Management & Leadership October 1, 2009, 5:00PM EST

The Clash Over Clean Power

Utility chiefs are juggling the conflicting goals of green energy and low rates—and self-interest reigns

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"Inaction on climate is not an option," says Exelon CEO Rowe Brendan Smialowski/Bloomberg News

By John Carey

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Duke CEO Rogers—71% dependence on coal-burning plants Fernando Decillis

Entergy CEO Leonard—8% dependence on coal-burning plants Jeffery Salter/Redux

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Power companies used to have one simple task: providing inexpensive, reliable electricity to light up cities, power factories, and keep the economy humming. No longer. The once-stodgy utility industry is now in history's crosshairs. As the largest contributor to the emissions that cause climate change, it's being asked to spearhead a radical transformation to a cleaner, greener energy economy. This shift was a major topic at the G-20 meeting in September. And at the end of the month, the Senate introduced a bill to require reductions in greenhouse gas emissions, following up on a landmark bill the House of Representatives passed in June mandating an 83% reduction by 2050. If Congress doesn't act, the Environmental Protection Agency will. Either way, the electricity sector would be radically reshaped. "It will force a technological revolution," says James E. Rogers, CEO of Duke Energy (DUK), a utility headquartered in Charlotte, N.C.

The challenges for the nation's 3,273 utilities are huge. "Inaction on climate is not an option," says John W. Rowe, CEO of Chicago-based Exelon (EXC). "But we'll throw away billions of dollars if we screw up." A company could go out on a limb with a $10 billion nuclear plant, only to see demand plunge because of efficiency measures, or be undercut by cheap natural-gas-fueled electricity thanks to new gas field discoveries.

BUCKING POWERFUL INTERESTS

What makes the task even more difficult is a fundamental clash between the two goals that Rowe, Rogers, and other CEOs say they are passionate about: keeping power prices low to benefit customers and averting the potential catastrophe of climate change. The effort to curb emissions, after all, will significantly raise the price of coal-fired and other fossil-fuel-generated electricity and make alternatives more competitive.

In their search for clear rules, some CEOs have been willing to buck powerful business interests. In late September three major utilities, Exelon, PG&E (PCG), and PNM Resources (PNM), pulled out of the U.S. Chamber of Commerce because of the Chamber's opposition to climate legislation. Yet at the same time the utility industry has been working feverishly to shape the details of the legislation to its advantage.

The power of economic self-interest has also created clashes within the industry itself, since each twist of the coming regulations creates winners and losers among the individual companies. "We all have positions on these issues that reflect the different make-up of our generation fleets," explains Duke's Rogers. Billions of dollars are hanging on the legislation's details.

Embodying these tensions is a colorful and often fractious crop of CEOs. J. Wayne Leonard, CEO of New Orleans-based Entergy (ETR), for instance, has thought deeply about these questions. The son of an Indiana schoolteacher, he is self-effacing enough to be "amazed that a person like me ends up as CEO of anything," he says, yet he was one of the first utility chiefs to call for action on climate change. Entergy even filed an amicus brief on the environmentalists' side in the landmark 2007 Supreme Court case that affirmed the right of the Environmental Protection Agency to regulate greenhouse gas emissions. Most utilities weighed in on the other side. "Some of our board members thought we were going to bankrupt the company," Leonard recalls.

Those skeptical board members left or retired. "I'm a true believer," Leonard says. "It's hard for me to imagine why people would gamble with our planet." But he is also a shrewd businessman.