US Power Industry Urges Senators To Relax CO2 Targets

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WASHINGTON -(Dow Jones)- The U.S.’s largest utility group Wednesday pressed the Senate to modify a landmark climate bill in ways that would lower the cost of transitioning to a lower-carbon economy.

Chief among its requests, the Edison Electric Institute urged senators in a letter to cut near-term greenhouse gas reduction targets and advocated a “price collar” that would restrict major movements in the price of emission credits.

Environmental groups are likely to object to the policies, saying it will undermine the incentive for utilities to install emission-reducing technologies and strategies.

Though the demands are unlikely to be fully incorporated into the Senate bill, the influential group could help to shape the tenor of political negotiations. That’s especially true for moderate Democrats who have expressed concerns about the bill’s impact on the energy, agriculture and manufacturing sectors, and who will largely determine whether the legislation passes or fails in the chamber.

Under a deal brokered in the House-passed bill last month, utilities get 30% of the emission credits - the right to emit - for free for the first 13 years of the program. Those valuable credits are designed to help offset the cost to consumers for the expected rise in electricity costs as greenhouse gas emissions are curtailed under a new federal mandate.

“We urge you to include even stronger measures to help reduce the costs of any cap-and-trade program to energy consumers and the American economy,” said the EEI, whose members include companies such as American Electric Power Co. (AEP), Duke Energy Corp. (DUK) and Entergy Corp. (ETR). The letter was sent to all 100 senators, the group said.

The free allocations phase out between 2025 and 2029, but the EEI wants a 15- year period “to help protect consumers from sudden energy price shocks.”

The EEI also wants the Senate to relax the near-term emission reduction goals, arguing that trying to achieve the mandated cuts in the first year of the program alone - 2012 - “would impose an abrupt and significant price increase on electricity consumers.”

Though the first year requires a 3% emission cut from 2005 levels, the EEI argues that including growth in power demand equates to a 10% actual reduction in greenhouse gas levels for the industry.

The power group advocates inserting a provision that would set a floor and a ceiling on emission credit prices, limiting “economic harm to energy consumers, U.S. workers and the economy.” Analysts say a price collar would also help investors lock in financing for expensive new technology by assuring a fundamental funding parameter.

Utilities wield considerable influence with politicians, particularly as they are able to use bills to tie lawmakers’ votes to price increases.

Advocates for a more stringent climate bill argue that the allowances given to the industry will go far enough to offset rising electricity costs for consumers. Furthermore, several provisions are specifically designed to help moderate those cost increases.

-By Ian Talley, Dow Jones Newswires; 202-862-9285; [email protected]