APPA: American Power Act takes positive steps, needs consumer protections

Washington, D.C., May 14, 2010 – Following months of work and negotiations, Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) released their long-awaited climate bill and it appears to take positive steps on many of the issues important to the American Public Power Association and its members.

However, APPA still has concerns that the bill does not go far enough to protect consumers.

“This proposal is well intended and is an improvement over previous climate change bills,” said Mark Crisson, President and CEO of APPA. “But in our view it still does not go far enough to protect consumers, particularly in future years if compliance options remain limited.”

On the positive side, APPA is pleased to see that the bill contains a robust set of incentives and regulatory reforms to spur nuclear development, such as production tax credits, a nuclear power facility construction credit, an innovative technology loan guarantee program, and expedited licensing procedures for construction and operation of nuclear facilities.

APPA is also pleased that compared to the House-passed legislation the bill contains language that provides additional allowances to the electricity sector for the years 2013 to 2015, and for the years 2026 to 2029. These allowances may be used for compliance in the year they are issued or banked for use in future years.

APPA is also pleased that the legislation contains a hard price collar on allowances, but the parameters and other features of the proposal are problematic. As currently written the proposal for a price collar is for a “floor” of $12 and a “ceiling” of $25, established at the outset of the program.

In addition, these amounts would increase annually by the Consumer Price Index to account for inflation, plus an additional escalator of 3 percent for the floor price and 5 percent for the ceiling price.

APPA supports the $12 floor price but believes the ceiling price is too high and would instead propose that the collar have a range of $12-$18 at the outset. A lower ceiling price will help control costs, and a narrower range in the collar should help control price volatility.

The escalation factors also raise the ceiling price in a short period of time. Absent inflation, the 5 percent escalator would nearly double the price of the allowances within 14 years, which in turn would effectively double the wholesale price of a megawatt hour of coal-fired electricity.

Adding in an estimated 2.5 percent inflation rate, allowance prices would more than double in 10 years.

With regard to targets and time lines, APPA is also pleased to see that the bill’s date of enactment has been moved from 2012 to 2013.

However, this is also an area that needs improving. APPA would like to see more flexibility with regard to timelines in order to allow sufficient time for alternative technologies such as carbon capture and sequestration (CCS) to become commercially available.

On the issue of full Clean Air Act preemption, APPA continues to support full preemption of the CAA in order to further control the costs of the program, appropriately address the ubiquitous nature of greenhouse gases as opposed to other criteria pollutants, and provide the level of regulatory certainty necessary for the electric power sector to make cost-effective investments for meeting future electricity demand.

While the bill makes improvements in this area, APPA is disappointed to see that the bill lacks sufficient language that establishes a clear, complete, and permanent separation between the requirements of the new greenhouse gas reduction program and any other requirements under the CAA.

With regard to allowance allocations, APPA is also disappointed that the legislation allocates even more allowances to merchant generators than the House-passed legislation.

APPA believes that all allowances to the electric industry sector should instead flow directly to local distribution companies (LDCs). LDCs, the association argues, are regulated at the state and local levels which will ensure that the value of the allowances is passed on to consumers, mitigating consumer cost impacts.

Since merchant generators are not regulated, state commissions would have no way to ensure that consumers would receive the benefits of the free allowances. Moreover, any allowances given directly to merchant generators means those allowances would not be available to help soften the impact of pricing carbon on consumers through their LDCs.

Because the allocations to the merchant generators are taken from the entire industry’s pool of allowances, every LDC in the nation will be subsidizing allowances to a select group of merchant coal generators. APPA looks forward to working with the Senate on improving the allocation methodology to the benefit of all the nation’s consumers.

Finally, APPA realizes that this is just the initial step in a long process and appreciates all the hard work Senators Kerry and Lieberman and their staffs have demonstrated thus far. As the bill now heads to Senate Majority Leader Harry Reid (D-Nev.) and other Senate committee chairs, APPA looks forward to working with Senators Kerry and Lieberman and others to produce workable and sustainable climate change legislation that protects consumers, our economy and the environment.

 

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