Utility Companies `Just Exhausted' After Defeat on Cap-and-Trade Measure

Every month over the past two years, Chief Executive Officer Ralph Izzo of the utility Public Service Enterprise Group Inc. traveled to Washington from Newark, New Jersey, to meet with more than 50 senators and advocate for climate-change legislation. His efforts may have been in vain.

Izzo is among the army of lobbyists, CEOs and advertising experts deployed by utility companies to push the Senate to pass a cap-and-trade bill that would create a system for power companies to buy and sell pollution rights.

Even though the utility industry spent almost $68 million on lobbying in just the first three months of this year, more than any other sector except pharmaceuticals, according to data compiled by the Washington-based Center for Responsive Politics, their campaign couldn’t compete against a recession and divisive campaign season. Last week, Democrats abandoned their efforts to pass a measure this summer.

“I don’t know what more you can do,” Izzo said. “We are essentially volunteering to be the first to be regulated and people don’t want to do it.”

One of the architects of the legislation, Democratic Senator John Kerry of Massachusetts, said he’s still working to negotiate a cap-and-trade system that the Senate may consider in a lame-duck session after the November congressional elections.

Utility companies say they doubt the legislation will be enacted anytime soon. They have little expectation Kerry will be successful this fall and predicted Republican gains in the elections would make a climate bill unlikely to pass when the next Congress reconvenes in January.

Long Odds

“The odds are still very long,” said David Brown, senior vice president for federal government affairs at the Chicago- based utility Exelon Corp., who estimates he held hundreds of meetings with senators and staff on the issue. “Everybody’s just exhausted.”

Utility companies anticipate Congress will eventually pass legislation that mandates reductions in greenhouse gases and favors renewable sources of energy, rather than letting the U.S. Environmental Protection Agency decide how best to regulate.

Still, not knowing when Congress will step in makes planning investment difficult.

“There’s a lot of capital sitting on the sidelines just waiting for more regulatory clarity,” said Lewis Hay, CEO of Juno-Beach, Florida-based NextEra Energy Inc.

Conference Call

In the meantime, the utilities will keep pushing for a bill. A group of companies and environmental groups held a conference call July 23 to plot future advocacy efforts, Brown said. Participants included Duke Energy Corp., Dominion Resources Inc., PNM Resources Inc., NRG Energy Inc., Xcel Energy Inc., and Exelon.

The group circulated a three-page utility-only cap and trade proposal to congressional offices on July 23. Its proposal would set the initial cost of pollution allowances lower than what Kerry and Lieberman proposed.

Josh Freed, director of the Clean Energy Program at the Washington-based research organization Third Way, which favors cap-and-trade legislation, attributed the industry’s defeat to “powerful election forces.”

Democrats don’t want to cast another tough vote four months before the midterm elections, particularly one that appears to create a big government program, he said. Republicans, some of whom previously supported a climate bill, are now under party leaders’ pressure to stay unified before the elections.

Tea Party

In addition, members in both parties want to avoid criticism from the Tea Party movement, which has targeted lawmakers who backed climate measures.

The recession also increased the difficulty of passing the bill, some utility executives said. John Russell, president and chief executive officer of Jackson, Michigan-based utility CMS Energy Corp., said it would be a “stretch” this year for lawmakers to pass any measure that could increase consumers’ electricity costs. It’s better to wait until “the economy has rebounded,” he said.

There is even relief among some utility executives that the bill won’t be taken up this year. Coal-dependent Midwestern utilities said it could hurt their ability to compete against companies with larger renewable portfolios and nuclear investments.

Electric Utilities Index

The Standard and Poor’s 500 Electric Utilities Index, which comprises 35 companies including Duke Energy and NRG Energy, rose 2.5 percent July 22, the day Reid announced the cap-and- trade plan won’t be part of the upcoming energy bill. Utilities outperformed the S&P 500, which rose 2.3 percent that day.

Companies that sell coal to utilities did better, with Peabody Energy Corp. rising 5.1 percent and Arch Coal Inc. 7.2 percent.

Since the House passed a climate bill last summer, Kerry and other Democratic supporters have held dozens of meetings with utility companies and lobbyists to discuss a cap-and-trade proposal that would limit carbon dioxide emissions across the entire economy.

“Industry has been here over and over again literally begging the Senate to put a price on carbon,” said Senator Mark Udall, a Colorado Democrat.

They presented their proposal in May, flanked by officials from the Edison Electric Institute, a Washington-based group that represents utilities such as American Electric Power Co., Southern Co., and the CEOs of Duke, NextEra and PG&E Corp.

Agreement Falls Apart

That agreement began falling apart after the senators retooled their proposal to cover only utility companies in an effort to pick up votes from moderate Democrats and Republicans hesitant to vote for a broad measure.

The utilities, which had been mostly united on the broad bill, then fragmented over the new measure, contributing to making it politically toxic.

The split made it difficult for the Edison Electric Institute to support the legislation, according to a lobbyist familiar with the negotiations. In meetings with 11 senators and the White House on July 20, the lobbyist said, EEI said it wouldn’t back the bill before Congress’s August recess.

“This was a two-week fire drill and there really wasn’t an opportunity to flush out a detail that would have gotten the overwhelming support of the industry,” Brown said.

To contact the reporters on this story: Lisa Lerer in Washington at llerer@bloomberg.net; Simon Lomax in Washington at 4305 or slomax@bloomberg.net.

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