Utilities may win big from energy bill

August 5, 2010

The sun rises over electric power lines in Encinitas, California in this file photo from September 4, 2007.   REUTERS/Mike Blake

–Andrew Leckey is President of the Donald W. Reynolds National Center for Business Journalism at the Walter Cronkite School of Journalism and Communication at Arizona State University in Phoenix. Any views expressed here are his own.-

Having spent the past two weeks in record high temperatures in Beijing and Shanghai, with global warming being noted publicly by Chinese officials as the primary cause of severe weather, I find the situation faced by U.S. companies somewhat ironic.

The now-grounded U.S. climate legislation, rather than clearing a general or modest environmental path for U.S. companies and emerging nations, underscored the significant differences of opinion over the environment and the economic impact of regulation.

Other countries may be first to take direct steps, since so many do not require the consensus that the U.S. does and aren’t facing recessionary pressure.

Plenty of money was spent lobbying on both sides of U.S. climate legislation because stakes are high. With the currently unfavorable prospects and likelihood of a less-green Congress next year, new EPA regulations or new Congressional legislation are the possibilities. Most businesses realize that this issue can be stalled but won’t disappear entirely.

Strong opposition by business to the EPA dictating carbon regulation, as it fully intends to do in 2011 under provisions of the Clean Air Act, may be the driving force toward Congressional action next year. Manufacturing, refining and electric power production would all be affected. Companies generally consider EPA command and control inefficient, its regulations tending toward the onerous with “one size fits all” minimum standards.

Rather than cede all to the agency, Congress may be compelled to pass some lesser degree of legislation than that initially considered this year to reduce greenhouse gases and encourage renewable sources of energy. While firms have no idea when that might happen or its ultimate form, each needs a longer-term game plan that takes into account all the possibilities.

Some industries, such as coal, have received a reprieve from regulations that would have been expensive and difficult to meet. Every company in the mining sector that produces and refines coal, as well as any company using coal to power a boiler or generate electricity, can breathe a temporary sigh of relief. So can those regions of the U.S. where renewable energy alternatives are not as readily available.

General Electric Co. is an example of a company so diverse that it is often a winner and loser at the same time. Government subsidies for buying efficient appliances, included in the follow-up Harry Reid bill being considered this fall, would boost its appliance business. It also manufactures a lot of equipment being used by traditional industries that won’t have to comply with new regulations in the near-term.

Yet the market for GE’s wind turbines and solar panels in the U.S. has slowed dramatically and it is difficult to see exactly where that may be headed without large government subsidies. The same goes for smaller firms specializing in wind power. While operators of wind farms on long-term contracts won’t be affected, providers of equipment for wind energy have definitely suffered a setback.

The auto industry gains because it won’t have to meet much tougher fuel efficiency standards, while oil companies will be under increased pressure to reduce greenhouse gas emissions in the fuel that they sell.

U.S. utilities, many already shifting into alternate energy sources, may ultimately be winners because they will continue to push for a climate bill with cap and trade requirements even if it only covers utilities. Only problem is that anything that might increase utility bills for consumers won’t be realistic until the economy improves.

The questions for American investors to ask, however they personally stand on the issues, are:

  • What are the specific energy profits, demands and uses of the companies whose stock I own? How forthcoming are those companies with that information?
  • Which firms may have dodged the bullet of a climate bill but are in line to face regulations from the U.S. Environmental Protection Agency? What are their vulnerabilities?
  • Which companies seem the surest to benefit financially if even minimal future climate measures are enacted? Do they provide a product or service that will be in greater demand or represent mostly theory that can’t come to fruition without massive government funding?

In the U.S. environmental political debate leading to November elections there are certainties. Political campaigns and commercials will accuse Republicans of being dupes of Big Oil for failing to stop offshore drilling, while Democrats will be depicted as climate alarmists stifling growth.

The EPA, facing lawsuits and Congressional pressure, nonetheless has coal and other climate issues at the top of its regulatory agenda for 2011. It will tell companies what technologies should be installed to reduce emissions and what standards they must achieve in order to receive permits to expand and continue operations. Regulation of greenhouse gases, new air transport rules and more stringent standards for smog, soot, and mercury are all under its umbrella.

Can the agency effectively share with industries what greenhouse gas controls are available and economically feasible to install? This prompts further debate about specific equipment, its effectiveness and the implications for economic survival of companies. It means picking winning and losing technologies.

Looking beyond current paralysis and partisan debate, climate regulation in some form or another is likely even though discussion about it among average citizens seems to be waning. Whatever your personal feelings on global warming, be sure to monitor your investments and employers.


The sun rises over electric power lines in Encinitas, California in this file photo from September 4, 2007. REUTERS/Mike Blake

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