Recommendations for Executive Action

1. Status: Closed - Not Implemented

   Comments: On June 6, 1996, the Environmental Protection Agency published an Advance Notice of Proposed Rulemaking seeking comment on whether the allowance auction should be changed from the current discriminating price format to a single price format. Comments were due on August 5, 1996. Most of the commenters believed that the auction should remain as it is. Only two comments in support of a change were sent in. Generally, commenters believed that the allowance market has matured in the 2 years since GAO's recommendation, and a change is unnecessary. Although EPA has not yet made a public announcement, the agency does not plan to change the allowance auction due to the lack of support by market participants.

   Recommendation: To improve price information from EPA auctions and help clarify the regulatory treatment of allowances, the Administrator, EPA, should change the design of the auction so that it is a single-price auction.

   Agency Affected: Environmental Protection Agency

2. Status: Closed - Implemented

   Comments: EPA states that it agrees with this recommendation and that an EPA employee spends 2 days a week at DOE working with the Utility Commission Proceedings Participation Program and the Integrated Resource Planning teams. EPA anticipates that these groups will address allowance ratemaking issues and discuss appropriate ways to encourage action on these important matters. However, EPA did not mention how it will ensure, as opposed to anticipate, such actions.

   Recommendation: To improve price information from EPA auctions and help clarify the regulatory treatment of allowances, the Administrator, EPA, should work with the Department of Energy's Utility Commission Proceedings Participation Program and Integrated Resource Planning teams to help state utility commissions and the Federal Energy Regulatory Commission (FERC) decide how to treat allowances in ratemaking.

   Agency Affected: Environmental Protection Agency

3. Status: Closed - Implemented

   Comments: FERC considered this issue when it issued its Emission Allowance Policy Statement in Docket No. PL95-1-000. In that case, FERC determined that extensive reporting requirements would be a costly and time-consuming burden for utilities and that there was no basis to conclude that this would enhance the development of the emission allowance trading market. Instead, the Commission adopted the proposal by Edison Electric Institute (EEI) to price emission allowances used in providing coordination service at the utility's replacement cost, based on a national index or average of indices. FERC determined that there were sufficient national indices to set a reasonable price. For example, Cantor Fitzgerald Brokerage, LP keeps a monthly summary regarding the availability and prices of allowance and disseminates it directly to over 350 parties following the market).

   Recommendation: The Chairman, FERC, should require more frequent reporting of the number and prices of allowances traded.

   Agency Affected: Federal Energy Regulatory Commission

4. Status: Closed - Implemented

   Comments: On December 15, 1994, FERC issued a "Policy Statement and Interim Rule Regarding Ratemaking Treatment of the Cost of Emissions Allowance in Coordination Rates," in Docket No. PL95-1-000, in response to a filing by EEI. On December 30, 1994, FERC issued a ruling on multistate utility cases on allowances that were filed with FERC by Southern Company Services, Inc. and American Electric Power Service Corporation.

   Recommendation: The Chairman, FERC, should issue guidance on how FERC will treat allowances in ratemaking through a policy statement, notice of proposed rulemaking, or a ruling in one of the multistate utility cases on allowances currently before FERC.

   Agency Affected: Federal Energy Regulatory Commission

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