![](media/image1.png)

February 17, 2004

Mark Friedrichs, Esq.

Pl-40

Office of Policy and International Affairs

U.S. Department of Energy

Room 1E190

1000 Independence Avenue, S.W.

Washington, D.C. 20585

## *Attention: Comments on DOE's Proposed General Guidelines for Voluntary*

##  *GHG Reporting* 

Dear Mr. Friedrichs:

The Large Public Power Council (LPPC) respectfully submits these
comments on DOE's proposed revised general guidelines for the Voluntary
Reporting of Greenhouse Gases Program (hereinafter "the 1605(b)
Program). 68 [Fed. Reg.]{.underline} 68204 (Dec. 5, 2003) (hereinafter
"the proposed guidelines").

LPPC is an association of 24 of the largest public power systems in the
United States. LPPC members directly or indirectly provide reliable,
affordably priced electricity to most of the 40 million customers served
by public power. We own and operate over 44,000 megawatts of generation
and approximately 26,000 circuit miles of transmission lines. LPPC
member utilities and public power agencies are located in states and
territories representing every region of the country. In addition,
member utilities own and operate a diverse portfolio of fossil, nuclear,
hydropower, and other renewable energy sources that reflect the national
energy mix. LPPC members are fundamentally different from other electric
utilities. First, we are governed and supervised locally, and second,
our performance directly affects our ratepayers and our communities
rather than shareholders.

As you aware, LPPC and its members have been active participants in the
development and implementation of the Administration's climate policies.
LPPC and its members not only have participated in the process of
enhancing the 1605(b) Program, they also have participated, through the
Electric Power Industry Climate Initiative (EPICI), in the development
of a Climate VISION program for the nation's power sector.

LPPC has found it useful to work through EPICI to contribute to the
development of the Administration's climate program. EPICI has filed
substantial comments on revisions to the 1605(b) Program. While the
EPICI comments generally reflect many of the views of LPPC, LPPC and its
members have identified several key policy issues on which it intends to
make additional comments in order to highlight positions of substantial
importance to LPPC. In addition, LPPC supports the comments filed by the
American Public Power Association (APPA) on the proposed revisions to
the 1605(b) Program.

As a general matter, LPPC supports the effort to enhance the 1605(b)
Program. The 1605(b) Program should be an effective and credible
mechanism through which companies can report and verify their emissions
and reductions. Ideally, companies should be able to track the progress
of their voluntary mitigation efforts through the enhanced 1605(b)
Program. As discussed below, the proposed guidelines generally point in
this direction, but modifications will be necessary in order to make it
cost-effective for companies to participate on a voluntary basis.

The comments that follow should be seen as the first installment of
LPPC's input on this guideline development process. LPPC looks forward
to working with DOE on reviewing the proposed General and Technical
Guidelines as a full package.

Finally, the comments provided below only address the 1605(b) Program.
They are not intended to provide LPPC's views or positions on any
possible regulatory approaches to addressing GHG emissions.

I. The comprehensiveness of the reporting requirements entailed in the
proposed guidelines is overly burdensome and unnecessary for a voluntary
program.

LPPC commends DOE and its partner agencies for the enormous effort that
went into developing the proposal. It is evident that touchstone of the
revisions is "comprehensiveness." DOE's primary objectives appear to be:
(1) to encourage organizations to undertake a sweeping self-examination
in which they tally up all of their emissions and their effects on the
emissions of others; and (2) to provide participating organizations a
visible platform to report this information to interested members of the
public. However, there are two drawbacks with DOE's approach. First, the
breadth of the proposed entity-wide reporting requirements is such that
many organizations will find it cost-prohibitive to volunteer for the
program.[^1] The strong emphasis of the proposed guidelines on
comprehensive emissions reporting will count for little if reporting is
so costly that entities are deterred from participating.

Second, DOE appears to have concluded that its unwavering emphasis on
entity-wide reporting means it necessarily must exclude, or at least
discourage, reporting and registration of emission reduction projects,
whether by participating organizations or through offset transactions by
non-participating organizations. This bias against emission reduction
projects is particularly unfortunate because most of the voluntary
emission reducing activity currently occurring is occurring on a project
basis. Thus, if the final guidelines were to discourage project-based
reporting, DOE would miss an opportunity to encourage more voluntary
emission reductions, more innovation, and more market-friendly
approaches to mitigation. Encouragement of entity-wide reporting and
encouragement of high quality emission reduction projects need not be
mutually exclusive.

Many of the comments below are aimed at increasing the flexibility of
the guidelines so that they encourage greater participation and more
emission reduction projects.

II\. LPPC supports the proposed entity definition, subject to
modifications to the scope of emissions sources and sinks covered in
entity-wide reports.

LPPC members support DOE's proposed approach to defining the reporting
entity, subject to modifications to other parts of the guidelines. Any
proposed definition of a reporting entity must allow for any
"legally-distinct" company, plant or group of business units to define
itself as an entity. This approach will tend to encourage companies to
report at the "highest meaningful level of aggregation."
[Id.]{.underline}, at p. 68208, c.1. More prescriptive approaches are
unnecessary and, indeed, may discourage participation. However, LPPC
emphasizes that this approach to entity definition needs to be tied to
greater flexibility for the entity in defining its operational
boundaries for reporting. This issue is discussed in greater detail
below.

III\. An entity should be able to select operational boundaries for
reporting that encompass an individual, self-contained business unit.

A difficulty with the proposed guidelines is that they require an entity
to report on all sources of direct and indirect GHG emissions it owns.
This would present problems for entities that are complex enterprises
consisting of multiple business units, particularly if those units are
not themselves "legally-distinct" and therefore cannot be disaggregated
as individual "entities." For example, some public power entities are
structured as agencies or departments of municipalities. To the extent
that these power departments are not "legally-distinct," they could
register reductions only if the municipality itself was the reporting
"entity" and was prepared to report not only on emissions related to
power generation and purchases, but also emissions associated with
various other, distinct operations of municipal government -- ranging
from wastewater treatment to police car fleets to office buildings. LPPC
believes such comprehensive reporting adds very little value to the
integrity of the program -- particularly given that the vast majority of
the emissions will be associated with the power generation activities --
and that the added burden of such reporting cannot be justified and is
likely to chill participation.

To accommodate such complex enterprises as public power systems within
municipalities, an "entity" should have the discretion to report only on
one or more of its individual business or operational units, so long as
that it can demonstrate that there is no risk that units within the
reporting boundaries can shift emissions and activities to units outside
the reporting boundaries. LPPC members believe this approach is more
workable and yet would still offer a comprehensive view of an entity's
emissions status.

**IV. The scope of emissions sources and sinks that entities must cover
in entity-wide emissions inventories should be reduced in order to
encourage cost-effectiveness and participation.**

As discussed above, a fundamental concern with the proposed guidelines
is the breadth of the emissions inventory requirements for entity-wide
reports. Under the guidelines as proposed, an entity would have to
report all of its direct and indirect emissions of all six GHGs.
Moreover, entity-wide reporters would be required to calculate and
report carbon stock changes at all of the terrestrial sinks they own.
[See]{.underline} [Id]{.underline}., at §300.6.

Meeting these requirements would be cost-prohibitive for many companies,
deterring participation in an enhanced 1605(b) Program. To avoid this
outcome, the guidelines should draw a clearer line between significant
and insignificant sources and types of emissions for individual sectors.
For example, the great proportion of GHG emissions for electric power
generators are CO~2~ emissions resulting from fossil-fired generating
facilities. Power generators should not have to incur the costs of
measuring and tracking other types of relatively insignificant emissions
related to their operations.

In addition, entities that own land but are not actively involved in
land management should not have to calculate and report carbon stock
changes. Requiring reporting on all sinks would oblige a company to
start measuring and accounting for changes in the size of the full range
of types of trees and plants on each acre of land it owns. If a company
is not managing land for sequestration purposes, it should not be
required to perform these calculations as part of its entity-wide
report.[^2]

The breadth of the reporting requirements in the proposed guidelines
might be somewhat more manageable if entities could exclude their
insignificant emissions through a reasonable *de minimis* provision.
However, the *de minimis* threshold set forth in the proposed guidelines
-- the lesser of 3 percent or annual emissions of 10,000 tons of
CO~2~-equivalent -- is unreasonably low. [Id]{.underline}., at
§300.6(e). Even the preamble acknowledges that many power companies
would be forced to tally up 99.9% of their emissions in order to have
the right to register their reductions. [Id.]{.underline}, at p. 68211,
c. 3.

LPPC members recommend that DOE consider two alternative approaches to
distinguishing between significant emissions, which should be reported,
and insignificant emissions, which entities would not be obliged to
measure and report. One alternative is the suggestion made by a number
the individuals at DOE's January 12, 2004 public workshop that the
guidelines set the *de minimis* threshold at 5 percent. A 5 percent
threshold would ensure that reporting is comprehensive and provides
meaningful information, while making reporting costs more reasonable.

An alternative approach would identify, for particular sectors and
organizational types, what should be deemed "significant" emissions. For
example, the guidelines could provide that entities in the electricity
sector are obliged to include in their entity-wide reports 100 percent
of their CO~2~ emissions from power generating facilities; reporting on
emissions from other sources or activities would be optional or subject
to a 5 percent *de minimis* threshold.

VI\. LPPC supports the availability of a wide range of methods for
calculating reductions, but believes the proposed approach to
calculating avoided emissions should be modified.

LPPC and its members generally support DOE's proposed approach to
calculating emission reductions in that it allows entities to choose
from a range of calculation methods and, if necessary, to use multiple
methods for one report. In particular, LPPC supports the availability of
an intensity approach, which should permit even those power companies
with growing output to demonstrate their progress in increasing their
efficiency on an emissions/kWh basis. However, LPPC will reserve final
judgment until release of the Technical Guidelines, which presumably
will provide more detail on how intensity may be calculated under
different circumstances. LPPC looks forward to working with DOE on these
issues.

LPPC has concerns about the approach of the proposed guidelines to
determining "avoided emissions." The proposed approach is potentially
punitive to current owners of pre-existing low- and non-emitting energy
generation. LPPC and its members rely much more heavily on renewable
sources of energy generation than the utility sector as whole -- in
2000, the proportion of LPPC electricity generated from renewable
sources (14.3 percent) was more than 50 percent greater than the
renewable proportion for the power sector on average (8.5 percent).
Energy Information Administration, [Annual Energy Review]{.underline}
(2001). LPPC's share of non-hydro renewable generation is also much
higher than the national average for the power sector. Under the
proposed guidelines, an owner of a non-emitting or low-emitting source
may not report and register "avoided emissions" unless it actually
increases sales of electricity from the source. [Id.]{.underline}, at
§300.8(b)(4)(ii). Moreover, DOE has explained that if a reporter owns a
low- or non-emitting energy facility and decreases its output, then it
must calculate and report the decreased output in terms of *increased
emissions*.

This approach does little to encourage low- and non-emitting energy
generation and may even discourage it. Compared to other types of
generation, renewable and other low- and non-emitting energy has very
high operating costs. Yet, under the proposed approach, owners of
renewable energy receive no recognition for continuing to operate their
renewable energy facilities at current levels, even though such owners
incur substantial costs to continue the *status quo*. Indeed, individual
LPPC members will incur upwards of \$250 million of costs for license
extension and related reliability/capital improvements of re-license
their nuclear facilities -- which, for some members, is an investment
motivated at least in part by concerns about sustaining zero-emitting
energy alternatives in their generation portfolios. Yet, the proposed
guidelines fail to provide any positive recognition for efforts to
sustain renewable energy output. Moreover, they effectively would
penalize any decline in renewable energy output, even though output
declines -- including very sizable declines -- can occur at low- or
non-emitting energy facilities because of circumstances beyond the
owner's control, *e.g.,* droughts, unplanned nuclear plant outages,
depletion of landfill methane at methane-to-energy facilities, *etc*.

In other words, the current approach disadvantages those entities that
were willing to incur the cost and risk of investing in and operating
these facilities -- and have been contributing "avoided emissions" for
years. Under the proposed guidelines, these entities would have to
record potentially enormous emissions *increases* as yearly output
fluctuates and as the useful life of the facilities comes to an end.

LPPC recognizes that the treatment of current low- and zero-emitting
energy presents complex issues. Members will be looking for
opportunities to meet with DOE staff to discuss alternative workable
approaches.

VII\. The proposed guidelines are correct to encourage, rather than
require, independent verification.

LPPC supports DOE's approach respecting independent verification. LPPC
agrees with DOE that entities' transparent use of emissions calculation
methodologies developed under the Technical Guidelines should provide
adequate assurances of credibility. Indeed, note that, entities in the
electricity sector will be calculating the largest proportion of their
emissions -- CO~2~ emissions from generation -- from CEMS data reported
to EPA, energy production data reported to DOE/EIA, and similar
well-established data. Requiring independent verification of such data
-- which is already subject to rigorous measurement and verification
procedures -- is unnecessary and could deter participation.

VIII\. The proposed guidelines should not prohibit registration of
qualifying pre-2003 reductions, nor preclude continued use of a pre-2002
baseline.

The preamble to the proposed guidelines explains that entities would be
prohibited from registering reductions achieved before 2003, even if
those reductions are recalculated in accordance with the revised
methods. [Id.]{.underline}, at p. 68206, c. 2. The proposal also
indicates that even entities that established a pre-2002 baseline under
the existing 1605(b) Program would have to revise it for use under the
revised program. [Id.]{.underline}, at p. 68210, c. 3.

In the view of LPPC and its members, there is no reason why the
guidelines should prohibit entities from maintaining a pre-2003 baseline
and registering reductions achieved prior to 2003. Even if DOE wants the
program to "focus on current and future actions," it is not necessary to
penalize companies that achieved real, measurable reductions prior to
2003 by prohibiting them from even registering those reductions in the
new database. LPPC is concerned that this approach sets a precedent
under which DOE could take administrative action at any time to erase
even post-2003 registered reductions.

If DOE deems it important to make distinctions between pre-2003
reductions and reductions achieved in 2003 and afterwards, the
Department can adopt less punitive approaches. DOE, for instance, could
authorize registration of pre-2003 reductions, but separately earmark
them in the database.

IX\. LPPC supports DOE's proposed approaches to determining which entity
may register reductions.

Though LPPC has a number of concerns about DOE's proposed approach to
calculating "avoided emissions," LPPC supports the method proposed by
DOE for determining which entity has the right to register "avoided
emissions." DOE proposes to allow the owner of the non-emitting or
low-emitting source to register the avoided emissions, rather than the
purchaser of electricity from that source. [Id.]{.underline}, at 68212,
c 2. LPPC and its members believe this is the correct approach. Given
that DOE intends to "ensur\[e\] . . . that recognition for reductions is
given to those entities *primarily responsible* for those reductions,"
recognizing ownership in the facility owner rather than the purchaser is
more appropriate because it is the facility owner that makes the
investments necessary to produce the non-emitting or low-emitting
energy. [Id.]{.underline} (emphasis added). The enhanced 1605(b) Program
should reward and encourage those companies that incur the generally
higher costs and risks involved in investing in low-emitting or
zero-emitting energy. It will not be possible to diversify the U.S.
energy system without such investments. Moreover, the proposed approach
tracks existing State renewable energy credit trading programs, under
which the facility owner is the entity presumptively entitled to
credits.

Another potential ownership issue arises with respect to "indirect"
emission reductions -- *i.e.*, reductions associated with implementation
of energy efficiency measures. Here, LPPC is satisfied with the approach
suggested in the proposed guidelines. As LPPC interprets the guidelines,
entities would be required report their indirect emissions and
reductions separately from their direct emissions and emission
reductions. The database then will record these different types of
reductions separately. [Id.]{.underline} Accordingly, DOE does not
intend to have the guidelines assign exclusive ownership over indirect
reductions to either the energy user or the energy generator. This
leaves ownership to be resolved, if desired, through private contracts.

Another related area of LPPC concern are the conditions and requirements
for registering GHG reductions achieved through demand-side management
projects and other such off-system energy conservation initiatives. LPPC
looks forward to working with DOE, particularly as DOE moves forward
with the development of Technical Guidelines.

**X. Offsets**

LPPC and its members see offset transactions as playing a critical role
in efforts to meet the President's intensity goal. Reporting entities
should have the ability to enter into arrangements with other entities
to achieve reductions wherever reductions can be achieved at lowest
cost. Policies that encourage offset transactions also encourage
innovation. LPPC is pleased to see that the proposed guidelines at least
broadly authorize such arrangements. [Id.]{.underline}, at §300.7(c)

However, LPPC believes the offset provisions could be improved. First,
the proposed guidelines provide that an entity may only register
reductions achieved by a third party if the reductions "were calculated
using the same method(s) that would have been applicable if the third
party that achieved the emission reduction\[s\] had chosen to report
\[them\] directly to DOE." [Id.]{.underline} This implies that if the
third party would meet the "large emitter" definition under the
guidelines, the third party first would have to prepare an entity-wide
emissions inventory and then could transfer as offsets only its net,
entity-wide reductions.

This approach -- which would preclude most transfers of project-based
reductions -- is problematic for a number of reasons. As many companies
at the January 12 public workshop observed, the current private U.S.
emissions trading market consists almost entirely of trades of
project-based reductions. By discouraging project-based transactions,
the proposed guidelines would miss an opportunity to encourage
innovation in GHG mitigation.

LPPC also observes that DOE is soliciting comment in the preamble on a
number of issues regarding offset transactions. [Id.]{.underline}, at p.
68213, c. 1. First, DOE requests comment as to whether the guidelines
should allow a non-reporting entity to "enter into agreements permitting
some of its emission reductions to be registered by one entity and the
remainder by one or more other entities." [Id.]{.underline} LPPC and its
members believe non-reporting entities should have this ability. Some
number of companies likely will determine that its infeasible to
participate in the 1605(b) Program on an entity-wide reporting basis,
yet could develop high quality projects with real emission reductions.
Authorizing such companies to sell reductions to multiple buyers will
promote liquidity, thereby making it possible for the 1605(b) Program to
spur greater levels of reductions at lower cost.

Finally, DOE solicits comment as to whether a reporting entity that
seeks to register another entity's reductions should be required to
"demonstrate that it helped finance or manage the achievement of the
emission reductions achieved by the other entity." [Id.]{.underline}
Presumably, DOE's is looking for ways to ensure that offsets are not
"anyway" reductions. However, if the "seller" of an offset has complied
with all of the guidelines' requirements for calculating reductions, it
is LPPC's view that such compliance provides adequate assurances that
the project's reductions are not "anyway" tons. Requiring the further
demonstration suggested by the preamble is not necessary.

Furthermore, requiring a showing that the "buyer" actually financed or
managed the project could unintended consequences -- it could preclude
many *good* offset transactions. Some offset "sellers" incur up-front
costs in developing a project in contemplation of a *future* buyer. Yet,
under the rule suggested in the preamble, the permissibility of such an
arrangement is not clear. In addition, the rule might be read to
prohibit any "secondary" purchases of offsets. For example, if entity A
registered a third-party reductions and then wants to re-sell them to
entity B is the re-sale subject to the offset provisions? If so, then
the rule suggested in the preamble would preclude such a transaction
because entity B could not demonstrate that it financed or managed the
original reduction activities.

LPPC appreciates DOE's efforts to accommodate offsets in the enhanced
1605(b) Program. However, for the reasons discussed above, DOE should
consider further refinements to the guidelines to the make the enhanced
Program more market-friendly.

\* \* \* \*

LPPC and its members commend DOE and its partner agencies for the
efforts they have put into the proposed guidelines. LPPC looks forward
to working with the Administration on modifications that can help make
the enhanced 1605(b) Program a vital element of the President's climate
policies.

Sincerely,

Bill Neal

Omaha Public Power District

Chair of LPPC Environmental Task Force

cc: Robert G. Card, Under Secretary for Energy, Science and Environment,
DOE

Vicki A. Bailey, Assistant Secretary, Office of Policy and International
Affairs,

DOE

Margot Anderson, Deputy Assistant Secretary for Policy, DOE

Larisa Dobriansky, Deputy Assistant Secretary for National Energy
Policy, DOE

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

[^1]: While the enhanced program seeks voluntary participation, the
    comprehensive nature of the program would impose reporting
    requirements of unnecessary, and ultimately cost-prohibitive,
    breadth. Typical large public power systems with significant coal
    generation would be required to report 99.9 percent of their GHG
    emissions -- only to earn the uncertain benefit of having
    "registered" reductions. DOE itself has acknowledged this fact in
    the proposal. [Id.]{.underline}, at p. 68211, c. 3.

[^2]: Note that the situation described above is distinct from an offset
    context -- in which the reporting entity enters into an agreement
    with another entity to register sequestration achieved on land owned
    and managed by the latter. In such circumstances, it is understood
    that it would be necessary to measure and report the amount of
    sequestration achieved in order to register offset reductions.