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California energy agencies unanimously endorsed mandated energy efficiency and renewable programs topped off by a carbon cap-and-trade market as the best means for achieving needed greenhouse gas emission reductions in the electricity sector. While the members of the California Public Utilities Commission heartily supported the joint ruling March 13 that outlined those recommendations to the California Air Resources Board, the California Energy Commission was less than enthusiastic because the approved framework failed to address critical components. Under California’s climate protection law, AB 32, the Air Board is to be the ultimate arbiter of rules on greenhouse gas reductions. “We’re ‘OUTATIME,’” insisted CEC commissioner Jim Boyd. He recalled the evanescent license plate in the Sci-Fi movie Back to the Future, as well as a quote from the TV show the X-Files. “We are putting a lot off” to the August decision, he warned March 12 prior to the Energy Commission vote. The two agencies plan to make further recommendations to the Air Board concerning how to regulate the power industry under AB 32 at that time. Meanwhile, all three agencies are arguing over the starting point for a carbon trading market. They seem to agree that a market is the way to handle greenhouse gas reductions, but are mired in how to initially allocate carbon dioxide equivalent emission credits to generators--should it be by selling them in an auction, giving them to away, or a combination of the two? “We are only just beginning to wrestle with the issue of allocation,” Mike Peevey, CPUC president, acknowledged. The electricity sector is the second largest source of greenhouse gas emissions in the state, with transportation producing the largest amount. Investor-owned utilities and some publicly owned utilities welcomed the commission votes, which affirm much of the draft proposal released February 8. The agencies are calling for regulating generators, or the “first deliverers” of power to the California grid, under AB 32. They reason that this better blends with a regional carbon reduction scheme in the pipeline and what is expected to appear at the national level. They also want to distribute some emissions credits for free and sell some through an auction. Revenue from the auction would be used to advance renewable energy and energy efficiency and offset the cost impacts on low income customers of fighting global warming. “It is a good decision,” said Pacific Gas & Electric vice president Tom Bottorff. Sacramento Municipal Utilities District regulatory affairs manager Bud Beebe said his and other agencies object to holding generators responsible for emission reductions in place of utilities. That is because utilities control rate setting, capital investment decisions, and are responsible for supply reliability. But, he added that the commissions listened to the munis’ concerns. Los Angeles Department of Water & Power and some other Southern California public power agencies vehemently oppose the joint opinion of the energy agencies. They want leeway in reducing greenhouse gases and fear they will be saddled with huge costs if forced to buy carbon credits to offset their fuel supplies’ global warming emissions. Peevey insisted that the two commissions did not intend “to punish” utilities for past investments in power that depends on fossil fuel. He referred to LADWP, which gets about half of its power from coal-fired plants. As a result, Peevey said LADWP is emitting up to 600 tons per gigawatt/hour compared to half the level from investor-owned utilities and some other munis, including the Sacramento Municipal Utility District. CPUC member Tim Simon--who testified at his confirmation hearing on February 20 that he did not support imposing a carbon trading system on munis--went along with his colleagues. He noted, however, that he remained concerned about “cost and equity issues.” The energy agencies also want the electricity sector to be under a multi-sector carbon ceiling. They are calling on the Air Board to move quickly to develop a carbon trading system because they say it will lower emission levels at a lower cost. The joint opinion recommends against including the natural gas sector in a trading market because there are few alternatives to the fuel. Greater efficiency, according to the CPUC, should achieve emissions reductions for commercial and residential customers. The CEC has its doubts. The board noted March 12 that it would revisit putting the natural gas sector under a cap-and-trade system. How big a role a cap-and-trade market will play in the electricity market is unknown, as are the associated costs. That is largely because the commissions expect much of the carbon cuts to come from universal energy efficiency requirements and a renewable energy mandate that exceeds 20 percent of supplies. While the CPUC jurisdiction is limited to investor-owned utilities, it recommends that air regulators require publicly owned utilities to meet stringent efficiency and renewable supply standards. According to an economic analysis by E3, tighter efficiency and renewable mandates, and the needed transmission upgrades and expansion, are expected to cost close to $1.4 billion. Additional reductions, regulators say, will result from a cap-and-trade market, pointing to the success of the federal acid rain trading program. A looming question is whether a carbon ceiling would be lifted to accommodate energy emergencies. During the state’s 2000-01 energy crisis pollution caps were lifted to allow dirty power to flow into a constrained grid. Bebee warned of the “fragility of politicians being able to maintain reductions when push comes to shove.” Despite at least one regulator’s lack of patience with the timeline, the CPUC and CEC expect to address key issues, including how best to dispense emission credits, the desirable percent of renewable energy, and the likely cost of a trading scheme in August.

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