Could
consumers end up paying for cap and trade?
By Sharryn Harvey, Power
Engineering
The debate over cap and trade is leaving a bad taste in some
people's mouths. One group says the legislation would have negative impacts on
how utilities pass down savings to customers and won't have as big an impact on
reducing emissions. Another group says the rise in costs will happen whether
there is cap and trade or not.
The U.S. Environmental Protection Agency defines cap and
trade as "a policy tool with a mandatory cap on emissions while providing
sources flexibility in how they comply."
Therein lies the problem, said a report from Synapse Energy
Economics Inc. Unregulated companies could hog all the credits, keeping them
from smaller utilities who would use the credits and pass on the savings to
their customers. Plus, those same generators will see an increase in profits as
the cost of electricity increases to reflect emission costs. The profits may be
about $7 billion annually, the report says.
The report was sponsored by the National Association of
Regulatory Utility Commissioners (NARUC), the National Association of State
Utility Consumer Advocates (NASUCA), the National Rural Electric Cooperative
Association (NRECA) and the National Association of State Utility Consumer
Advocates (NASUCA).
Barry Smitherman, Chairman of the
Texas Public Utility Commission, and Robert Powelson,
Commissioner of the Pennsylvania Public Utility Commission, both said in a
joint statement that huge profits like that aren't possible.
"The proposed legislation contains specific provisions
to evaluate free allowance allocations and adjust if necessary to ensure that
they do not produce windfall profits," the statement said.
William Massey, counsel to the COMPETE Coalition and former
FERC Commissioner, said that utility customers will still have to come out of
pocket for their electricity.
"Consumers will pay the cost of carbon, regardless of
whether they are in the two-thirds of the country that benefit from the economic
and environmental benefits of organized electricity markets," Massey said.
Smitherman
and Powelson agree. "In competitive markets, all
generators are merchant generators, and compliance costs will increase for
merchant coal generators without allowances," the statement said.
"This in turn may result in an increased dependence on generation sources
fueled by natural gas, which is expected to increase in cost and exhibits high
price volatility.
But the raise in rates from cutting emissions may not be
entirely economical. Considering that most of the coal-fired power generators
are in the Plains,
Massey, Smitherman and Powelson counter that consumers in organized markets will
see clear signs that will give them the chance to change how they use energy
and how much they use. Those steps can help with emission reductions
that the cap-and-trade program is intended for.
The Synapse report suggests letting utility companies get
the allowances for free, which will still raise electricity rates but will let
the companies use the credits for programs that lower the burden on their
customers.
The authors also propose having inexpensive climate change
legislation that protects consumers and pushes for investments that reduce
emissions and spur economic growth.
Smitherman
and Powelson said utility companies do just that
without the government's involvement. "It is important that competitive
markets be given the credit they deserve, rather than being falsely criticized
as the reason behind the inevitable price increases consumers will experience
as a result of federal climate change legislation," they said.
The authors said they are not downplaying the importance of
greenhouse gas regulation, just that the allowance prices would have
implications for consumers. And that can make anyone scrunch up their face in
disgust.
To read the full report click here
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