AB 32 Regulation Decision Nears for Power Sector

By Published On: November 16, 2007

As the California Public Utilities Commission rolled out a model to examine the implications of various ways to control greenhouse gas emissions from the power sector, it moved a step closer to deciding on a regulatory framework for the industry November 9. In an administrative law judge ruling, the commission asked for public comments on five options for regulating the electric sector. By February or March 2008, the commission expects to decide on the question of the “point of regulation” for the industry, said Julie Fitch, CPUC director of strategic planning. Its decision then would go as a recommendation to the California Air Resources Board, which is charged with shaping final regulations to carry out the state’s climate change law, AB 32. The point could be on utilities under a so-called load-based cap, or on generators under a source-based cap. It could involve even other iterations. In a staff paper, the CPUC observed that the state already has “instituted aggressive policy” on renewable energy, energy efficiency, low carbon generation, and other “fronts” that are constraining greenhouse gas emissions. Achieving further reductions from the power sector through increased energy efficiency and renewables will entail growing costs, the paper acknowledged. For instance, the cost of building backup gas power plants to keep the grid reliable as it integrates more intermittent renewable resources will grow in California and throughout the West. “The integration issue is a big deal,” said Ren Orans, Energy & Environmental Economics partner. “We’re talking about 22,000 MW of wind in the West.” The firm estimates that backup power systems can be expected to add $3.13/MWh to the cost of power when 10 percent is supplied by wind energy, rising to $6.26/MWh when wind supplies 20 percent of the total. He added that the cost of central solar thermal generating stations remains largely unknown. Cap-and-trade could help as a “backstop” to “provide a relatively small incremental portion of the overall emissions reductions needed to meet the 2020 limit,” the staff paper suggested, while increased efficiency and renewables could provide the rest of the reductions. “A key question for policymakers will be where to draw the line,” the paper concluded. Editors’ note: For a more detailed version of the “point of regulation” story, please see our sister publication E=MC2 – Energy Meets Climate Challenge. You can find it at www.energymeetsclimate.com

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