Transcript: Monday, June 2, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Fuelling a firestorm. The White House unveils an ambitious plan to slash power plant pollution. The controversial new regulations could have a big impact on companies and consumers.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: In the spotlight. Apple (NASDAQ:AAPL) unveils new features for its signature products, iPhones, iPads and Macs. But were investors wowed?

GHARIB: Showing promise. A look at the next generation of cancer treatments, and the companies working to get them to market.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Monday, June 2nd.

MATHISEN: Good evening and welcome.

Not everyone believes in global warming or that climate change, if it exists, is largely caused by humans. But the Obama administration, like most scientists, is not among the skeptics. And today, the White House and the Environmental Protection Agency proposed game-changing rules aimed at slashing carbon dioxide emissions from power plants over the next 15 years.

The proposed limits are sure to have a far-reaching impact on companies and communities that generate power using coal, which is the electrical power sector’s single biggest source of carbon dioxide emission. So, what do the emission targets mean for the coal producers, for the utilities that burn it and for the states where it’s the cornerstone of the economy? And will it mean higher utility bills for electricity consumers like you?

Morgan Brennan takes a look.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a controversial move, the EPA is proposing a sweeping new regulations to dramatically cut carbon dioxide emissions. It’s the crux of the Obama administration’s climate initiative and one that would impact power companies and consumers.

The EPA is using its administrative authority to bypass Congress, after similar rules failed to pass several years ago. The plan would slash power plant emissions 30 percent from 2005 levels through 2030. The states would create plans to oversee the cuts, pushing companies to adopt more alternative energy or partake in regional cap and trade programs to sell unused emission allowances.

The electric industry is the biggest producer of CO2 in the U.S., and coal-fired plants generated by far the most, roughly 80 percent of the industry’s total.

HUGH WYNNE, BERNSTEIN RESEARCH: The writing is on the wall for coal fired generation that has to bear the brunt of these cuts. The beneficiaries in terms of the volume output will be the natural gas fire generators.

BRENNAN: Non-profits recently found that a handful of companies accounted for the most emissions. American Electric Power (NYSE:AEP), Duke Energy (NYSE:DUK), Southern (NYSE:SO) Company, NRG and Tennessee Valley Authority (NYSE:TVC) together produced a quarter of the electric sector’s CO2. As they shift away from coal, miners like ArchCoal, Alpha Natural Resources (NYSE:ANR) and Peabody Energy (NYSE:BTU) could also feel the pressure.

But utilities already using other energy sources, companies like Calpine (NYSE:CPN), Exelon (NYSE:EXC) and Entergy (NYSE:ETR) are better positioned plus the natural gas producers that will provide the fuel and random solar companies.

But coal has typically been the least expensive.

WYNNE: The EPA estimates that you will probably see a rate increase of something like 7 percent or 8 percent, but that bills will go down, and that reflects their belief that a large portion of these emissions cuts will be achieved through energy efficiency gains, i.e., reduced consumption.

BRENNAN: The EPA projects consumers electric bills could shrink by 8 percent. But (INAUDIBLE) remained skeptical. The Chamber of Commerce, for example, estimates that this could cost consumers an additional $289 billion through 2030, as companies move away from coal and rack up expenses sure to be passed on to end users.

(on camera): The proposal is expected to be a rule next summer, but it faces a maelstrom of opposition, from politicians facing midterm elections and businesses expected to file lawsuits.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan.

(END VIDEOTAPE)

GHARIB: Andrew Friedman joins us now to talk more about why the new climate rules are so important. He’s the principal at the Washington Update.

So, Andy, based on our reporting there, there is no question that this is a very controversial issue. But aside from that, will this new rule solve the problem?

ANDREW FRIEDMAN, THE WASHINGTON UPDATE PRINCIPAL: Well, I think that’s a great question, Susie. I mean, if you believe climate change is an issue, then you need to cut greenhouse gas emissions. But all this rule does, because it’s really all the administration could do, is cut emissions from power plants, which is about 40 percent of total carbon emissions.

And, of course, it doesn’t address what happens overseas. We don’t have fences at our borders that keep our air here. At some point, our cleaner air ends up over in China and their dirtier air ends up here.

So, it’s a start, but whether it really does enough I think is opened to question.

MATHISEN: Andy, what are the other sources of CO2 emissions and why can’t the administration address those, blunting perhaps the criticisms from some people that this seems selective and aimed particularly at coal and coal fired plants?

FRIEDMAN: Well, the administration was a little tied up here. You know, you have things like trucks and buses, and other types of manufacturing that emit carbon. The administration had hoped early in the Obama years to get a proposal through Congress, a broad cap and trade proposal that would have allowed it to address everything, but the Republicans didn’t want that.

So, they’re left only with the Clean Air Act from 1970. That’s kind of an antiquated act. That is aimed at power plants. So, that’s really all they could do here. They did as much as they could without congressional approval.

GHARIB: You know, the other thing I want to get your views on is critics say that this new, these new rules will cost hundreds of thousands of jobs, that consumers are going to have to pay higher electricity bills and we can expect more power outages. Supporters say just the opposite, that, actually, electricity costs are going to come down. It’s going to increase energy efficiency. Who’s right?

FRIEDMAN: Well, I think you are comparing apples and oranges here, Susie. If your goal is to clean up environment for future generations, then that’s a goal. But that’s not, that is going to be antithetical with the goal of creating jobs, and keeping prices low, because just by common sense, you’re going to see coal producers have to retool, have to pay new taxes, have to use other energy sources, and that means they’re going to have higher costs. And when you have higher costs, you hire fewer people. You don’t use as much raw materials and you raise prices.

Now, that doesn’t mean it’s wrong. It means you have to choose between helping the economy and worrying about climate change. I think trying to put one in terms of the other doesn’t work. There’s no reasonable answer to that question. Either side can differ.

But you can’t say that it’s going to create jobs or lower costs. It seems to me it’s obvious it’s going to have an adverse effect on the economy, but maybe that’s worth it, if you are worried about climate change.

MATHISEN: Let’s talk a little about the political implications of this move, even some Democrats from coal-producing states, like Congressman Rahall from West Virginia, are very unhappy with this proposal. How big a political issue is this potentially in the midterm elections?

FRIEDMAN: Well, it’s like the Keystone Pipeline, Tyler. Again, the people from the senators running in Alaska and in Louisiana were not happy with putting off the Keystone Pipeline decision, because they want it. They’re an energy-producing state and it makes their re-election more difficult.

I think this has some of the same issues in West Virginia. We’re probably going to see the senators from West Virginia switch from Democrat for the Republican, and that doesn’t help the case there. I think it just makes it more complex and I certainly think that they would have preferred if this had to come out now, push off the date when comments could come through until after the election.

Right now, we were supposed to wind this up before the election.

GHARIB: In a word or two, any chance this does become law?

FRIEDMAN: Does it become law? There is going to be a lot of challenges, for instance the Clean Air Act allows the administration to go at power plants by power plant. It doesn’t allow this kind of necessarily this state-wide type of solution. So, it’s going to be a lot of challenges.

GHARIB: OK.

FRIEDMAN: Then, you’re going to have congressional challenges. It’s going to — we don’t know the end here yet. That’s for sure.

GHARIB: All right. To be continued. Thank you so much, Andy.

FRIEDMAN: Thanks for having me on.

GHARIB: Andrew Friedman at the Washington Update.

FRIEDMAN: On Wall Street, volume was low, but the major averages gained just enough for fresh records on the Dow and S&P 500 to kick off a new trading month. Stocks were initially lowered after the Institute for Supply Management’s manufacturing index for May was lower than expected. But after a software error was detected in compiling the results, the measure was revised higher, sending stocks into the green, even after it was changed a second time.

Here’s how things looked when all was said and done. The Dow added 26 to finish at a new record high. The NASDAQ went the other way down five, S&P up one. But still, good enough for a new all time closing high.

GHARIB: Investors were also encouraged about hearing a positive outlook on what’s next for interest rates from Chicago Federal Reserve Bank president.

Speaking at a conference in Turkey, Charles Evans says that the timing of any increase in U.S. interest rates will depend on the outlook for inflation, which is well below the Fed’s 2 percent target. So, a rate hike might not come until next year or maybe not until the year 2016.

MATHISEN: This is the day, a day a lot of investors and techies have been waiting for. Today marks the start of Apple’s worldwide developer’s conference, where company engineers and execs welcome thousands of code writers and entrepreneurs for updates on Apple’s software. It’s operating systems and all those mobile apps available to users.

Josh Lipton has more from the big event in San Francisco.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s a familiar sight, lines of people gathering early, hoping to get a glimpse of Apple’s latest products. But it wasn’t the latest iPhone or iPad that got these Apple (NASDAQ:AAPL) fans revved up. The tech titan instead introducing its latest Mac operating system, Yosemite.

CRAIG FEDERIGHI, APPLE SR. VP OF SOFTWARE ENGINEERING: They set off on what then was somewhat more fortuitous task. It took them ultimately to a place that embodies the beauty and power of OS X. We discovered OS X Yosemite.

LIPTON: The goal, make an Apple (NASDAQ:AAPL) ecosystem that’s more integrated, allowing your Apple (NASDAQ:AAPL) devices to communicate with each other seamlessly — something Apple (NASDAQ:AAPL) exec Craig Federighi demonstrated for the crowd when he calls Dr. Dre the newest Apple (NASDAQ:AAPL) employee after last week’s Beats acquisition, on stage from his Mac computer.

FEDERIGHI: It’s Federighi here.

DR. DRE: Hey, how are you doing? This is Dre.

LIPTON: The other big announcement, the new mobile operating system iOS 8 and new programs for developers that will let programmers create apps aimed at home automation.

But the news didn’t go over well with investors. Shares fell slightly on the announcement, many saying apple’s success built on its devices.

BRIAN MARSHALL: Software is a key component because of the stickiness of the Apple (NASDAQ:AAPL) ecosystem. But in our view, it’s not the overall driver of the overall PNL.

LIPTON: But while most analysts agree that new software announcement won’t be enough to send customers flocking to Apple’s stores, at least some think today’s headlines to be a signal of a much bigger announcement later this year.

MATTHEW MCCORMICK, BAHL & GAYNOR PRINCIPAL: When you look at Apple (NASDAQ:AAPL), all these news today is I think wetting the appetite for the main entree, which is going to be iPhone 6.

LIPTON: Consumers can expect the latest software packages to be available this fall, and that lines up when Apple (NASDAQ:AAPL) is expected to introduce its newest line of devices.

(on camera): Last week, Eddy Cue, one of Apple’s senior executives, said the company’s product pipeline is the best he’s seen in 25 years. That’s a time frame that included the iPod, iPhone, iPad and iTunes, so investors are all eagerly awaiting what Apple (NASDAQ:AAPL) can churn out next.

Josh Lipton, NIGHTLY BUSINESS REPORT, San Francisco, California.

(END VIDEOTAPE)

GHARIB: A busy day for justices at the U.S. Supreme Court. They threw out two patent related decisions from lower court. The Supreme Court handed a win to exercise equipment maker Nautilus in its patent battle with Biosig Instruments. This was over a heart rate monitor. The decision raised the bar on how clearly patents must be written.

In a separate ruling, the High Court ruled in favor of Limelight Networks (NASDAQ:LLNW) over claims by Akamai Technologies (NASDAQ:AKAM) that it infringed on tech patents for managing web images and video. The justices said it didn’t directly infringe on the patents in question.

MATHISEN: Also today, a group of retailers are asking the Supreme Court to hear a case involving the Federal Reserve’s so-called swipe fee limit. The Fed’s rules allow banks to charge merchants for interchange fees, known as swipe fees, when debit cards are used to make purchases. Retailers say the 21 cents per transaction fee, which is set by Visa (NYSE:V) and MasterCard (NYSE:MA) to reimburse banks for the costs of providing the card is still too high, forcing customers to pay more than they should.

GHARIB: Well, investigators are looking into another type of possible swiping. Championship golfer Phil Mickelson acknowledges he’s been questioned in a federal insider trading inquiry that apparently also involves a famous Wall Street investor and a Las Vegas gambler, all insist they did nothing wrong, but the case raises plenty of questions, also along with all the attention.

Scott Cohn has our story.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Phil Mickelson has won three Masters titles, but at this weekend’s memorial tournament in Ohio, he tied for 49th.

PHIL MICKELSON, PRO GOLFER: At 15th hole, man, that hole has got my number.

COHN: Maybe he was also a bit distracted after being questioned on the course by the FBI.

MICKELSON: I have done absolutely nothing wrong and that’s why I have been fully cooperating with the FBI agents.

COHN: At issue, reportedly, trading in shares of Clorox (NYSE:CLX) in 2011, just before investor Carl Icahn launched a takeover bid that sent the stocks soaring. Mickelson bought Clorox (NYSE:CLX) options, so did a friend of his, Las Vegas gambler Billy Walters, who happens to know Carl Icahn.

HARVEY PITT, FORMER SEC CHAIRMAN: Even if Icahn did not violate the law, but his information was used by others to trade in the market, that’s a clear insider trading violation.

COHN: Icahn says he’s never given out inside information. Walters says he’s incident of wrongdoing. An attorney for Mickelson says the golfer has been told he’s not a target. The SEC, the FBI and federal prosecutors refuse to comment.

But the case draws even more attention to so-called activist investors like Carl Icahn, who can move a stock just by buying it. Knowing his moves ahead of time can be lucrative but not necessarily illegal.

RICHARD HOLWELL, FORMER FEDERAL JUDGE: There is nothing particularly legal from people who are acquiring stock in making that public.

COHN (on camera): Still, federal authorities have been looking more closely at activeness and their potential impact on trading. This may not be the test case, though. It’s hard to do any other cover work after all now that the investigation has been revealed.

Scott Cohn, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

MATHISEN: Still ahead, news about the latest cancer therapies and the company’s behind the breakthrough drugs.

(MUSIC)

MATHISEN: Last week, we told you about today’s meeting of the American Society of Clinical Oncology or ASCO, which brought 30,000 doctors, researchers, executives and investment pros together for the latest news in cancer medications.

Meg Tirrell was there and has more on the big themes out of this year’s ASCO Conference.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: ASCO, the medical world annual status report on where we stand on the fight against cancer. This year is all about immuno oncology, drugs that empower the immune system against cancer. Merck (NYSE:MRK), Bristol-Myers, AstraZeneca all are sharing data on these drugs at the conference, giving us a glimpse of how they could change cancer treatment.

ROGER PERLMUTTER, MERCK’S EVP & PRESIDENT: For the first time, we have the sense that there is a general mechanism we could employ that could profoundly improve the lives of cancer patience of a whole variety of tumors. It’s enormously exciting.

TIRRELL (on camera): The meeting showcase advances being made in immuno therapies, for melanoma, bladder cancer, and lung cancer among others, in a market some say could approach $35 billion a year.

(voice-over): It was the first big showcase of AstraZeneca’s pipe line since it rejected Pfizer’s nearly $120 billion takeover offer. The British drugmaker also had data on a combination of drugs and ovarian cancer, which analysts said could lead to treatments that don’t require more toxic chemotherapies. And lung cancer and AstraZeneca drug looks to be competing with one from smaller biotech, Clovis Oncology.

Well, the drug showed similar efficacy, Clovis’ stocks took a hit on concerns its medicine is linked to higher blood sugar on some patients. Other advances came from leukemia, with showings from Pharmacyclics (NASDAQ:PCYC) and Ariad Pharmaceuticals.

So, where do we stand in the fight against cancer?

Dr. Richard Padzur, the Food and Drug Administration’s director of the office of hematology and oncology, has attended 34 straight ASCO conferences and gave us a sense for how far we’ve come.

RICHARD PADZUR, FDA ONCOLOGY AND HEMATOLOGY PRODUCTS DIRECTOR: We have better drugs, a better understanding of the disease. We’re moving away from kind of traditional cytotoxic drugs, drugs that mechanisms of actions were poorly understood, to drugs that have a much better understanding of how their drugs work, how they interact with the disease and that gives us better drugs, drugs that give higher response rates, drugs that are better, are more efficacious, substantially less toxical. So —

TIRRELL: So, we’re making progress, but there is still much more work to be done.

In Chicago, I’m Meg Tirrell, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

GHARIB: Shares of Broadcom (NASDAQ:BRCM) surged after the company said it might sell its cellular base band business and that’s where we begin tonight’s “Market Focus”.

Broadcom (NASDAQ:BRCM) hired JPMorgan (NYSE:JPM) Chase to explore options as it focuses on its other core businesses. The chip maker estimates the move could result in savings of about $700 million a year. The stocks jumped 9 percent to $34.84.

The country’s biggest real estate investment trust is about to get even bigger. Ventas (NYSE:VTR) is paying more than $2.5 billion to buy American Realty Capital Healthcare Trust. Both companies are REITs, especially in medical office building and senior living facilities. Shares of American Realty were up 9 1/2 percent, to $10.91. But Ventas (NYSE:VTR) lost almost 3 percent to $64.93.

And Marathon Oil (NYSE:MRO) is selling its North Sea oil business in Norway to a Norwegian oil producer for about $2 billion. The move is an effort by Marathon to stream line its portfolio and assets and focus on the United States. Shares were off a fraction to $36.44.

Tyler?

MATHISEN: Google (NASDAQ:GOOG), Susie, is reportedly planning to spend more than a billion dollars on satellite. The tech giant wants to spread Internet access to unwired regions of the world, that thinks the satellite well. But despite the buzz, Google (NASDAQ:GOOG) class A shares were off more than a percent at $564.34.

Delta ordered 15 aircraft from Airbus for delivery in 2018. The airline didn’t say how much it paid, but the list price of the order is more than $1.5 billion. The new planes will replace similar ones that the company just retired from its fleet. Shares of Delta were up 2 percent to $40.77.

And the donut maker Krispy Kreme reported disappointing results, after the close. Earnings matched the street estimates, but sales came in light. Also, the company lowered its 2015 earnings outlook. Shares took a dive after the report, but during the regular trading day, the stock was on a little sugar high finishing up slightly at $19 even.

GHARIB: Coming up on the program, why Amazon’s battle with a book publisher is making it tough for readers to buy some bestsellers.

(MUSIC)

GHARIB: There’s a major report due out this week on the missteps at General Motors (NYSE:GM), in connection with a faulty ignition switch that’s been linked to at least 13 fatalities, and the company’s alleged efforts to contain the problem.

This week, former U.S. attorney Anton Valukas, now chairman of the Chicago law firm Jenner & Block, will release his report on responsibility for the defect and why it wasn’t corrected years ago when problems first surfaced.

MATHISEN: New car sales are moving right along, but U.S. auto buyers are borrowing now more than ever before and taking out more long-term loans. In the first quarter of this year, Experian Automotive says the average monthly payment hit an all time high — see if you can guess — $474 a month, topping $100 a billion in loans for the first time ever. It says 25 percent of new car buyers took out loans lasting as long as six and in some cases even seven years. That’s the most on record.

GHARIB: While some shoppers struggle to afford a new car, book buyers are also having some trouble. And that’s because Amazon (NASDAQ:AMZN) and book publishers Hachette are locked in a battle over e-book prices. And now, office and consumers aren’t happy.

So who loses, and who wins? As the two sides try to negotiate new terms.

Julia Boorstin reports.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Click to Amazon (NASDAQ:AMZN) to order James Patterson’s bestseller “Alex Cross, Run”, or to preorder J.K. Rowling’s upcoming novel, “The Silkworm,” under the name Robert Galbraith.

And Amazon (NASDAQ:AMZN) is not making it easy and not offering its typical discounts, saying delivery times are two to four weeks instead of overnight and it isn’t taking preorders of “The Silkworm”, saying it’s unavailable.

JIM MILLIOT, PUBLISHER’S WEEKLY EDITORIAL DIRECTOR: Amazon (NASDAQ:AMZN) wants to keep the discount level where it is, publishers are concerned about this because Amazon (NASDAQ:AMZN) has a tendency to really deeply discount e-books much further than the price of the print books are. And if that happens, publishers are worried it will put too much pleasure on retail bookstores and that you might start seeing more retail bookstores starting to close.

BOORSTIN: Amazon (NASDAQ:AMZN) won’t comment. Hachette saying it will spare no effort to resume normal business relations with Amazon (NASDAQ:AMZN), but under terms that appropriately value the author and publisher.

(on camera): The stakes are high for Hachette, because Amazon (NASDAQ:AMZN) controls more than a third of total book sales and over 60 percent of e-book sales.

(voice-over): Amazon (NASDAQ:AMZN) fought a similar battle with publisher Macmillan in 2010, removing the “buy” buttons from certain titles before agreeing to raise e-books prices for bestsellers. Hoping for a similar outcome, authors are backing Hachette. James Patterson calling Amazon’s control of the book business a, quote, “national tragedy.”

MILLIOT: I think I understand that the publishers are fighting for a diverse marketplace. Again, you don’t want your book shopping choices to be limited to only being online and only on Amazon (NASDAQ:AMZN).

BOORSTIN: The big winner, so far, Wal-Mart (NYSE:WMT), taking advantage of the standoff and slashing prices by 40 percent for nearly 400 Hachette titles and speeding delivery time. So far, it’s working, with sales up 70 percent in just three days.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: And finally tonight, “Fortune” magazine out with its annual list of the top 500 U.S. companies by revenue. Fifth place, Apple (NASDAQ:AAPL), which made a lot of news today. In fourth place, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A). In third, the oil giant Chevron (NYSE:CVX). Second place goes to ExxonMobil (NYSE:XOM). Top of the list, the world’s biggest retailer, Wal-Mart (NYSE:WMT), $476 billion in revenue.

GHARIB: That’s a half a trillion. Some countries aren’t that big.

That’s NIGHTLY BUSINESS REPORT for tonight. We want to remind you that this is the time of year your public programs seek your support, support that makes programs like this one possible.

MATHISEN: On behalf of your public television station, thanks so much for your support. We’ll see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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