Regulatory treatment of allowances and compliance costs
- National Regulatory Research Institute, Columbus, OH (United States)
The Clean Air Act Amendments of 1990 (CAAA) established a national emission allowance trading system, a market-based form of environmental regulation designed to reduce and limit sulfur dioxide emissions. However, the allowance trading system is being applied primarily to an economically regulated electric utility industry. The combining of the new form of environmental regulation and economic regulation of electric utilities has raised a number of questions including what the role should be of the federal and state utility regulating commissions and how those actions will affect the decision making process of the utilities and the allowance market. There are several dimensions to the regulatory problems that commissions face. Allowances and utility compliance expenditures have implications for least-cost/IPR (integrated resource planning), prudence review procedures, holding company and multistate utility regulation and ratemaking treatment. The focus of this paper is on the ratemaking treatment. The following topics are covered: ratemaking treatment of allowances and compliance costs; Traditional cost-recovery mechanisms; limitations to the traditional approach; traditional approach and the allowance trading market; market-based cost recovery mechanisms; methods of determining the benchmark; determining the split between ratepayers and the utility; other regulatory approaches; limitations of incentive mechanisms.
- Research Organization:
- National Regulatory Research Inst., Columbus, OH (United States)
- OSTI ID:
- 75497
- Report Number(s):
- NRRI--93-8; CONF-9205161--Exc.; CONF-9204302--Exc.; CONF-930334--Exc.; ON: DE95008741
- Country of Publication:
- United States
- Language:
- English
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