UTILITIES

EEI leader takes agenda to public, Hill

Capitol Hill rule: Don't upstage a committee chairman who's sponsoring legislation that affects your bottom line.

But the Edison Electric Institute's (EEI) new leader couldn't restrain himself last week as the chairman of the Senate Energy and Natural Resources Committee fielded reporters' questions about a proposal aimed at balancing the financial strain of proposed greenhouse-gas emission curbs on utilities and other businesses.

Sweating heavily in the heat of television lights in the committee meeting room, EEI's Jeff Sterba tapped Democratic Sen. Jeff Bingaman's shoulder, stopping the New Mexico lawmaker in mid-sentence. "Wait," Bingaman said. "I guess Jeff Sterba wants to try and explain the 'safety valve.'"

Any U.S. effort to curb emissions of carbon dioxide and other heat-trapping gases is huge for Sterba, CEO of PNM Resources -- an Albuquerque-based company whose power plants in New Mexico and Texas burn coal for more than 60 percent of their electricity -- and for EEI's shareholder-owned utilities. The so-called safety valve in Bingaman's bill would limit the price companies would pay to spew carbon dioxide under a cap-and-trade scheme.

"What is important is that we have a price signal in which to make a long-term investment," Sterba said as Bingaman stepped aside. "It affords the price signal and protects the near-term economy." Without it, carbon prices might soar, he said, forcing utilities to turn to more expensive natural gas and causing a spike in electricity prices.

Sterba, 52, is determined to use his year as EEI chairman to spread the word about the challenges his industry faces -- even if it might mean an occasional grab for a microphone.

Demand for electricity is expected to grow 1.1 percent per year on average until 2030, the Energy Information Administration says. Though that projected growth sounds small, the industry already has thin margins of generation capacity, and even the tiniest increase in demand requires companies to find an extra megawatt somewhere, either by adding new power plants or increasing efficiency.

But even if the industry could build 10 new power plants overnight, the electricity couldn't be sent to all who need it. Transmission lines need to be replaced and new ones built to carry this new capacity.

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And building those plants and power lines is getting more expensive, meaning electricity rates will probably rise on top of increases from fuel prices -- 30 percent since 2002.

Meanwhile, utilities must also grapple with the market uncertainty and need to reduce greenhouse gas emissions.

Sterba maintains that it is vital for him and other industry leaders to spread the word about the pressures they face not only to politicians and policymakers, but to consumers who have to pay the bills.

"If there is one thing that concerns me is that there is not enough of an understanding in what we may face in terms of higher prices for energy," Sterba said in an interview. "It is why it is essential we are very careful in energy policy."

'If anybody can unite them'

Sterba was born in southern Illinois, the child of a military family that moved frequently. He was an excellent student, graduating summa cum laude from Washington University in St. Louis and was accepted into the doctoral program at the University of Chicago with the idea of becoming an economics professor.

But a summer internship at PNM lured him away from academia. "I was just having too much fun applying what I knew and was learning," he said.

Sterba's colleagues cite his intelligence, creativity, foresight and his love of getting things done. The 6-foot-4 Sterba is also known for being one of the biggest utility execs in any meeting -- a good guy to have grabbing a microphone for your industry.

But Sterba will need to rally all his skills of persuasion to help EEI members work through "a difference of opinion" about climate change policy, as he puts it.

"His challenge is going to be to keep us driving forward to find solutions for our climate change," said Jim Rogers, president, chairman and CEO of Duke Energy and the previous EEI chairman. "That is going to be a front-burning issue."

Said Suedeen Kelly, a commissioner at the Federal Energy Regulatory Commission who has known Sterba since they both were in New Mexico in the late 1970s: "If anybody can unite them, Jeff can."

Frank O'Donnell, president of Clean Air Watch, an environmental advocacy group, is a bit more skeptical. He said utilities may see climate legislation as inevitable, but Sterba will have a tough slog shaping the group's position.

"My guess is that Sterba is going to be less of a talker and more of a man of action," O'Donnell said. "How much action he is going to be allowed to do I think remains to be seen. I don't think he makes all the rules."

Sterba's concerted efforts to inform and find common ground at EEI has helped close the gap between members' stances on climate change, many say. But Sterba is the first to concede that on issues like allocation of carbon credits, EEI members will not come to an agreement.

"We are going to continue ... to make sure that we are all as educated as possible what the tradeoffs of technology and policy are," he said. "As we have done that we have narrowed closer and closer to what makes a good policy."

Sterba points to the recent set of principles issued by EEI, including a commitment to efficiency, mechanisms for long-term carbon price signals, economy-wide limits and a safety valve -- all of which are included in Bingaman's legislation. Four major power company presidents, including Sterba and Rogers, have voiced support for it.

But EEI has not endorsed Bingaman's or any climate change legislation, nor is it likely to, Sterba said. "When it comes down to legislation like this, the role of the trade association is to focus on the principles and policies. The endorsement of a specific bill is a different kind of step," Sterba explained.

Beyond climate

But Sterba has more to juggle during his tenure as EEI chairman than climate change.

One of his top priorities will be to move states to a regulatory model that rewards companies for not generating electricity. The traditional regulatory structure only rewards companies for generation, working against efficiency and climate change.

Technology, Sterba believes, is key to solving the "appearance of conflict" between reliability, affordability and effects on the environment. But while there are energy-saving and emission-reducing technologies available, they have not been built to scale so they still cost too much, he said.

"Incentivize their construction to get enough out there to hopefully drive future costs down," the EEI chairman said. He wants a more robust federal loan guarantee program for such technology. He would also like to see the production tax credit extended for five years, the renewal of the solar investment tax credit and the tax life of smart grid technology shrunk from 20 years to five years.

"The technology that exists today can facilitate a greater amount than what we are doing," he said. "The next step of major changes has to be policy."

At issue are state policies, which have a greater effect on utilities' day-to-day business than federal regulations. EEI is trying to meet monthly with the National Association of Regulatory Utility Commissioners to educate and air both parties' concerns.

A notable issue is the importance of the National Interest Electric Transmission Corridors -- routes that the Department of Energy have identified as critical to keep electricity flowing to congested areas.

While critics including regulators protest the loss of state jurisdiction over the corridors, Sterba said it would be "unfortunate" if the corridors did not go forward. States' rights are protected as they still can choose the route the corridors would pass through, he said.

Sterba points to similar flexibility in his reasoning for not supporting a federal renewable portfolio standard (RPS). While his company currently operates in states that have renewable energy requirements, he and many state regulators believe an RPS should remain a state choice, not a federal one.

Reaching customers

And while Sterba thinks it is important to try and educate policymakers about transmission corridors and a state or federal RPS, he wants customers to take part in these conversations too.

"One of the things we all need to do is help our customers to better understand what this future world can look like, so they can tell their regulators what they want," he said.

Many customers, however, have recently seen their electricity rates rising at an alarming pace, and they are not happy. There have been mixed results in state efforts to open retail electricity markets to competition. There have been price spikes and allegations of foul play and many are turned off from the notion.

But Sterba still believes in competitive markets.

"It is so critical to keep in mind what open markets bring to the table. They bring efficiency to the table," Sterba said. "In the long run, efficiency should bring lower prices. But rate freezes do not allow [incremental] rate increases.

"This pent-up impact cannot be pretty. That doesn't mean the competitive market is at fault. It means the pressures in the marketplace have been pent up and have been imposed on customers all at one time."

But it is important the market structure is appropriate, he said, that "you get the rules of the road right."

And while Sterba has walked the line down many roads leading his company through various markets and energy sources, he may have to stray from the rules of the road when it comes to communicating his industry's needs -- like pre-empting the spotlight from a politician.

Bingaman, who has known Sterba for well over a decade, said he didn't mind Sterba interrupting him during the press conference. Indeed, Sterba was "very involved" in helping come up with the legislation, Bingaman said.

"He can speak with authority with what factors these utilities have to take into account with making judgments about future facilities and future expansion plans," Bingaman said in an interview after Sterba's successful play for the microphone. "His comments were very welcome."

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