Cap-and-trade bill could hurt consumers, economy, environment

This fall, Congress faces a major economic and environmental decision that will affect the lives of all Americans: what to do about climate change. While some Americans question whether global warming is threatening our future, many federal legislators agree it must be addressed. How to do that is the multibillion-dollar question.

Congress' answer is to create a cap-and-trade market. Under this approach, the government caps the amount of carbon dioxide companies can emit. The government then auctions or gives away "emission allowances" — each allowance being the right to emit one ton of carbon dioxide. Experts estimate these auctions could amount to more than $100 billion annually. Companies could then trade allowances on a "carbon market" open to everyone, including Wall Street players.

As a not-for-profit public power utility, we have a huge stake in this debate. Since our mandate is to provide reliable, reasonably priced electric service, while protecting the environment, the cost of climate change legislation is immensely important to us. Unlike investor-owned utilities, we can't absorb new cap-and-trade costs by trimming profit margins or reducing shareholder dividends. Especially in tough economic times, customers don't want us passing on additional costs or sacrificing service.

This month, the U.S. Senate debates the American Clean Energy and Security Act (HR2454), a cap-and-trade bill that passed the U.S. House in June. The bill has shortcomings that could result in costs harmful to consumers, the economy and the reliability of our electric system, without providing any environmental benefit.

If Congress addresses climate change with a new multibillion-dollar market, they need to get it right.

The most important thing the Senate can do is place a ceiling on carbon allowance prices to ensure a cap-and-trade market does not result in runaway prices. Some want a ceiling and a floor to keep prices high enough to motivate changes in behavior without harming our economy. Since HR2454 also contains mandatory reduction targets, emission reductions will occur. But prices must be capped to avoid volatility and limit risk to electricity customers.

Any cap-and-trade legislation should also allocate (not auction) emission allowances at no cost to public power and other local distribution utilities so they can pass their value directly to customers. Whether allowances are auctioned or allocated, the emissions cap means greenhouse gas emissions will be reduced. Competitive auctioning allowances would just increase prices.

To ensure unregulated generators do not receive windfall profits at the expense of consumers, allowances should be given only to local distribution utilities that directly serve retail customers. These entities are regulated by state and local governments that will require the value of allowances be passed on to customers. Unregulated "merchant" generators face no such restrictions and will likely pass that value on to their shareholders. The House climate change bill would allocate up to 10 percent of emission allowances for the electricity industry to merchant generators.

If lawmakers want to reduce greenhouse gas, community-owned power groups are asking our leaders to pass laws that are both fair and affordable. Current legislation falls woefully short of this goal. We urge citizens join us in asking Sen. Orrin Hatch (202-224-5251) and Sen. Bob Bennett (202-224-5444) for a law that balances the needs of consumers, our economy and our environment.

Jack Taylor is chairman of Utah Associated Municipal Power Systems and public services director in Santa Clara. Mark R. Jones is board chairman of the Utah Municipal Power Agency and mayor of Nephi.