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House Bill Dovetails with AGA's Call for Cap-and-Trade Exclusions

Rep. Henry Waxman (D-CA), chairman of the House Energy and Commerce Committee, and Rep. Edward Markey (D-MA) unveiled draft legislation last Tuesday that would exclude residential and commercial natural gas customers from a cap-and-trade system until 2016.

The release of the 648-page draft of the American Clean Energy and Security Act of 2009 (ACES), which addresses the larger climate change issue, coincided with a call by the chairman of the American Gas Association (AGA) for Congress to exclude the two customer classes from a cap-and-trade system for reducing carbon emissions. "With [their] track record of energy efficiency improvements...we don't believe a rigid cap-and-trade system is necessary for the basic residential and commercial customers at this time," said Tom Skains, also CEO of Piedmont Natural Gas, at the Natural Gas Roundtable in Washington, DC.

"Rather, we believe that with enhanced focus on programmatic improvements to energy efficiency, increases in conservation programs and energy [efficient] appliance products, we can continue to see a positive trend and lower consumption per customer without subjecting our customers to the cost of a cap-and-trade system," Skains told energy executives and regulators.

Waxman and Markey said ACES will create millions of new clean energy jobs, save consumers hundreds of billions of dollars in energy costs, enhance America's energy independence and cut global warming pollution. To meet these goals, the legislation has four titles:

"This legislation will create clean energy jobs that can't be shipped overseas, reduce our dependence on foreign oil and make America the global leader in energy technology," said Markey. "We will create jobs by the millions, save money by the billions and unleash energy investment by the trillions."

Skains said he is concerned about the blanket approach of the bill. "We believe that although there is merit in having an economy-wide approach to climate legislation, we don't believe that all sectors need to be covered necessarily under the cap-and-trade model that's being discussed" on Capitol Hill, Skains said.

"A sectoral approach, which recognizes the contributions of each sector to climate emissions and that proportionately addresses the status of each sector and the contributions and improvements that they've made in energy efficiency, we think has merit. And for natural gas residential and commercial customers, they have in fact led the way over the last 30 years in reducing energy use per household...and actually holding the line on greenhouse gas [GHG] emissions."

Skains noted that while the number of U.S. households using natural gas has risen almost 70% to 65 million from 38 million in 1970, the aggregate consumption of gas and GHG emissions have essentially remained flat during that period. Moreover, he said natural gas from the wellhead to the burner-tip is about 90% efficient, losing only 10% of its energy value along the way.

"Many around the country refer to natural gas as the bridge fuel. Well, we have no intention of being a bridge to nowhere. We intend [to be] a long-term, permanent solution in a low-carbon energy environment," Skains said. He noted that natural gas is the "cleanest of all fossil fuels," emitting 45% less carbon dioxide than coal and almost 30% less than oil.

ACES also proposes "carbon footprint labeling" that would provide consumers with information about the carbon dioxide emissions of each new appliance. This "will help consumers better understand the environmental footprint of their appliances compared to others nationally, resulting in greater energy efficiency and reduced [GHG] emissions," said AGA President David Parker.

He noted that AGA had concerns about provisions in ACES that would potentially penalize local gas utilities if their customers fail to reach a certain level of energy efficiency.

"While natural gas utilities will do everything in their power to assist their customers in using energy wisely, consumers will make the ultimate decision about how much energy they use," Parker said. "The utility should not be at risk financially for decisions beyond its control."

He further noted that AGA was concerned about different sections in the bill that seem to overlap -- seeking the same goal (energy efficiency) but using different approaches (cap-and-trade versus command and control), resulting in higher compliance costs for utilities and their customers.

Through a Global Warming Pollution Reduction Program, the ACES bill would establish a market-based program for reducing global warming pollution from electric utilities, oil companies, large industrial sources and other covered entities that combined are responsible for 85% of U.S. global warming emissions.

Under this program, covered entities must have tradable federal permits, called "allowances," for each ton of pollution emitted into the atmosphere. Companies that emit less than 25,000 tons per year of carbon dioxide equivalent are not covered by this program. The program reduces the number of available allowances issued each year to ensure that aggregate emissions from the covered entities are reduced by 3% below 2005 levels in 2012, 20% below 2005 levels in 2020, 42% below 2005 levels in 2030 and 83% below 2005 levels in 2050.

AGA said it plans to work with the House energy panel to further refine the legislation.

Piedmont's Skains acknowledged that the Obama administration has been mute on natural gas so far. "We heard a lot [about] natural gas during the campaign, but not a lot since the inauguration. My personal belief on this is that the administration loves natural gas. They just take it for granted" because gas is a mature fuel compared to renewable energy.

"We need to continue with our message that natural gas should not be forgotten. We're invisible...[and] even have to add odorant to create the awareness of natural gas...We need to be something more than odorless and invisible" in Washington, he said.

Skains called President Obama's proposed $33 billion tax hike on producers an "impediment" to domestic gas development (see related story). "Those taxing changes are clear obstacles that we're going to have to work on and hopefully convince the administration and those on [Capitol] Hill that that's bad policy."

The administration's proposal to increase producer taxes could reverse what has been a "huge paradigm shift and fundamental change in our supply picture" to date, he said. "Not only is our supply base abundant, but it's increasingly domestic." Skains estimated that currently 85% of the nation's gas demand is met by domestic production and it's expected to grow to 90% in future years.

AGA continues to push for greater access to public lands for oil and gas producers; the "realization of the lifting of the moratorium on the OCS [Outer Continental Shelf];" greater development of liquefied natural gas infrastructure; and more pipeline and storage facilities to move gas supplies across the country from producing regions to consuming regions, he said.

AGA also is working with state regulators to promote innovative rate designs. It favors utilities abandoning historical volumetric rate design in favor of either true-up or other rate designs that do not penalize utility companies when customers use energy more efficiently, according to Skains. "We're promoting ratemaking such as decoupling tariffs and energy efficiency program incentives."

He noted that 28 companies in 16 states have adopted some form of decoupling tariffs, and 11 companies in six states are in the process of approving them.

To view the full ACES draft, visit

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