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Starting a Fire

Utilities cut support for climate-change deniers.

Fortnightly Magazine - October 2009

revised version of the Waxman-Markey American Clean Energy and Security Act , which the House passed in June. And the Senate Energy & Natural Resources Committee approved legislation sponsored by Sen. Jeff Bingaman (D-N.M.) that would create a national renewable electricity standard (RES) similar to that in the Waxman-Markey bill. Democratic lawmakers seem to be hedging their bets, advancing the RES bill separately in hopes of giving the American delegation something to bring to the Copenhagen Climate Change Conference in December—even if Republicans and Blue Dog Democrats stymie the GHG legislation in the Senate.

This all would seem like typical party politics, except for an ironic twist: business interests traditionally supported by conservative lawmakers are lining up to support GHG regulation—and breaking ties with groups that are working to delay it.

In recent weeks, three major utilities—Exelon, PG&E and PNM—withdrew their support from the U.S. Chamber of Commerce over its opposition to climate-change legislation. “If Congress does not act, the EPA will,” said Exelon Chairman John Rowe, explaining the company’s decision at an environmental conference in mid-September. “The result will be more arbitrary, more expensive, and more uncertain for investors and the industry than a reasonable, market-based legislative solution.”

Of course, Exelon’s actions aren’t altruistic. With one of the country’s largest nuclear generating fleets and a mostly depreciated coal fleet, the company is well positioned to deal with GHG restrictions—and in fact to benefit from them by investing in new assets. That’s the whole point.

Uncertainty has become intolerable to companies and investors who stand ready to begin the big green build. Companies like Exelon are responding to this intolerable situation by starting a metaphorical fire, torching their support for advocacy groups that are prolonging the agony of uncertainty.

This isn’t a new trend—such companies as DuPont and GE threw in with the green movement years ago, and even coal-burning utilities like AEP and Duke (through its predecessor Cinergy) have pushed for GHG regulation since at least 2004. Even banks have gotten into the act; in 2007 Citibank said it would invest “$50 billion over the next 10 years to address global climate change.” Such institutions as KeyBanc and Barclays are building businesses around green energy finance. And now, with growing clarity around the science, policy direction and investment opportunity, the sparks of dissent are growing into a bonfire.

Investors’ enthusiasm for the industry’s future is reflected in oversubscribed bond issues and premiums that have returned nearly to pre-crisis levels (see “ Fragile Foundation ”). Utilities have responded to this enthusiasm by refinancing debt that won’t mature for another year. In Wall Street parlance, the industry’s powder is dry, with companies well prepared for the big green build. Yet utilities still are guarding their capital budgets, and investors are starting to wonder: Why isn’t the big build moving forward?

Burn On, Big River

The big build can’t move forward as long as government policy remains so unpredictable—and at this writing, all we’ve got is unpredictability. Despite the EPA’s new GHG reporting rule, the Obama administration won’t impose constraints under the Clean