Southern Company

June 22, 2005

Mark Friedrichs, Esq.

PI-40

Office of Policy and International Affairs

U.S. Department of Energy

Room 1E190

1000 Independence Avenue, SW

Washington, DC 20585

**Re: [10 CFR Part 300 General Guidelines for Voluntary Greenhouse Gas
Reporting; Proposed Rule,]{.underline} 70 *Fed. Reg. 15169-15192* (March
24, 2005)**

Dear Mr. Friedrichs:

Southern Company respectfully submits the following comments in response
to the above-referenced notice and request for comment from the
Department of Energy (DOE). We appreciate the opportunity to submit
comments on the proposed revised General Guidelines and the Technical
Guidelines, and request that they be made part of the public docket.

Southern Company has submitted reports using Form EIA-1605 every year
since the program's inception in 1995. For activities through 2003, we
have reported total project-based emissions reductions of over 93
million metric tons CO~2~ equivalent. As a result, we are very familiar
with the voluntary reporting program, its guidelines, and the issues
associated with both entity-wide and project-based greenhouse gas (GHG)
reporting.

The proposed guidelines from December 2003 listed a number of objectives
for improving the 1605(b) greenhouse gas reporting program, including:

-   Assure the voluntary reporting program is an effective tool for
    reaching the 18 percent goal.

-   Enhance the measurement accuracy, reliability and verifiability of
    information reported.

-   Develop fair, objective, and practical methods for reporting.

-   Encourage reporting at the highest level of aggregation.

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-   Minimize transactions costs, consistent with other objectives.

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-   Support independent verification.

Notably, third and fifth objectives in this list (develop fair,
objective, and practical methods for reporting and minimize transactions
costs) are not explicitly mentioned in the currently proposed
guidelines. We assume that this is simply an oversight, because these
two elements are *[critical]{.underline}* to the overall feasibility and
success of the 1605(b) program.

The 1605(b) system is an integral part of the Power Partner's Program to
address greenhouse gases (GHGs) that was announced by the President in
2002. As a result, the 1605(b) system should complement, not detract
from, the efforts to encourage actions that contribute to the
President's goal to reduce the intensity of the economy 18% by 2012.
Further, it should encourage entities to focus on GHG emissions from
their primary (business) activities (where the greatest opportunities
are most likely to occur), both in terms of actions to reduce emissions
intensity and the time and resources necessary to report credible
intensity reductions from those activities. The definition of "accuracy"
in the Technical Guidelines, particularly with respect to the
inventorying and reporting aspects, supports this concept:

> *"Resources, both human and financial, that can be devoted to
> inventory preparation are inevitably limited. In deploying limited
> resources, reporters should emphasize the emission sources that
> account for the largest share of total emissions at the possible
> expense of minor sources."* \[Technical G/Ls, Section 1.A.2, page 3.\]

According to EIA, electricity generation produced 39% of the CO~2~
emissions in the U.S. in 2003. In terms of historic reporting under
1605(b), the power sector has provided almost half of the more than 200
reports submitted in the 2001-2003 timeframe, and reported nearly two
thirds of the 417 million metric tons of CO~2~-equivalent reported in
2003. Clearly, the continued success of the 1605(b) reporting system
under the new guidelines will depend on the extent to which the power
sector can and will continue to report. The sector will also play a
critical role in determining the success of the President's voluntary
program to reduce the emissions intensity of the U.S. economy 18% by
2012. To this end, in December 2004 the power sector signed an agreement
with the Department of Energy under its Climate VISION program where it
committed to reduce the sector's intensity by the equivalent of 3% to 5%
from the 2000 to 2002 level by 2010 to 2012.

Further, the ability to report credible reductions in a generator's
emissions intensity (and contribute to the President's goal), and get
adequate recognition for them, will influence what actions are actually
taken. As a result, the ability of the 1605(b) system to accommodate
reductions in the overall emissions intensity of an entity's generation
will be critical to success. The ability to include reductions that
result from off-system activities will also be important.

Unfortunately, the revised guidelines in the latest draft do more to
[dis]{.underline}courage action and reporting than they do to
[en]{.underline}courage it. There are a variety of provisions that raise
high barriers for electricity generators to register or report under
1605(b) and, as a result, create a strong disincentive to taking action.

We support the comments submitted by the Edison Electric Institute (EEI)
regarding needed changes. In the comments below, we highlight our views
on some specific areas where important changes are needed.

**[I. Basic elements that drive the overall structure of the system
established by the proposed guidelines provide no incentive, and in some
cases provide disincentives to taking actions that would contribute to
the President's goal. It also provides strong disincentives to register
or report any actions that are taken.]{.smallcaps}**

Elements that fall into this category include creation of a two-tiered
system (registering and reporting), disallowing the registration or
reporting of actions from individual projects (despite the fact that
project-based reductions are the basis of the vast majority of GHG
purchases and sales in the U.S. emissions markets), and requiring
registrants to certify that any of their emissions, reductions, and/or
sequestration have not been reported by others. The issues related to
these elements as well as other basic features of the system are
addressed in the comments submitted by EEI. Rather than repeat the
details of those discussions here, we simply refer you to those
comments.

**[II. If generators want to register reductions in the overall
emissions intensity from their generation, there are several key
provisions that require them to put significant time and resources into
identifying, tracking, and quantifying relatively inconsequential
emissions.]{.smallcaps}**

Entities whose primary business is electricity generation are likely to
have well in excess of 90 percent of their emissions coming from their
generation units. Further, there are highly accurate means for measuring
or otherwise quantifying the emissions from those units. We believe that
entities achieving credible reductions in the overall emissions
intensity of their entire generation fleet are making a meaningful
contribution to achieving the President's goal and, therefore, should be
allowed to register those emissions reductions.

However, there are several provisions that will prevent many generators
from registering such reductions and, therefore, getting adequate
recognition for them. These provisions also divert their attention from
their primary business and source of emissions. These provisions
include:

-   Limiting reporting entities to "legally distinct" organizations

-   Establishment of an inadequate *de minimis* exclusion, and requiring
    onerous documentation of any *de minimis* exclusion actually
    claimed; and,

-   Disallowance of registration of reductions from subentities by large
    emitting entities.

***[Limiting reporting entities to "legally distinct"
organizations.]{.underline}*** Section 300.3(a) states that,

> "*A reporting entity must be composed of one or more **legally
> distinct** businesses, institutions, organizations or households. . .
> ."* \[Bold typeface added.\]

Within the electricity sector, adding the "legally distinct" element to
this characterization seriously limits the flexibility afforded large
integrated electricity generators such as Southern Company, where
numerous plants are owned by each operating subsidiary and not as
individual LLCs or other legal entities, while allowing significant
broad flexibility to those with numerous plants organized as individual
LLCs.

For example, some large integrated electricity providers, particularly
those that operate in states with competitive retail markets, are
legally organized to capture their generating units in one, or perhaps
several, generating subsidiaries. Those same companies may also have
separate transmission and other functional subsidiaries. Under the
revised guidelines as proposed, these companies would be able to
establish a reporting entity (or entities) that consists of essentially
only their generation.

On the other hand, other large integrated providers, particularly those
that operate in states where retail markets are still regulated, may be
legally organized in a different way, with their generation owned by
individual operating companies. These companies may operationally manage
their generation under one or several business units. However, because
these generation business units are not [legally]{.underline} distinct,
they could not be used as the basis for a reporting entity under the
March 2005 proposal. This is the situation in which Southern Company
finds itself.

As another case in point, a wind farm organized as an individual LLC or
other legal entity would be able to report as an entity and register
avoided emissions as reductions. However, if an integrated generator
owns an identical wind farm along with a large set of fossil plants, it
would be able to obtain the same level of registered avoidances *[only
if]{.underline}* it prepares a complete inventory *[and]{.underline}*
achieves a sufficient level of other reductions to result in net
reductions greater than avoidances achieved by the wind farm.

We strongly urge DOE to remedy these disparities. One simple change that
would be a good first step would be to redefine reporting entities to
allow an entity to consist of a set of corporate business and other
organizational units that comprise a single business activity, even
though such business units may not be legally distinct. This would level
the playing field among large integrated companies, allow for
[more]{.underline} meaningful reporting entities, and allow generators
to focus on the GHGs from their primary sources of their emissions.

***[Establishment of an inadequate de minimis exclusion and requiring
onerous documentation of any de minimis exclusion actually
claimed.]{.underline}*** While the *de minimis* amount currently allowed
is improved by elimination of the 10,000 ton absolute cap, a 3 percent
allowance is still too stringent. The Technical Guidelines state, as
part of the definition of "accuracy,"

> *"Resources, both human and financial, that can be devoted to
> inventory preparation are inevitably limited. In deploying limited
> resources, reporters should emphasize the emission sources that
> account for the largest share of total emissions at the possible
> expense of minor sources."* \[Technical G/Ls, Section 1.A.2, page 3.\]

Section 300.6(g)(1) of the March 2005 version states:

> *". . . there may be small emissions from certain sources that are
> unduly costly or otherwise difficult to quantify. A reporting entity
> may exclude particular sources of emissions or sequestration if the
> total quantities excluded represent less than or equal to 3 percent of
> the total annual CO~2~ equivalent emissions of the entity. The entity
> must identify the types of emissions excluded and provide an estimate
> of the annual quantity of such emissions using methods specified in
> the Draft Technical Guidelines. . . . "*

Section 300.6(g)(2) of the March 2005 version goes on to state:

> *"After starting to report, each entity that excludes from its annual
> reports any de minimis emissions must re-estimate the quantity of
> excluded emissions after any significant increase in such emissions,
> or every five years, whichever occurs sooner."*

While this provision acknowledges that there will be some emissions that
are too costly or time-consuming to quantify, the provisions for
addressing such emissions are simply inadequate for alleviating the need
to make disproportionately large, unreasonable expenditures and time
commitments to comply with these guidelines. Even though the 3 percent
ultimately may be excluded from the entity's inventory, the entity still
must undertake a significant effort to identify all sources, no matter
how small, and quantify emissions from them, even if only in a crude
way. Simply [identifying]{.underline} the myriad small sources within a
entity the size of Southern Company would require a staggering level of
time and money that would be totally inconsistent with the concept of
"*emphasiz\[ing\] the emission sources that account for the largest
share of total emissions at the possible expense of minor sources"* laid
out in the definition of "accuracy" in the guidelines. Undertaking this
mammoth task would divert generators' effort away from their primary
business and source of emissions, i.e., their generation.

Further, the generators would have to repeat this inventory and
quantification exercise every year. There may be emissions in excess of
the 3 percent that are "unduly costly or difficult to quantify" that
would, nonetheless, still need to be identified and quantified each year
for registration. And, how else would they determine if there has been a
"significant increase" that would require them to report on the
exclusions more frequently than every five years?

The Guidelines refer to a "Simplified Emissions Inventory Tool" that can
be used to quantify the *de minimis* emissions. This tool is not yet
available for review, so there is no way to know how simplified it is.
However, if this tool requires input on the number and type of sources
within an entity, its use will still represent a significant effort. And
the tool cannot be used for quantifying the emissions from those small
sources that exceed the 3 percent threshold.

The revised guidelines still need a significantly better balance among
completeness, accuracy, and reasonable cost and level of effort than
what is provided in the current proposal. We would strongly urge DOE to
move away from a specific [quantitative]{.underline} tonnage or
percentage exclusion to a more [qualitative]{.underline} approach. Under
this qualitative approach, entities would report the emissions and
sequestrations from their significant business activities. In the case
of electricity generators, they would still have to include the
emissions from *[all]{.underline}* of their generation units. For
transparency, the entities also would need to identify what was included
and what was not, as well as explain their choices. This qualitative
approach also avoids the problem that entities would have to quantify
literally all of their emissions to demonstrate that what they have
excluded is within the *de minimis* allowance.

Alternatively, if DOE does choose to retain a quantitative *de minimis*
allowance, we would urge that the percentage exemption be increased
significantly to as much as 10 percent.

***[Disallowance of registration of reductions from subentities by large
emitting entities.]{.underline}*** Section II.2 states,

> *"DOE believes that data that reflects entity-wide emissions and
> reductions are better indicators of the entity's overall contribution
> to greenhouse gas reductions and should therefore, be clearly
> distinguished from reports that are not entity-wide."*

Given DOE's belief and the special, "upper tier" status given for
registration, we would expect that all entities registering would be
required to meet the same standard. However, this is not the case. The
March 2005 proposed guidelines have *[more stringent]{.underline}*
requirements for registration of reductions by large emitters (i.e.,
entities with average annual emissions more than 10,000 metric tons of
CO~2~ equivalent) than for small emitters. §300.6(a) states,

> *"Entity-wide inventories are a prerequisite for the registration of
> emission reductions by entities with average annual emissions of more
> than 10,000 metric tons of CO2 equivalent. Entities that have average
> annual emissions of less than 10,000 metric tons of CO2 equivalent are
> eligible to register emission reductions associated with specific
> activities without also reporting an inventory of the total
> emissions."*

And §300.7(b)(1) states,

> *"Entity-wide reporting is a prerequisite for registering emission
> reductions by entities with average annual emissions more than 10,000
> metric tons of CO2 equivalent. Net annual entity-wide reductions must
> be based, to the maximum extent practicable, on a full assessment and
> sum total of all changes in an entity's emissions, avoided emissions,
> and sequestration relative to the entity's established base
> period(s)."*

And §300.7(c)(2) states,

> *"An entity reporting as a small emitter must report on one or more
> specific activities and is encouraged, but not required to report on
> all activities occurring within the entity boundary."*

This language gives entities with smaller emissions the substantial
flexibility to isolate a portion of their activities for providing
inventories and calculating reductions for registration, while denying
that flexibility to entities with larger emissions, including
electricity generators. While it may actually be easier for some small
emitters to undertake a comprehensive emissions inventory than it is for
a large emitter, small emitters are allowed to pick a subset of their
activities (or even a single activity) for registration of reductions.
There is no explanation as to why small emitters are not being held to
the same high standard as the large emitters including electricity
generators, yet are given the same "upper tier" recognition as those who
meet more stringent requirements.

The bottom line is: if reporting on a single activity or sub-entity is
sufficiently credible for registration by small emitters, it is also
sufficiently credible for registration by large emitters. Since there is
"special recognition" for registration, it is only appropriate that all
entities, regardless of size, meet the same standard \-- face the same
requirements and receive the same flexibilities. There should be fair
and consistent treatment across all entities regardless of circumstance.

We strongly urge DOE to allow all entities regardless of size or type,
including electricity generators, the same valuable flexibility to
select a subset of their activities for compiling an inventory and
registering reductions.

**[III. The Technical Guidelines establish a more stringent approach for
quantifying emission reductions from electricity generation that is sold
to others.]{.smallcaps}**

Section 2.2.2.1 of the Technical Guidelines states,

> *"Entities are encouraged to calculate reductions using
> emissions-intensity methods when feasible."* \[Page 242\].

The President's goal is based on emissions intensity, so it is not
surprising that DOE has chosen to make the emission intensity approach
in this section the preferred approach for determining emissions
reductions.

Curiously, however, DOE has chosen to *[prohibit]{.underline}*
electricity generators from using the very approach that all others are
encouraged to use. Section 2.2.2 of the Technical Guidelines states,

> *"Electricity generators and other producers of energy that report
> emissions associated with energy exports during their base period
> **[must]{.underline}** use a calculation formula that combines the
> emissions intensity and avoided emissions methods (described in
> subsection 2.4.6), or use the absolute emissions method specified in
> subsection 2.4.2 of this chapter."* \[page 242; emphasis added\].

Under the formula described in Section 2.2.2.1, reductions are
calculated simply by multiplying the improvement in the intensity from
the base period to the reporting year *[by]{.underline}* the output in
the reporting year. However, for generators "exporting" some or all of
their electricity outside of their entity, a different, more complex and
stringent approach is used. Initially, the "exported" electricity is
split into two components. The first component is equivalent to the
level of electricity "exported" in the base period, while the second
component (which will be called the "incremental generation" for
purposes of this discussion) is equal to the change in output between
the base and reporting periods. For the first component only, the
reductions are calculated in the same manner as all other reporters do
under Section 2.2.2.1, that is, by multiplying the change in the
intensity from the base period to the reporting year *[by]{.underline}*
the output.

However, for the second component, the incremental generation, the
generators cannot claim reductions based on the change in intensity
between the [base]{.underline} and [reporting]{.underline} periods. They
can only claim reductions for the incremental generation based on the
amount that their intensity in the reporting year *is lower than* a
benchmark rate specified by DOE. (The benchmark is currently set at the
national average emissions rate for electricity generation.) In essence,
DOE is setting a generation performance standard for growth in
generation beyond the base period, and are then allowing generators to
claim reductions associated with the incremental generation
*[only]{.underline}* to the extent that their emissions intensity in the
reporting year *[beats]{.underline}* the standard.

Further, a generator is penalized if its emissions intensity in the
reporting year is *[above]{.underline}* the benchmark/standard and its
output has grown since the base period. This "penalty" is determined by
multiplying the amount that the intensity in the reporting year is
*[above]{.underline}* the benchmark *[by]{.underline}* the incremental
generation. This "penalty" is then subtracted from the reductions
calculated for the first component (based on the improvement in
intensity and the generation in the base period).

DOE explains their approach as follows:

> *"In general, emissions reductions are intended to recognize actions
> that contribute to reducing the energy intensity of the U.S.
> generating sector on the whole."* \[Page 271, Technical Guidelines.\]

This approach inappropriately singles out electricity generators for
significantly more stringent treatment. For all other activities, the
determination of intensity-related reductions is based on improvement in
one's own emissions performance. There is no other industry or activity
for which DOE:

-   Requires reductions to improve the intensity of the industry as a
    whole;

-   Sets an overall emissions standard for growth in an industry;

-   Allows reductions only when the standard is beaten and only in the
    amount by which the standard is beaten; and,

-   Reduces the reductions that can otherwise be claimed if the growth
    in output is produced in a way that fails to meet the standard.

Electricity generators are the only entities who are subject to this
more stringent approach. There is nothing about the generation of
electricity that warrants this different treatment. Further, this harsh
treatment will only serve as a strong disincentive for generators to
take actions that would make contributions to achieving the President's
intensity reduction goal. We strongly urge DOE to remove the prohibition
on using the standard intensity-based approach in Section 2.4.1 of the
Technical Guidelines for generation of exported energy. All entities,
including all generators of electricity, should be afforded the same
opportunity to use this basic intensity approach (applying an entity's
*[own]{.underline}* intensity improvement to all production in a given
year) when calculating reductions for reporting or registering under the
revised 1605(b) guidelines.

**[IV. It appears that the provisions for reporting offsets are
burdensome and unworkable, and will preclude reporting of most if not
all of the reductions achieved as offsets.]{.smallcaps}**

Section 300.7(d) states:

> "*A reporting entity or aggregator under certain conditions may
> register net emission reductions achieved by third parties. . . . The
> reporting entity or aggregator must include in its report all of the
> information on the third party, including an entity statement, an
> emissions inventory (when required), an assessment of emission
> reductions and appropriate certifications, that would be required if
> the third party were directly reporting to EIA. . . . The report to
> DOE must also include a certification by the third party indicating
> that it has agreed that the reporting entity or aggregator should be
> recognized as the entity responsible for any registered reductions and
> that the third party does not intend to report directly to DOE ."*

Based on this language, it appears that the only way an entity can
include reductions from offsets[^1] in its 1605(b) report is to
essentially take over the reporting or registering for the entity that
owns the asset involved in achieving the reduction. The language also
means that the entity that owns the asset would have to gather all the
data needed as if it were reporting or registering on its own, provide
all this information to the reporting entity, and then relinquish any
and all reductions to the reporting party. And while the guidelines
don't address this explicitly, it appears to be impossible for an entity
with offsets for sale to sell to more than one entity, because that
would lead to double counting. There appears to be simply no flexibility
in the guidelines whatsoever to allow entities a more practical yet
credible approach to reporting offsets under the proposed guidelines.

This set of conditions that must exist to meet the requirements is
totally implausible. If the third party is going to go through the
effort to collect the data, why wouldn't it just report itself? If it
has reductions on its own beyond the offset activity, why would it
relinquish them to the reporter? How many third parties would be willing
to give comprehensive data on its own activities and emissions across
its operations to a third party? What reporter that is not an aggregator
would be willing to take on all the reporting for the third party?

This approach also creates an additional, prohibitively high barrier to
actually undertaking an offset project. Even before you get to the
reporting, there is significant time and resources involved in
developing the offset project, finding credible partners, and actually
implementing the project. Arrangements for the sharing of the reductions
among the project's partners \[including the owner(s) of the asset(s)
involved\] are part of this process. But if one is interested in being
able to register the reductions associated with the offsets under
1605(b), it also would need to investigate whether the owner(s) of the
assets involved in the project would be likely to have the required net
reductions, and whether those owners would be willing to provide the
data and relinquish all their reductions to the reporting party. Given
the usual complexities and challenges with working out offset
arrangements, the additional burdens from these offset provisions would
likely discourage just about everyone seeking to report the GHG
reductions from undertaking GHG reduction activities jointly with other
entities. This effect is totally contrary to what would be needed to
encourage joint activities that contribute to the President's 18 percent
emissions intensity reduction goal. It is also totally contrary to the
MOU between the Department of Energy and the electric power industry,
which encourages the industry to work with others outside of the sector
to achieve reductions. Such an approach to reporting the results of the
offset projects is not supportive of this MOU element.

We strongly urge DOE to come up with a *[workable]{.underline}* approach
to capturing and reporting the emission effects of offset projects under
1605(b). One suggestion would be to allow offset project partners (that
do not own the assets involved but have the contractual rights to the
reductions from the project) to include the offset activity within their
own entity and organizational boundaries. Such an approach would be
consistent with the language under §300.4(b)(2) and §300.4(b)(3),
particularly if the partner(s) with the rights to the reductions are
paying some of the cost of the offset activity. We recognize that some
additional guidance would be needed to ensure that this is done in a
credible manner, and would be willing to work with DOE to develop such
guidance as it applies to our sector.

> **[V. The provisions related to base periods and continuous reporting
> need adjustment to allow for a smooth, realistic transition to the new
> guidelines.]{.smallcaps}**

There is an inherent incompatibility among the timing of the President's
emission intensity reduction goal, the timing of the expected
finalization and effective date of these guidelines, and the provisions
related to baselines and continuous reporting. In February 2002 the
President announced his program that included establishing the 2012
national intensity goal, calling for voluntary actions to meet the goal,
and directing DOE to revise the guidelines for reporting under 1605(b).
Since then, both industries and individual entities have set voluntary
goals in good faith, expecting that the actions they take in pursuit of
those goals would be recognized in the revised 1605(b). Actions have
already started in fulfillment of those commitments.

However, as it turns out, DOE has made some dramatic changes in the
guidelines that require totally new methods and significant new data to
be gathered and used. And DOE does recognize this. In the DOE workshop
held on April 26-27, Mr. Friedrichs said,

> *"We recognize certainly that many companies aren't going to have
> sufficient records to go back in time and meet all of the requirements
> of the revised guidelines so that most companies are likely to
> establish a start year that's current or even in the immediate
> future."*

Yet to have a base period that ends in 2002, entities would have to do
exactly what DOE recognizes that most of them can't do; that is, go back
in time. And because of the continuous reporting" provision that
requires them to report for every year beginning in the last year of
their base period (2002), they can't simply start reporting in the
current year, and continue each year thereafter. Barring that, entities
are left with the less than desirable option of establishing a later
start year and base period. However, in going to a later start year,
they cannot record the full extent of their reductions because the
reduction activities that occurred since 2002 become part of the
baseline, essentially understating the true results of their actions. In
other words, it is virtually impossible for entities that took action in
good faith since 2002 (rather than waiting for the revised guidelines)
to report and receive recognition for the reductions from those "early"
actions. Even mandatory, legislative regulatory programs (either enacted
or proposed) do not require such retroactive data collection and
"compliance" for years between the baseline period and the first year of
the program.

We strongly urge DOE to modify the Guidelines to allow transitional
flexibility to enable entities to measure and reflect in the data base
their true progress relative to 2002. Specifically, this transition
would allow entities with baseline periods ending in 2002 through 2005
to begin their continuous reporting for the first full calendar year of
data after the revised guidelines become effective, most likely
reporting on 2006 in 2007. This change would make the system fairer and
provide users of the database with better information.

**[VI. Items we continue to support]{.smallcaps}**

There are several notable elements that should remain intact in the
final Guidelines.

***[Presumed Responsibility for Emissions Reductions.]{.underline}*** We
support keeping DOE's presumption that the owner of an asset is the one
responsible for any emission reduction, avoidance, and/or sequestration,
while continuing to allow contract arrangements to take precedence over
the presumption. However, as discussed elsewhere in these comments, we
strongly urge DOE to simplify the approach to reporting emissions and
emission reductions, avoidances, and/or sequestration when the "right"
to report has been transferred to entities other than the owner(s) of
the asset(s) involved.

***[Organizational boundaries.]{.underline}*** We support the provisions
that allow entities the flexibility to use a variety of methods to
define their organizational boundaries. This flexibility should be
retained, including financial control, equity share, production share,
and operational control as acceptable methods. Entities should also have
the flexibility to use different methods as appropriate to the
circumstances for different parts of the entity.

***[Third-party verification.]{.underline}*** We support the provisions
in §300.11 that keep third-party verification optional.

***[Allowing compliance officer to certify report.]{.underline}*** We
support DOE's decision to change the certification requirements to allow
"an officer or employee of the entity who is responsible for reporting
the entity's compliance with environmental regulation.

**[VII. List of smaller, more technical fixes]{.smallcaps}**

There are also several smaller changes that are needed.

***[Changes need to be made to eliminate the conflicts in language
related to avoided emissions.]{.underline}*** § 300.6(a) (page 66)
clearly states that the emissions inventory does not include avoided
emissions, and §300.7(b)(3) (page 72) seems to say that a reporter
should not include in its assessment of reductions anything that is not
a part of the entity's inventory. Taken together, these two statements
would seem to indicate that one cannot count avoided emissions as part
of its reductions. However, the Technical Guidelines talk about the
method for quantifying avoided emissions. Changes are needed to
eliminate the conflict and make these provisions related to avoided
emissions internally consistent.

***[GDP deflator as mechanism for adjusting revenue or other
dollar-based measures of output.]{.underline}*** Page 253 of the
Technical Guidelines indicates that DOE will use the GDP deflator to
convert output measures denominated in current dollars to constant
dollars. However, using this very broad measure is likely to introduce
significant bias into intensity measures, which would also reduce the
accuracy and reliability of the reductions reported. Using the GDP
deflator to adjust items that have experienced a significantly greater
price increase will overstate the output, leading to overstating the
reduction in intensity and the related emissions reductions. Conversely,
using the deflator for items with a significantly lower price increase
will understate output, leading to understating the intensity and
emissions reductions. We urge DOE to identify and use indices that are
more specific to the product or industry associated with the item where
output is denominated in dollars. Use of the GDP deflator should be used
only as a very last resort.

***[Definitions for incidental lands, distributed energy, exported
energy.]{.underline}*** The terms "incidental lands," "distributed
energy," and "exported energy" appear in a variety of places,
particularly in the Technical Guidelines. While one can certainly use a
layperson's understanding for interpreting what is intended, the exact
meaning of the terms as used by DOE is not totally clear. This could
lead to incorrect application of the guidelines and rejection of
reports. To alleviate this, we strongly urge DOE to provide explicit
definitions for these terms as part of the Guidelines.

***[Use of NERC subregions for all factors.]{.underline}*** In a variety
of places, the Technical Guidelines set "default" emission rates related
to electricity production and use, including the "benchmark" rate on
page 258, the rates for calculating indirect emissions from electricity
use on page 139, and transmission loss factors on page 145. Sometimes
the rates are national, sometimes regional. We strongly urge DOE to
consistently use factors based on the NERC *[subregional]{.underline}*
level. Further, we urge DOE to provide annual updates to keep these
factors current. This could easily be done with references to a website
where the most current values could be found.

**[VIII. Summary]{.smallcaps}**

Electricity generation produced 39% of the CO~2~ emissions in the U.S.
in 2003. Clearly, the continued success of the 1605(b) reporting system
under the new guidelines will depend on the extent to which the power
sector can and will continue to report. The sector will also play a
critical role in determining the success of the President's voluntary
program to reduce the emissions intensity of the U.S. economy 18% by
2012.

The revised guidelines as currently drafted provide do more to work
against the President's goal than they do to complement any efforts to
achieve it. Two elements that do much to discourage generator action and
reporting at the highest level are the two-tiered system (registration
and reporting) and the inability to report projects.

In addition to addressing these two elements, we strongly urge DOE to
make the following changes:

-   Allow reporting entities to consist of one or more major business
    units that constitute all of a major business activity (such as
    electricity generation), rather than limiting them to "legally
    distinct" entities;

-   Change the *de minimus* exclusion to a qualitative determination,
    thereby truly allowing entities to exclude the emissions from
    sources that are "unduly costly or difficult to quantify;"

-   Allow all entities, regardless of whether they are large or small
    emitters, to register emissions reductions from a subentity;

-   Allow generators to use the same "standard" intensity-based approach
    (where reductions are based on the full improvement in the entity's
    *[own]{.underline}* intensity) in Section 2.4.1 of the Technical
    Guidelines that all other entities can use;

-   Develop a workable approach to capturing and reporting the emission
    effects of offset projects that could include allowing offset
    project partners to include the offset activity within their entity
    and organizational boundaries; and,

-   Provide for a reasonable transition mechanism for entities choosing
    a baseline that includes some or all of the years 2002 through 2005
    to begin continuous reporting requirements for the first full
    calendar year of data after the revised guidelines become effective.

These changes would go a long way toward making the revised 1605(b) a
program that complements the President's national intensity reduction
goal and allows generators to focus their time and resources on the
emissions from their primary line of business.

Southern Company appreciates the opportunity to submit these comments,
and looks forward to further discussion and work with DOE and EIA on
these and other issues relating to the enhanced registry and improved
guidelines. If there are any questions about this material, please
contact Lee Ann Kozak at (704) 660-6717.

Sincerely,

Chris M. Hobson

Environmental Affairs Senior Vice President

cc: <1605bgeneralguidelines.comments@hq.doe.gov>

> Hon. Karen Harbert, Department of Energy
>
> Hon. David Conover, Esq., Department of Energy
>
> Hon. Larisa Dobriansky, Esq., Department of Energy
>
> Al Cobb, Department of Energy
>
> Lawrence Mansueti, Department of Energy
>
> Hon. James Connaughton, Esq., Council on Environmental Quality
>
> Hon. Jeffrey Holmstead, Environmental Protection Agency
>
> Howard Gruenspecht, Energy Information Administration, Department of
> Energy
>
> Paul McArdle, Energy Information Administration, Department of Energy

[^1]: For purposes of this discussion, "offset" will be used to describe
    a GHG reduction that occurs on property not owned by the reporting
    entity.