CLIMATE:

Consumer groups push Senate on Waxman-Markey's rate-protection language

Two paragraphs tucked into the House climate bill four days before the final floor vote give large manufacturers what consumer groups see as a special safeguard against higher electric bills, a protection not offered to residential customers.

Missed by consumer watchdogs in the days before the bill passed the House, those two paragraphs in the 1,428-page bill now are a focus of a persuasion campaign in the Senate. A consumer coalition is telling senators that residential customers deserve treatment parallel to that being given to big business.

It could be a tough fight. The House Energy and Commerce Committee, which crafted the bill, said the language in question does not offer industrial ratepayers any special rate-reduction measure. The Edison Electric Institute, an industry trade group, said the legislation provides all customers with some protection from sharply higher rates.

But the consumer coalition believes the two added paragraphs are significant. They underscore, the consumer groups say, a failing in the legislation's plan to cap carbon emissions and give utilities free allowances to emit that greenhouse gas. There is a lack of assurance, they say, that utilities will pass the value of those allowances along in a way that is meaningful to residential customers.

"Why was it necessary to include the new section for industrial customers that clarifies that they need to get rate increase protection?" said Tyson Slocum, director of Public Citizen's Energy Program. "To me, that's proof positive that the language does not guarantee rate relief for consumers if prices rise because of compliance with climate legislation."

The House-passed bill caps carbon dioxide and then requires utilities to buy permits to emit the greenhouse gas. It gives 85 percent of those permits away in the cap-and-trade system's early years, with local utilities receiving the largest share of allowances. The bulk of the utilities' allowances goes to local distribution companies that deliver power to customers.

The language is tied to one of the central arguments made by utilities and the bill's architects in defending the free allowances, that they are needed to keep electricity bills from rising sharply. Even with those free allowances, in a cap-and-trade program, "it's a virtual certainty that electricity prices are going to go up ... for most customers," said Jim Owen, spokesman for the Edison Electric Institute.

The new provision was added to the House climate bill on June 22, when it went to the Rules Committee to decide how a floor vote would proceed, the Energy and Commerce Committee said. The wording change came after the committee had marked up the bill in a public meeting.

The language is found in a section that outlines rules for how utilities must pass along the value of the free permits for carbon emissions that they would receive. The new words specify industrial customers, which include companies like DuPont, Exxon Mobil Corp., aluminum maker Alcoa Inc., and others with manufacturing plants or oil refineries.

The new language mandates that if the cap-and-trade program results in higher electricity costs for industrial retail ratepayers, local distribution companies "shall pass through to industrial retail ratepayers their ratable share (based on deliveries to each ratepayer class) of the value of the emission allowances distributed to such company."

An Energy and Commerce Committee aide who spoke on the condition that she not to be identified, citing the committee's policy, said that language does not mean industrial customers are getting special protection.

A key part of that new section is the wording "based on deliveries," the aide said. That means that if a local distribution company gives the allowance value as rebates to industrial customers, it could be based on how much power they use. That is fair because there are large differences in usage among industrial ratepayers, the aide said.

For residential and commercial customers, which include businesses like Wal-Mart and McDonald's, rebates should not be based on electricity usage, the aide said. The committee did not want to penalize people and businesses that conserve power.

"That was the intent behind the language," the aide said, "to make it clear for industrial users, if there is a rebate," it should be "tied to the amount of electricity they use."

Other language in the bill addresses residential and business customers, the aide said. The bill requires that "in using emission allowances ... for the benefit of ratepayers, an electricity local distribution company shall ensure that ratepayer benefits are distributed ... equitably among individual ratepayers within each ratepayer class."

Asked why the words "pass through" apply solely to industrial customers, the aide replied, "I don't see where 'pass through' is different from distributing benefits."

Slocum with Public Citizen disagreed.

"I don't buy it," Slocum said. "I do not see why concerns about rate protection for industrials warranted extra language that is not needed for residential."

"The industrials said, 'We have concerns,'" Slocum added. "They get a clarification, and households do not get that."

A coalition of Public Citizen, AARP, the National Consumer Law Center, the Consumer Federation of America and local organizations is talking to senators about what the group sees as the varying levels of protection. The coalition met with Sen. Ben Cardin (D-Md.), who is handling consumer provisions of the bill for the Environment and Public Works Committee. Cardin made "no commitments either way," Slocum said.

Wording preserves 'flexibility'

Industrial customers with international competitors might prefer to get their allowance value through rate stabilization, said Ed Comer, general counsel for the Edison Electric Institute. The legislation permits rate reduction or rebates but does not require one over the other, he said.

The wording on residential and non-industrial business customers preserves "flexibility to benefit ratepayers in a number of different ways," Comer said.

For example, he said, some environmentalists prefer that utilities use the allowances to give customers rebates, then allow electricity rates to rise to market levels.

"Higher rates induce more conservation and efficiency," Comer said, because consumers see that it costs more to use more power.

Other activists argue that the best way to reduce power usage is through energy-efficiency programs, Comer said. State regulators could allow local distribution companies to use the allowances for energy-efficiency programs. Efficiency saves money when the utility does not have to build new power plants to meet power demands, he said.

But Slocum said the wording is too vague to ensure protection. Utilities, he said, can define "benefit" in a number of ways that state and local regulators, who will implement the provisions of the bill, are likely to approve.

Those options include a utility putting the allowances toward energy-efficiency programs that don't really benefit the customer, Slocum said.

"There are a multitude of programs that will be in the name of energy efficiency that will have questionable value to ratepayers but will have maximal value to [utility] shareholders," Slocum said.

One such program that is popular with utilities, Slocum said, is net metering. The utility installs meters outside a home that allow the customer to see the price of using appliances at different times of the day. But most consumers, he said, are unlikely to delay using a dishwasher or clothes dryer when they see it will only save a few cents.

The net meters, he said, cost utilities about $500 and quickly become outdated because the technology changes.

The premise that utilities are working to protect customers is flawed, Slocum said. Utilities are very adept at getting what they want through state and local public utility commissions, he said.

"The utility's interest is maximizing value for their shareholders," Slocum said. "They are not a charity. They are a business. A business is looking to make money."

Owen, spokesman for EEI, said that while it is true utilities want a good rate of return for shareholders, they want to ensure that any cap-and-trade program passed by Congress is a success. A consumer backlash would undermine support, he said.

"Why would we want our customers to be unhappy?" Owen said.

Who did it?

How the new language on industrial users ended up in the bill is not clear.

The Energy and Commerce Committee aide said she did not know how it came to be added. The Edison Electric Institute said it did not ask for the language. A lobbyist with the Electricity Consumers Resource Council, the association for industrial customers, said he talked with the Energy and Commerce Committee about the need to protect all consumers from paying higher costs, but he said he did not ask for the specific wording now in the bill.

Moreover, the provision "is so imprecise we are not convinced that it will protect industrial customers from the cost increases that are sure to be borne, nor that it provides any special benefit for industrial users," said Mark Yacker, vice president of government and public affairs for the group.

Michael Parr, senior manager of government affairs for DuPont, said he didn't work on the language and did not know who did. Dupont, a large manufacturer, is a member of the U.S. Climate Action Partnership, a powerful business and environmental alliance supporting climate legislation.

The addition of the language, after the vote in the Energy and Commerce panel, makes it suspicious, Slocum said.

"Somebody had a meeting and passed a piece of paper across the table with some suggested language and put it there," Slocum said.