Consumer Protection in KL and WM


Posted on May 26th, 2010 by Jason James

By Matt Wisnieff

The consumer protection provisions of the proposed Kerry-Lieberman (“KL”) Senate bill are laid out in Title III, Subtitles A-C of the bill, on page 680. These provisions add substantially to the new Title VII of the Clean Air Act. Subtitle A focuses on aiding consumers through distribution of emission allowances to electricity local distribution companies. Subtitle B focuses on the same, only via distribution of allowances to natural gas local distribution companies and to states for the benefit of the home heating oil and propane consumer. Finally, Subtitle C creates a number of consumer relief programs: a relief fund for working families; an Energy Refund Program funded through the proceeds of emissions allowance auctions; and a Universal Trust Fund, also funded through the proceeds of allowance auctions, for the purposes of deficit reduction and consumer relief.

Subtitle A: Investing in Low-Carbon Electricity and Energy Efficiency for Consumer Protection

Subtitle A focuses on the distribution of emissions allowances to local electricity distribution companies, merchant coal units, and long-term contract generators, for the benefit of local ratepayers.

Section 3001 of the KL bill amends Part G of Title VII of the Clean Air Act (“CAA”) with the addition of § 782, which permits the Administrator of the Environmental Protection Agency (EPA) to distribute emission allowances to electricity local distribution companies for the exclusive benefit of retail ratepayers. These allowances are to be distributed according to the provisions of CAA § 781(a)(1), which establish a system for the allocation of emission allowances. Section 781(a)(1) lays out a table setting forth the percentage of allowances that may be distributed to local distribution companies: 51% of emission allowances may be distributed for the years 2013 to 2015; 35% for 2016 to 2025; 32% for 2026; 24% for 2027; 16.5% for 2028; and 8.5% for 2029.

To be eligible for emission allowances, local electric utilities will have to submit a proposal for approval by the EPA. After receiving allowances, local electric utilities are to report annually to the EPA from June 30, 2014 to 2031. KL enables the EPA to conduct random, annual audits of a representative sample of electricity local distribution companies receiving allowances. These audit reports are to be provided to the Comptroller General of the United States and the Government Accountability Office (GAO) for a general report to the public. This process is to begin not later than April 30, 2016, and continue for every 3 years thereafter through 2027. (§ 782(b)(8)(B))

Generally, the Administrator is to distribute 75 percent of the emission allowances available for distribution pursuant to § 781(a)(1) to local electric utilities on a pro rata basis, after reserving emission allowances for distribution to merchant coal units and long-term contract generators. (§ 782(b)(2)(A)) The pro rata distribution of allowances is to be measured according to a “base period” that is determined by the average carbon dioxide emissions generated by the production of power from 2006 to 2008, or any 3 consecutive calendar years between January 1, 1999 and December 31, 2008.

Under § 782(b)(1)(B), the Administrator may withhold from distribution emission allowances of a quantity equal to the lesser of either 14.3 percent of the quantity of emission allowances allocated under 781(a)(1) for the relevant vintage year, or 105 percent of the emission allowances of the relevant vintage year that the Administrator anticipates will be distributed to merchant coal units and long-term contract generators. However, the withholding of emission allowances from distribution is subject to the condition that the Administrator is authorized to distribute future vintage year emission allowances available to long-term contract generators in the case of a shortfall of emission allowances during any vintage year, subject also to § 782(d).

The bill also includes a “prohibition against excess distributions.” Under § 782(b)(4), no electricity local distribution company shall receive a quantity of emission allowances that is greater than the annual quantity of carbon dioxide emissions attributable to the generation of electricity delivered by the company at retail. Generation of electricity achieved under the auspices of an emissions allowance are to be used “exclusively” for the benefit of the retail ratepayers of the local electric utility and may not be used to support electricity sales or deliveries to any entity besides those ratepayers. (§ 782(b)(5)(A)(i)(I-II))

Merchant coal units and long-term contract generators are subject to a different eligibility regime for emission allowances than local electric utilities. Merchant coal units are private coal-fueled power-generators that generate electricity for sale to others.

KL outlines a process for calculating the baseline emissions for merchant coal units. (§ 782(c)(1)(A) Generally, KL uses the emissions generated during the calendar years 2006 to 2008 as a baseline, but in the case of “new” coal units, provides other options for calculating baseline emissions. Merchant coal units are included in the “phase-down” program for local electricity distribution companies, where the percentage of total emissions allowances available to them will be gradually reduced from 51% to 8.5% from 2013 to 2029, according to § 781(a)(1).  Notwithstanding the KL bill’s other provisions, the Administrator of the EPA is not to distribute to a merchant coal unit more than 10 percent of available allowances “for distribution to the electricity sector under section 781(a)(1).” (§ 782(c)(6))

Long-term contract generators are qualifying small power production facilities that are contracted to provide, or are providing electricity prior to March 1, 2007.  Long-term contract generators are also subject to a different eligibility regime for emission allowances. Not later than March 1, 2014, and annually thereafter through 2030, the Administrator shall distribute to each long-term contract generator a quantity of emission allowances of the preceding vintage year according to a prescribed formula.  Under § 782(d)(2)(A), long-term contract generators may not receive more than 4.3 percent of the total quantity of emission allowances available for the vintage year for distribution to the electricity sector. If the quantity of emission allowances under § 782(d)(1) exceeds 4.3 percent, the Administrator is required to distribute future allowances in such a manner as to satisfy the shortfall. If this would result in yet another shortfall over an entire allocation period, the emission allowances, up to 4.3 percent, would be distributed on a pro rata basis.

Subtitle B: Investing in Low-Carbon Heating and Energy Efficiency for Consumer Protection

This subtitle focuses on the distribution of emissions allowances to natural gas distributors and states for the benefit of local ratepayers.

Under § 3101 of KL, which amends Part G of Title VII of the Clean Air Act with the addition of § 783, the Administrator of the EPA is to distribute emission allowances to natural gas local distribution companies according to a formula based on the annual average retail natural gas deliveries of each natural gas distributor. Once again, this is to be done “for the benefit of retail ratepayers.” The same ratepayer stipulations apply in § 783(b) as they do in § 782(b). The burden is also incumbent upon natural gas local distribution companies to plan and report to the EPA in order to be eligible to receive emission allowances, and just as the statute provided for electricity local distribution companies, the EPA is to audit a “representative sample” of distributors annually. These audits will also be made available to the GAO for the purposes of producing an “in-depth evaluation.” (§ 783(f)(2)(A)) According to § 781(a)(2), 9% of emission allowances are to be distributed to natural gas distributors for 2016-2025, dropping to 7.2% in 2026, then 5.4% in 2027, 3.6% in 2028, and finally to 1.8% in 2029.

For the purposes of regulating carbon emissions arising from combustion of home heating oil and propane, the Administrator is to allocate emission allowances among the States, pursuant to § 784(c). These allowances will be distributed on a pro rata basis, based on a ratio of “the carbon content of home heating oil and propane sold to consumers within each state during the preceding year” to “the carbon content of propane sold to consumers within the United States during the preceding year for residential or commercial uses.” (§ 784(c)(1-2)) These allowances are to be used for the benefit of home heating oil and propane consumers. Under § 781(a)(3), 1.9% of emission allowances are to be distributed to states for home heating oil and propane usage from 2013-2015, which drops to 1.5% for the years 2016-2025, then to 1.2% for 2026, 0.9% for 2027, 0.6% for 2028, and finally to 0.3% for 2029.

Subtitle C: Consumer Relief

The KL bill creates a relief program for qualified working families under Title III, Subtitle C, § 3201. Under these provisions, working families will be eligible to receive relief funds in an amount equal to the proceeds from the auction of 12.5 percent of emission allowances established for each year under § 721(a) of the Clean Air Act. Working families are also entitled to a credit against the tax imposed by KL that is equal to the amount received from the § 3201 relief program. According to § 3202 of KL, which adds § 36D to the Internal Revenue Code of 1986 (“IRC”), the credit may vary according to family income and size, but nonetheless will not apply after December 31, 2029. (IRC § 36D)

The KL establishes the Energy Refund Program, via the addition of Title XXII to the Social Security Act, in order to provide consumers with funds generated from allowance auctions. This program is to be funded from the proceeds of the auction of 12.5 percent of emission allowances established for each year. This program is to be administered under § 2201 by the Secretary of Labor, in consultation with the Commissioner of Social Security and the Secretary of Agriculture.

The KL bill also establishes the Universal Trust Fund, in which the Administrator of the EPA is required to deposit proceeds from the auction of emission allowances pursuant to § 790. A quarter of this trust fund will be used for deficit reduction, while the remainder will be used for a universal refund program. This refund program, an addition to the Internal Revenue Code, is to be managed by the Treasury, and is designed to provide a relief amount scaled to the size of qualified families. It is to go into effect on December 31, 2025.

Additionally, KL authorizes a study by the Comptroller General on the feasibility of administering consumer refunds on a per capita basis via electronic transfer under § 3205.

Comparison with Waxman-Markey (WM) Provisions

The WM bill contains an emission allowance scheme that is largely similar to the provisions of KL. Under WM Title III, § 311, which adds Title VII, Part B, § 721 to the Clean Air Act, the Administrator of the EPA is authorized to distribute emissions allowances to local distribution companies, under a scheme that will see the gradual reduction of total allowances to be granted. There are slight variations in precisely which percent targets are to be met, and when, but largely the plan is the same: for local electricity distributors, total allowances will be below 10% by 2029, and for natural gas distributors, the withdrawal schedule is the same.

 

Title IV, Subtitle C, § 431 of the WM bill outlined a plan similar to the KL bill for protecting eligible, low-income families from the increased costs resulting from the American Clean Energy and Security Act of 2009. As in KL, the amount of monetary assistance available to eligible households varies in WM according to a household’s income and size. These provisions are largely similar to those found in KL § 3201, however, the KL program is to be created under its own auspices, whereas, under WM, working families relief program was contained in the addition of Title XXII, §§ 432-3 as an amendment to the Social Security Act (42 U.S.C. 201).

One difference, however, is Title III, § 311 of WM, which adds Title VII, including a new § 789, to the Clean Air Act. Section 789 provides tax refunds to citizens or nationals of the United States and immigrants lawfully residing therein on a per capita basis. Collectively, these tax refunds are to equal the amount deposited into the Climate Change Consumer Refund Account. KL, on the other hand, does not aim to create a consumer refund account that refunds all energy consumers, nationally, on a per capita basis.

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