A study showing free allocation of carbon emissions allowances to merchant generators would raise electricity prices and create a windfall profit was a hot topic at the National Association of Regulatory Utility Commissioners\u2019 summer meeting in Seattle last week. \u201cThe study seeks to quantify the impacts on consumers of allocating free emissions allowances to merchant generators,\u201d said NARUC president Frederick Butler. \u201cIt was not our intent to criticize the value of competitive markets.\u201d The Synapse study forecasts free allocation to merchant generators--as partially provided for in House-passed energy and climate change legislation--would raise the annual cost of power to consumers $1.25 billion a year in the California Independent System Operator territory. Nationwide, it would boost annual power bills by $27.2 billion, the study said. The Synapse study for NARUC said it would raise electricity bills less if the power industry simply was required to reduce emissions under direct regulations instead of being placed under a carbon cap-and-trade system. Direct regulation would raise the annual cost of power in the California grid operator\u2019s area by $83 million a year, the study said. \u201cThe approach that yields the highest cost for consumers is allocation of allowances for free to generators,\u201d said the report, which was the subject of a session July 19 at the association\u2019s meeting. However, the Electric Power Supply Association--which represents independent generators and marketers--blasted the report. \u201cThe study\u2019s sponsors want consumers in organized [i.e., competitive] markets to pay twice,\u201d said John Shelk, association president. \u201cFirst, by purchasing more allowances from them while they and most other generators outside organized markets receive them for free. Customers in organized markets would pay again to support investments by competitive suppliers in clean energy technologies.\u201d Under H.R. 2454--the American Clean Energy & Security Act of 2009, which the House passed earlier this summer--local electricity distribution companies, mainly utilities, would get 30 percent of all the emission credits distributed under the bill\u2019s carbon cap-and-trade program. Merchant coal generators would get 3.5 percent of the allowances and certain generators with long-term power sales contracts would get 1.5 percent of the allowances. The bill now is in the Senate for consideration. The study showed that free allocation of emissions rights to merchant coal generators alone and utilities would raise costs in California by $210 million a year, compared to $70 million a year if only utilities got free allowances. Nationwide, the total annual cost of power with free allocation both to utilities and independent coal plants would tally $18 billion, compared to $14 billion if only utilities received the credits for free, according to the study. Under the bill, utilities are to use their free allocations to help hold down power prices by using the proceeds from selling the emissions credits for energy efficiency and other consumer-oriented programs. Synapse\u2019s report was funded by NARUC, the American Public Power Association, National Association of State Utility Consumer Advocates, and National Rural Electric Cooperative Association.