Assessing Market Impact of Greenhouse Gas Legislation

Analysis Group advised one of the nation’s largest power companies on how national greenhouse gas cap-and-trade legislation might impact regional and state electricity rates and generation-plant asset values. Our analyses were based on highly detailed production cost models of the U.S. electricity system developed in consultation with our client. The models accounted for important variations in the way program costs are passed through to customers under different electricity industry regulatory regimes. Customers in restructured markets experience cost impacts on the marginal or “price-setting” generation facilities, while customers in traditional cost-of-service markets experience rate increases that reflect the average cost impact of carbon prices. Rate impacts from a market-based climate policy will vary across all regions of the country, but the variation will be much greater in markets subject to traditional cost-of-service regulation. These and similar analyses provided the client with an empirical understanding of the impacts of climate policy on customers, shareholders, and regional economies. Our assessment informed the client’s development of climate policy positions.