NRECA CEO Glenn English testified today before the House Agriculture Committee on the H.R. 2454, the “American Clean Energy and Security Act (ACES) of 2009”

English began his testimony noting that “NRECA’s objective is to help Congress develop and pass an affordable, workable, and sustainable piece of legislation to address the nation’s energy and climate change objectives. Maintaining the affordability of electricity is the principle against which NRECA will judge all climate change and energy legislation.”

NRECA recommends the following changes to HR 2454:

• Allocate emission allowances to local distribution cooperatives (LDCs) based upon the carbon content of the fuel used to produce the electricity sold by the LDCs, and in proportion to the utility sector’s share of emissions
• Assign authority for developing a domestic offset credit program to the US Department of Agriculture (USDA) in consultation with the Environmental Protection Agency

The carbon allowance allocation formula established in the Waxman-Markey bill, which gives 35 percent of the allowances until 2025 to utilities, including merchant generators, is based on a compromise reached among members of the association representing private, investor-owned utilities. Half of the allowances are distributed to utilities based on emissions and half are distributed based on retail sales.

English voiced concern that this formula creates regional winners and losers. “We should be protecting utility consumers from unnecessary costs under the cap-and-trade system, and not rewarding others for some other rationale not related to reducing carbon emissions.”

“Analyzing the allowance allocation in relation to each utility’s proportionate share of the cap is the only rational way to evaluate whether allowances are being used to maximize the protection of consumers,” English testified.

A chart provided in the testimony quantified the impact on cooperatives in committee members’ Congressional Districts. English pointed out that in the Chairman’s district, cooperatives receive only 62 percent of the allowances they would need. Cooperatives in other coal-dependent Midwestern and Southern states fare similarly.

The bill gives utility consumers in certain regions of the country unneeded “allowances they can sell to consumers in rural Minnesota or rural Oklahoma, forcing consumers in carbon-intensive districts to subsidize consumers in non-carbon-intensive districts. Mr. Chairman, I just do not believe that is fair and it needs to be corrected before this legislation moves further,” English declared.

English advised that to make the bill more equitable, “NRECA recommends that the bill allocate emission allowances to local distribution cooperatives (LDCs) based upon the carbon content of the fuel used to produce the electricity sold by the LDCs, and in proportion to the utility sector’s share of emissions. This methodology harmonizes carbon allowances with carbon emissions, and protects those consumers most exposed to the costs of achieving emissions reductions.”

NRECA supports the use of offsets in concept, but has concerns that the hurdles to creating a regulatory framework may lead to costly delays.

To this difficulty, English offered a remedy: “NRECA recommends that Congress modify the offset provisions so that a domestic offset credit program can be quickly established and implemented. Authority for a domestic offset credit program as part of a national cap-and-trade program should be assigned to USDA in consultation with EPA. To expedite implementation, offset provisions should include an initial list of qualifying project types for which USDA can rapidly set standard protocols.”

In order to ensure offsets can serve as an effective cost containment measure, “NRECA recommends that a covered entity not be constrained by an artificial limit on the use of offset credits to satisfy its compliance obligation. It is not necessary to cap the use of offsets by covered entities, as the size of the domestic and international offset programs will be limited by the available verified, cost-effective offsets."

NRECA also remains concerned that the timeline is not workable.

English pointed out that a “’17 percent cut’ is actually closer to a 24 percent cut when compared to the expected baseline of emissions forecast by the Energy Information Administration (EIA) for 2020. … the short term goal for the first 8 years of the legislation is to de-carbonize the nation’s economy by approximately one quarter.”

This aggressive – and unrealistic – target would require significant federal investments and policy shifts. “To address the short-term problem with the caps in the bill, NRECA recommends that the reduction requirements be adjusted during the first 15 years of the program to more accurately reflect the expected availability of technology,” English said.

In closing, English expressed optimism that “the cooperative business model and the public-private partnership with RUS [the USDA Rural Utility Service] make cooperatives well-equipped to innovate, adapt and continue providing the basic human right of affordable, reliable power.”