PG&E, Exelon, Duke — progressive companies or energy-rationing profiteers?
Divide et Impera — divide and conquer — is perhaps the oldest strategic maxim of war, politics, and diplomacy. Businesses succumb to it time and time again. Why?
It is in the general interest of business to preserve an open and competitive marketplace, and to limit tax and regulatory burdens. However, it is often in the special interest of particular firms to expand the size and scope of government in order to collect political “rents” — windfall profits created by market-rigging subsidies, preferences, or mandates.
When only a few firms engage in rent-seeking, the rent seeker’s concentrated benefits will far outweigh his portion of the diffuse costs imposed on the economy as a whole. But each rent seeker’s success encourages others to get in the game. In time, the costs of government adversely affect millions of bottom lines. Worse, interventionist policies (for example, subsidized lending via Freddie Mac and Fannie May) can create systemic risk and crash entire economies.
V.I. Lenin basically viewed all capitalists as rent seekers. Capitalists are so fixated on short-term gain, he mused, that they will “sell the rope” by which their enemies will hang them. This much is clear — there is no honor among thieves. The more businesses depend on political predation, the easier it is for anti-market interventionists to divide and conquer.
This brings us to the topic of cap-and-trade, a form of energy rationing. There’s money to be made in energy rationing — OPEC proves it! The emission permits in a cap-and-trade program are like the oil production quota in OPEC, the only difference being that they’re tradable. The cap makes the permits a valuable commodity, and Waxman-Markey in the early years would distribute about 85% of all permits free of charge to various industries and interest groups.
So it should come as no surprise that some corporations love Waxman-Markey. Indeed, the corporate coalition known as the United States Climate Action Partnership (US CAP) outlined the main features of the Waxman-Markey bill months before it was introduced in a January 2009 report titled A Blueprint for Legislative Action. US CAP members don’t worry that Waxman-Markey might destroy millions of jobs and trillions of dollars in cumulative GDP. They expect to get a bigger piece of a smaller pie.
US CAP member PG&E pulled out of the U.S. Chamber of Commerce last week citing “irreconcilable differences” over climate change policy. Today’s Bloomberg.Com reports that US CAP member Exelon has announced it will not renew its membership in the Chamber, and that US CAP member Duke Energy will not renew its membership in the National Association of Manufacturers (NAM).
PG&E, Exelon, and Duke preen themselves as progressive companies who put principle (planetary rescue) ahead of profit. In reality, they seek political rents at the expense of the public interest in limited government, economic growth, and affordable energy. Waxman-Markey sets aside the biggest chunk of free emission permits — 35% — for electric utilities. And their industry representative, the Edison Electric Institute (EEI), is lobbying the Senate to increase the booty to 40%.
How much boodle can a rent seeker make these days? A recently leaked non-public report reveals that Exelon expects Waxman-Markey to generate hundreds of millions of dollars annually for the company.
On June 9, 2009, four days after Waxman-Markey was marked up in the House Energy and Commerce Committee, Hugh Wynne, a senior analyst with BernsteinResearch, led a group of investors to meet with Exelon’s senior management at the company’s headquarters in Chicago. Wynne summarized Exelon’s thinking in a non-public report prepared for Bernstein’s clients:
If passed, [Exelon Chairman] John Rowe calculates the Waxman-Markey bill will add $700 to $750 million to Exelon’s annual revenues for every $10 per metric ton (Mt) increase in the price of CO2 allowances. Such a revenue increase would contribute $0.67-0.72 to earnings per share. Exelon estimates that the price of CO2 allowances, when the law takes effect in 2012, will range from $15 to $18/Mt, implying a positive earnings impact of $1.00 to $1.30 per share.
The Chamber and NAM oppose Waxman-Markey because they promote the general interest of business in a free and healthy economy. Green groups are putting pressure on other companies to leave Chamber and NAM, my colleague Christopher Horner notes. Divide and conquer is, alas, a pathetically easy game to play in an era of big government and climate hysteria.
The real story is that so many Chamber and NAM members are standing firm, and that most observers do not expect the Senate to pass a cap-and-trade bill this year.