Implementation of AB32 for the Electric Sector

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Implementation of AB32 for the Electric Sector
Kristin Ralff Douglas California Public
Utilities Commission Division of Strategic
Planning November 13, 2007
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Californias Greenhouse Gas Emissions
Source CA Energy Commission
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Californias Electricity-Related Greenhouse Gas
Emissions
Source CA Energy Commission Emissions Inventory
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CPUC AB32 Activities

• General agreement that CPUC proceeding is venue
  to develop guidelines for CARB adoption for
  electricity and natural gas sectors
• Comprehensive in scope (investor-owned utilities
  and publicly-owned utilities treated comparably)
• Utility sectors will be integrated into CARB
  overall structure for California
• Currently conducting proceeding, in conjunction
  with with California Energy Commission (CEC) and
  in cooperation CARB, to establish a GHG emissions
  cap for electricity sector
• Also plan to address capping natural gas sector

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GHG Cap Implementation Issues

• Likely to proceed over next two years (in
  R.06-04-009)
• Reporting requirements (in cooperation with the
  California Climate Registry and Air Resources
  Board)
• Baseline development
• Structure (size and slope) of cap ratchet
• Market design and flexible compliance mechanisms
• Modeling of costs and benefits specific to energy
  sector
• Point of regulation
• Integration with energy markets (MRTU)

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Baseline Allocations

• 1990 Baseline
• CARB will determine what the baseline target is
• CARB will then determine what the electric sector
  obligation is (which may or may not exceed their
  1990 baseline)
• Allowance Allocation
• Three current proposals historical, load, and
  environmental performance standard/benchmark
• Auction or freely allocate? Or both?

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Point of Regulation

• Load-based
• Developed by the PUC as a way to promote the
  loading order (energy efficiency, renewables,
  other generation), deal with leakage from
  imports, and promote a portfolio approach
• Means LSEs get the allowances and manage their
  carbon budget through purchases
• First-Seller
• Proposed by the Market Advisory Committee as a
  compromise between load-based and source-based
• Means in-state generators monitored at their
  source and responsible for having allowances to
  cover emissions for out of state power, the
  first seller into California is responsible for
  the allowances, regardless of how many
  transactions happen before or after it crosses
  into CA
• Others
• We are also considering a hybrid approach, a pure
  source-based approach, and a deferment approach
  (regional and national systems)

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MRTU and Day Ahead Markets

• Interaction with CAISO
• MRTU developed after energy crisis to develop
  day ahead markets
• Some parties are concerned that low-carbon
  generators will form bilateral contracts, and
  high-carbon generators will sell into the pool
• MRTU operates on a cost-priority basis, and its
  difficult to understand how low-GHG priority can
  be integrated
• MRTU governed by FERC rules

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Market Mechanisms

• What will the rules be?
• Governors preference is a cap and trade system
  legislature allowed for market mechanisms
• Will capped entities be able to trade between
  sectors? Will they be able bank or borrow?
• What will the role of offsets be? Will there be
  quantitative or geographical limits?
• What will the compliance period be? How do you
  account for high and low hydro years?
• Will we implement price ceilings or price floors?

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AB32 Integration Issues

• Regulatory Programs
• Energy Efficiency
• Renewables Portfolio Standard
• Environmental Risk Adder
• GHG Emissions Performance Standard

• Market-based
• Load-based GHG emissions cap

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CPUC Policy Priorities

• Energy Action Plan I II set policies
• Energy Efficiency
• Renewables
• Greenhouse Gas (GHG) Regulation
• Environmental risk adder
• Emissions Performance Standard (EPS)
• Load-Based Emissions Cap

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Energy Efficiency

• Energy Efficiency goals (2004-2013)
• 26,506 GWh/year
• 5,000 MW off-peak
• 444 Million therms/year
• Eliminates need for 10 new power plants
• Eliminates 9 million tons of CO2 emissions
  (equal to 1.8 million cars)
• 10 billion in net savings to consumers

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Current EE Program Cycle

• 2006-08
• 2 billion in funding for 3 years
• Annual funding of 150 million from utility
  procurement budgets and 280 million from the
  Public Goods Charge
• Levelized cost of 3 cents/kWh and 21 cents/therm
• 2.7 billion in net savings to consumers over 3
  years
• Beginning planning now for 2009-2011 cycle

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Renewable Portfolio Standard

• IOUs must meet 20 by 2010
• Several bills in the legislature suggesting an
  increase to 33 by 2020
• POUs
• 20 by 2010
• LADWP goal is 35 by 2020

The GHG Performance Standard Policy Statement is
posted at www.cpuc.ca.gov/word_pdf/REPORT/50432.d
oc
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Environmental Risk Adder

• aka carbon adder
• CPUC requires utilities to include an 8/CO2 ton
  proxy for carbon based resources when evaluating
  procurement choices.
• First step to require utilities to internalize
  carbon cost.

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GHG Emissions Performance Standard

• Facility-based emissions standard requires new
  commitments to be as clean as natural gas.
  Applies to
• New baseload contracts or facilities
• Commitments of more than 5 years
• Designed to prevent backsliding from current
  levels
• CPUC developed standard for investor-owned
  utilities CEC to developed for municipal
  utilities
• CPUC regulations required by February 1, 2007

The GHG Performance Standard Policy Statement is
posted at www.cpuc.ca.gov/word_pdf/REPORT/50432.d
oc
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Emissions Reductions from Existing CPUC Programs
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Emissions Reductions from Future CPUC Programs
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Emissions Reductions from Electric Gas Sector
Programs

• PUC Programs
• 12.22 from existing programs
• 30.10 from future programs
• Muni Programs
• 18 from existing and future programs
• Total
• 60.32
• Total Obligation of Electric Sector
• - One third of 174 is 58 MMT CO2 equivalent
• How do we assure that we meet our programmatic
  goals? What additional tons do we need and where
  will they come from?

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Questions? Answers?Contact

• Kristin Ralff Douglas
• Division of Strategic Planning
• California Public Utilities Commission
• Phone [phone]
• Email krd_at_cpuc.ca.gov
• Web site www.cpuc.ca.gov

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Challenges of integrating GHG and Energy
Efficiency Policies

• Evaluation, measurement verification
• Methodological/mathematical question of how to
  count GHG reductions associated with energy
  efficiency
• Start by asking utilities to report estimates of
  GHG reductions and show assumptions
• Necessary to help support trading regimes where
  efficiency participates
• Who owns the efficiency gains?
• Accomplishments come through mix of public and
  private investment

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Interaction of Load-Based Cap with Other Policy
Initiatives
More EE
Voluntary EE
Represents GHG emissions limit
Voluntary RPS
Emissions Reductions
Mandatory RPS
Mandatory EE Programs
Time
Current System
Initial GHG Cap
GHG Cap Ratchet