If Congress and the White House agree on legislation that puts a price on carbon dioxide emissions, utilities that have a lot of nuclear power capacity, such as Exelon, could benefit from being able to sell carbon-free electricity. Others, such as American Electric Power, whose coal-fired plants are leading emitters of carbon dioxide, could face new costs. Exelon is up 17 percent percent since the beginning of the year, while AEP has gained 9 percent.
A cap-and-trade system would set a national ceiling on emissions and issue allowances for that amount. Companies with extra allowances could sell them to those falling short.
Michael G. Morris, chief executive of AEP, said, "We could support a cap-and-trade system, but it depends on what it looks like." In a cap-and-trade system, AEP would be hurt if lawmakers decide to auction all emission permits. Morris wants allowances distributed for free to current emitters. He also favors "safety valves" to limit carbon costs as well as incentives for carbon capture and storage techniques. "The key is to make sure we can continue to burn coal and do it as responsibly as we can and not to put a huge burden on our customers," Morris said.
Any company that figures out the best method of separating carbon dioxide from coal-plant emissions and burying it safely underground stands to make lots of money. There are three unproven -- and costly -- technologies now, pioneered by the likes of General Electric, Siemens, Babcock & Wilcox and Alstom.
Meanwhile, the coal rush has showed some signs of slowing. Several plants have been blocked by lawsuits, soaring construction costs and regulatory delays. Citigroup recently downgraded coal stocks.
While conventional wisdom says that pricing carbon dioxide would put a burden on utilities that rely heavily on coal, a recent analysis by Jefferies & Co. said that coal-fired power plants "will also benefit from carbon restrictions assuming they receive an allocation of 25 percent or more of the annual required credits for free." Anything above that "would result in additional margin and profits," the analysts said. The middle-of-the-road proposal backed by Sens. Jeff Bingaman (D-N.M.) and Arlen Specter (R-Pa.) would give utilities more than 50 percent to start with. That explains why so many utility executives endorsed the bill.
The Jefferies analysts said that with a 50 percent allocation of carbon credits and a price of $20 per ton of carbon dioxide, coal-fired electric plants could boost margins by $5.12 per megawatt hour.