Glenn English, CEO of the National Rural Electric Cooperative Association, said that a study released today by Synapse Energy Economics, Inc. on the costs to consumers of climate change proposals that provide allowances to merchant generators illustrates the need to rethink how the costs of reducing carbon are distributed. At a press conference on the report, “Productive and Unproductive Costs of CO2 Cap-and-Trade: Impacts on Electricity Consumers and Producers,” English said the study “plainly illustrates just what's a stake for consumers as federal climate policy is debated.”

The report shows that the impact of new greenhouse gas cap-and-trade policies across the country will vary greatly depending upon how carbon allowances are allocated and the electricity market structure. The study demonstrates that any allocations given to merchant generators in deregulated markets will result in windfall profits without taking any steps to reduce carbon emissions. The study was sponsored by the American Public Power Association (APPA), the National Association of Regulatory Utility Commissioners (NARUC), the National Rural Electric Cooperative Association (NRECA) and the National Association of State Utility Consumer Advocates (NASUCA).

The study reinforces concerns about the allocation structure that English and other consumer advocates raised in a joint letter to Chairmen Waxman and Markey sent on May 18, 2009.

English remarked today that “as with any piece of complex legislation, the devil is in the details and in this case one of the most important details for consumers is the formula for allocating emission allowances.”

“By giving allowances directly to local distribution companies, Congress can mitigate much of the cost increase that electricity consumers should expect under any new climate law. However, as the study reports: if allowances are given to unregulated merchant generators, the potential for rate relief is unnecessarily diminished, providing a windfall profit for big power producers at the expense of consumers.

“NRECA will continue to advocate for a fair distribution of allowances under any potential cap and trade scenario -- ensuring that allowances are available only to local distribution companies to ensure that the value of the allowances goes to protecting consumers and that any formula for distribution of allowances be based solely on carbon intensity of the power used by consumers.”

See Related Links for the Executive Summary and full text of the report.