As highlighted in yesterday’s issue of Greenwire, one of the controversial aspects of the American Clean Energy and Security Act (ACES) passed by the House Energy & Commerce Committee last night is that 35% of the allocated allowances created in the cap-and-trade program will go for free to the electric power industry. 30% will go to Local Distribution Companies, or LDCs, traditional regulated utilities who sell power directly to consumers, and 5% will be allocated to independent merchant energy generators that sell power to wholesale power markets, primarily in the Northeast, Great Lakes, California and Texas.
Not surprisingly, the allocation between LDCs and merchant generators is the subject of substantial political infighting. Merchant generators own 40% of the nation’s generating capacity, but as Greenwire reports, the National Association of Regulatory Utility Commissioners, which represents the LDCs, is campaigning to knock out any share of allowances for merchant generation.
Following an amendment to ACES that passed Committee yesterday, the emission allowances given to local distribution companies must be used exclusively for the protection of retail ratepayers against rising electricity rates. In other words, utilities have to pass on the savings from their 30% of allocated allowances to their customers. Not so for the allowances given to merchant generators, who sell power into the grid, rather than directly to consumers. Their 5% share could apparently be worth $2.7 billion to $5.5 billion a year, depending on how high the price of carbon allowances are in the program’s first years.
The 5% allocation to merchant generators is seen as necessary to obtain support from House members from Texas and the Midwest who represent a number of coal-fired merchant generators. Such votes could be critical in a House floor vote, which is the next hurdle for ACES.
Even though ACES was voted out of the Energy and Commerce Committee last night, the allocation debate is not necessarily finished. Chairman Waxman said he would accommodate Republican requests to have at least one more day of additional hearing testimony over the distribution of emission allowances next month.