Windfall profits under Cap and Trade

Texas consumers may end up paying another billion dollars each year as a consequence of federal cap-and-trade legislation according to a new report.

Sponsored by a coalition of utility commissioners and consumer groups, the report also warns of higher "unproductive" costs from the legislation because a single price sets all spot prices in deregulated wholesale markets. That means there could be an uptick in price for power from all sorts of generators -- even those that emit little or no greenhouse gases -- according to the report.

"In deregulated markets, it is likely that any allowance allocation will result in consumer-funded windfall profits for certain generating plant owners, at least in the early years," noted the study, drafted on behalf of the National Association of Regulatory Utility Commissioners, the American Public Power Association and other groups.

The report added that granting free cap-and-trade credits would increase windfall profits in both regulated and deregulated markets. A provision for granting free allowances to transmission companies was ushered into the House version of the bill at the urging of utility lobbyists, according to media accounts.

The incremental cost to consumers in the ERCOT region could run anywhere from $848 million to $3.3 billion per year, depending on the final language of the legislation. The report's authors stressed, however, that it is not their position that greenhouse gas legislation is prohibitively expensive, nor that its costs would likely exceed its benefits.

An earlier analysis conducted by ERCOT noted that a typical monthly electric bill could increase by $27 as a consequence of proposed climate change legislation.

-- R.A. Dyer