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The U.S. utility industry is gearing up for a fight over who receives the revenue generated under a plan that would bring about sharp reductions in greenhouse-gas emissions by raising energy prices.

U.S. President Barack Obama and Democratic leaders in Congress want to set nationwide emissions limits and require companies to buy allowances conferring the right to pollute up to the limit, or cap. The White House last month estimated that a climate-change law could generate $646 billion by 2020, and proposed $526 billion of that would fund a tax rebate for working families, essentially redistributing wealth to poorer households.

U.S. utilities say that a large share of the allowances should be handed out for free to power companies in the early years of the program, so that the savings may be passed along to electricity consumers or used to invest in renewable energy and energy efficiency.

"I think this is probably going to be the biggest part of the debate," Tom Kuhn, president of trade group Edison Electric Institute, said at a forum organized by EnergyBiz Magazine. "The important thing for us to do is to make sure we don't get rapidly escalating prices of electricity."

Utilities have echoed that sentiment. Duke Energy Corp. (DUK) Chief Executive Jim Rogers has spent the past week calling for free allowances for utilities to help keep electricity costs from surging. Exelon Corp. (EXC) CEO John Rowe said in an interview last month that he hoped the Obama administration would reconsider its position.

Susan Story, CEO of Southern Co.'s (SO) Gulf Power unit, said Monday on the sidelines of the EnergyBiz forum that directing climate revenue to working families would leave another needy group - small businesses - exposed to electricity price shocks.

"We think it's important to keep in mind the impact on the consumer," Mark Crisson, CEO of the American Public Power Association, said Tuesday at the forum. "We'd like to see 100% allocation to begin with, to minimize consumer impacts."

Utilities are hardly small players in the climate-revenue debate. Electric-power companies would have accounted for at least 82% of emissions reductions by 2020 under legislation that cleared a Senate panel last year, according to an analysis by the U.S. Energy Information Administration.

But Peter Orszag, who is currently the director of the Office of Management and Budget, the budget arm of the White House, said last year that giving all or most allowances to energy producers would wind up posing a bigger burden on poorer people, or "exacerbate the regressivity of the price increases."

Orszag, who at the time was the director of the Congressional Budget Office, said the value of the allowances would "more than compensate them [the companies] for any decline in profits caused by a drop in demand for energy and energy-intensive goods and services.

"As a result, the companies that received allowances could experience windfall profits," he said.

-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@dowjones.com