Businessweek has published a fascinating article by Eric Pooley titled The Smooth Talking King of Coal – And Climate Change that should be required reading for anyone who is interested in understanding how business leaders, establishment Environmental group leaders, and ambitious politicians can come together to concoct a scheme to skew important rules to tilt the economic playing field into their favor.
The article focuses on Jim Rogers, the Chief Executive Officer of Duke Energy, a large electric utility company that produces approximately 70% of its electricity by burning coal. Duke Energy’s repeated choices to build and operate coal-fired power plants, despite its detailed inside knowledge of the environmental superiority and economic advantage of nuclear energy, have put Rogers and his company in a potentially difficult economic situation.
After many decades of reaping economic benefit from access to low cost power plant heat based on burning cheap coal and freely using the atmosphere as a waste dump, Duke has been facing the prospect of having to pay more of the real cost of its decisions. There is a growing recognition that putting more CO2 into the atmosphere than natural processes can remove is doing long term damage. There is also growing pressure to charge polluters for the privilege of using our common atmosphere as their waste dump and to use those fees to mitigate some of the damage and encourage deployment of replacement technology.
Rogers could have won my eternal admiration for using his political capital and bully pulpit to work towards a real CO2 solution, like aggressively working to complete the nuclear plants that Duke has had on the drawing boards for at least four years. However, Pooley’s article describes how Rogers has spent much of the last 5 years in back room deal making to ensure that his company receives a financial benefit from any legislation aimed at tackling the problem.
Instead of fighting to break down the barriers that have been purposely erected to slow the development of nuclear energy, Rogers has worked with his allies at the Environmental Defense Fund, World Resources Institute and Natural Resources Defense Council along with other large company CEO’s to craft both a House and Senate bill that provide free emissions allowances to electric utility companies.
Rogers was unnerved when a coalition of 29 environmental groups—including EDF and NRDC, his partners in USCAP (US Climate Action Partnership)—sent a set of policy prescriptions called “Transition to Green” to the new Administration. It endorsed auctioning rather than giving away the pollution allowances in a cap-and-trade system; he was still hoping to get the allowances for free.
When he read the document, Rogers was beside himself. If EDF and NRDC blocked a USCAP plan calling for free allowances, he was going to walk. The problem wasn’t so much Transition to Green; the enviros were always coming out with manifestoes. This one mattered because it was endorsed by EDF and NRDC, and he needed to know that Krupp and Beinecke had his back. So his people put out the word: Rogers wasn’t going to sign on to the blueprint unless it gave the power sector 40 percent of the allowances. He also had to satisfy himself that EDF and NRDC would stick to the agreement. Which side were Fred (Krupp) and Frances (Beinecke) really on? Rogers was going to find out.
Those free allowances that Rogers worked hard to defend are like money – they can either be sold for cash or used by the company instead of having to pay for an auctioned permit. The favored beneficiaries repeatedly say that free allowances will allow them to shield customers from price increases, but it would require a strong suspension of disbelief to accept the notion that CEO’s have been fighting altruistically for the benefit of their customers and will not allow any of the money saved by free pollution permits to fall into the pockets of company shareholders and managers.
One of my senatorial heroes, Sen. Bob Corker (R-TN), who sold a successful real estate and construction business before being elected to the Senate, has taken the corporate fixers to task, but his characterization has been met with shocked resistance from those same fixers.
On Jan. 15, 2009, the USCAP CEOs came to Capitol Hill to unveil their blueprint for cap-and-trade. The schedule was packed: a breakfast with senators, a press conference, and a hearing before the House Energy & Commerce Committee. The breakfast did not go well. “You all should be ashamed of yourselves,” said Tennessee Senator Bob Corker, the first Republican lawmaker to speak to the CEOs. “If I was on your board and you came to me with a plan like this, I would fire you.” He called their blueprint “a Rube Goldberg scheme” designed for their self- serving interests. The free allowances, he said, were “the equivalent of cash or marketable securities,” windfall profits to be stuffed into the CEOs’ pockets.
The room was astonished: A wealthy, conservative Republican was using talking points from the left to eviscerate two dozen of the most powerful executives in America. Rogers responded first, a slight quaver in his voice as he explained why the allocation of free allowances was not the allocation of profit. Allowances weren’t like marketable securities—Duke wouldn’t be able to sell them; they allowed it to operate its plants.
Jeff Immelt spoke last. “I can’t let this stand,” he said softly. “Senator Corker, I have great respect for you, we’d love to work with you, but I have to tell you that what you said this morning was way too personal. You basically said we’re pigs at the trough, and I can’t let that stand. We’ve worked for two years trying to find a way to move things forward. We made an honest effort, and the tone you have taken is just not right.”
Though Rogers does not currently draw a salary or bonus from Duke Energy, Forbes reports that his total compensation in 2009 was nearly $7 million, mostly in the form of stock awards. That is roughly the amount of money that the US Navy pays to employ 20 senior executives. (Admirals are limited by the federal pay cap to making $179,000 in base pay. In making the comparison, I doubled that pay to account for benefits.)
I know it is considered un-American to criticize someone for making a lot of money, but I cannot give much credit to someone for spending so much time at the public trough to make sure that his company gets more than its fair share of government giveaways. That action might endear him to shareholders and facilitate another restricted stock award, but it will not do much to make the path toward real CO2 reduction much easier. Rogers may be a good CEO in the traditional fiduciary sense, but he is not an environmental hero.