so before it can count on commercial-scale carbon capture and sequestration.
"There's a whole lot of little things going on that add up to a lot of money to a lot of people," said an official from one of the country's major power companies.
After 2015, the Senate bill would offer no more than 35 million metric tons of free additional allowances in any one year compared with the House bill, with a complete phase out of allocations in 2030.
Industry sources also say they are expecting the Senate bill to include a price collar that limits the price on greenhouse gas allowances to between $10 and $30 per ton tagged to inflation, with an increase at a to-be-determined "fixed rate" over time. The legislation would also set aside a "strategic reserve" of 4 billion greenhouse gas credits that could be released into the market to help control price volatility fluctuations.
Yet not every move by the Senate trio will make the entire industry happy.
Kerry, Graham and Lieberman are also considering a change to the highly prized allocation system for power companies that was central to the House legislation. H.R. 2454 split valuable allowances 50-50 between companies based on their historic emission levels and retail sales, following a formula approved by EEI through an unanimous vote of about 80 power company CEOs.
In a bid to satisfy Senate Democrats from the Midwest and Great Plains who say that the House bill created regional inequities unfavorable to coal, Kerry, Graham and Lieberman have floated a 75-25 split in favor of free allowances for historic emissions, according to multiple sources on and off Capitol Hill. "We're looking at it," Graham acknowledged yesterday.
That possible change in the allocation formula has prompted guarded praise from the smaller power companies that have been lobbying for a better split.
"75-25 would be on the right track in improving the 'coastal kickback formula' and make it look more like the successful Acid Rain Program blueprint, but Midwest senators will have to make sure there are not any devils in the details and that the utility sector as a whole receives enough total allowances to help all fossil-dependent utilities lower the transition costs for their customers," said Zach Hill, a senior manager for federal affairs at Alliant, a Madison, Wis.-based company that serves about 1 million customers in Wisconsin, Iowa and southern Minnesota.
Hill has been promoting a change to the EEI formula through the Midwest Climate Coalition -- an ad hoc group that includes MidAmerican Energy Holdings Co., Wisconsin Energy Corp., Black Hills Corp., CMS Energy Corp., Detroit Edison Co., Great Plains Energy Inc., MDU Resources Group Inc., Minnesota Power, NiSource Inc., NorthWestern Energy, Oklahoma Gas & Electric Corp., Vectren Corp. and Westar Energy Corp. (E&E Daily, Aug. 5, 2009).
The EEI formula's supporters on Capitol Hill include Sens. Tom Carper (D-Del.) and Dianne Feinstein (D-Calif.), who last month sent Kerry a letter saying a change could force electric companies to drop their support for the legislation. Feinstein also warned the bill would force energy consumers in California to pay higher costs for electricity even though their utilities already made significant low-carbon investments.
At least one power company that favors the EEI plan spoke up yesterday about any move away from the House bill's formula.
"We're well aware that there are those who want to rewrite a carefully crafted compromise to secure more allowances for themselves," said Randy Clerihue, spokesman at FPL Group, the Juno Beach, Fla., umbrella company for NextEra Energy Resources LLC, and Florida Power & Light Co. "The 50-50 compromise negotiated by the electric power industry under the auspices of EEI was a fair proposal that took into account the conflicting interests of both low-carbon and high-carbon electricity producers. This was the basis of the legislation that successfully passed the House of Representatives last year. We see no reason to undo it now."
Brian Wolff, EEI's vice president for government affairs and communications, declined comment on the formula fight. "We're not to that particular stage yet," he said. "We're completely focused on the allowances that flow back to customers that contain costs and shield them from rate impacts."
Kerry said he did not know yet if the bill to be rolled out Monday would be complete with all the details on allocations. "The answer is I'd like to try to get it resolved," he said. "But let's see where we are. I hope we are resolved."
Sponsors of the House bill left their allocations blank when they first released details, filling them in just before the markup in the Energy and Commerce Committee.
Click here for an EEI analysis showing a year-by-year breakdown of free allocations to the electric utility industry, with comparisons between the House-passed bill and presumptive Senate bill.
Click here for an EEI graph that also compares the House-passed bill's allocations to the electric utility industry, as well as the Senate alternative.