APPA stakes position on climate change legislation

Washington, D.C., September 17, 2009 – In a letter sent to members of the U.S. Senate in advance of the expected debate this fall, the American Public Power Association laid out its top concerns with H.R. 2454, the climate change legislation passed by the U.S. House of Representatives in June.

While reiterating its support for legislation to reduce greenhouse gas emissions in order to address climate change, the association said several issues need to be resolved in order for the legislation to achieve the desired benefits without harming the U.S. economy and consumers.

The association stressed that “appropriate resolution of these issues would be essential for APPA’s support of any legislation.”

Among the changes APPA believes are critical is the placement of a reasonable “cost collar” that sets a maximum and minimum allowance price.

Such a mechanism would ensure that overall energy costs do not rise too high and too quickly, harming consumers, especially low- and moderate- income Americans who tend to spend a larger share of their budgets on energy related products and services.

A minimum allowance price would ensure that appropriate investments can be made in renewable energy sources and energy efficiency technologies to mitigate greenhouse gas emissions.

APPA believes provisions in the bill to control costs for consumers – the offsets program, banking and borrowing of allowances or the strategic reserve – do not go far enough to ensure consumer protection and that capping allowance prices is the only way to fully ensure consumers are protected from rising energy costs.

Reiterating its support for the provisions of the current bill stipulating that allowances be allocated rather than auctioned, APPA nevertheless is concerned about language in the bill that allocates a portion of the allowances to unregulated “merchant” generators, stressing that all allowances to the electric industry sector should instead flow directly to local distribution companies.

LDCs, the association argues in the letter, 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.

Additionally, merchant generators, even under a free allocation methodology, can still add the opportunity cost to their price charged for electricity and to their bids in regional transmission organization run energy and capacity markets.

Due to the structure of these markets, this will further increase costs by raising the price of all electricity sold in these markets – including renewable and nuclear generation which emit no carbon – thus imposing unproductive costs on consumers with no environmental benefit.

APPA also stressed in the letter that any climate change legislation should create a new and separate regime for addressing greenhouse gases rather than tying it to other laws, such as the Clean Air Act that was established for different reasons and to achieve different outcomes.

The current legislation does not establish such a “bright line” and could cause unnecessary confusion and litigation.

Finally, APPA urged Senators in the letter to allocate allowances in an amount sufficient to allow utilities to ensure continuity of electricity supply on day one of the program so that significant fuel switching from coal to natural gas can be avoided.

Targets and timelines must allow for an appropriate transition period of at least five years for the program to be implemented so that the regulatory regime can have time to develop before utilities must reduce their emissions and so that technology for carbon capture and storage can be developed on a commercial scale before emission reductions are initiated.

This will ensure that utilities do not have to fuel-switch to natural gas, which will raise costs unnecessarily across the economy given the broad use of natural gas as a fuel.

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