CPUC to Consider First-Seller Instead of Load-Based Cap

After working for more than a year on a load-based greenhouse gas emissions cap for the utility industry, the California Public Utilities Commission plans to consider an alternative "first-seller" approach to limiting power sector emissions. So far, regulators have been promoting a load-based cap aimed at utility power portfolios. While the commission has not abandoned the concept of a load-based cap, it has scheduled an August 21 joint workshop with the California Energy Commission on the first-seller approach - which was recommended by the state's Market Advisory Committee. "We're going to consider it," said Julie Fitch, CPUC director of strategic planning. "The focus is to flesh out the first-seller approach and how it would work." A load-based cap approach could make it difficult for California to link any carbon trading program it establishes to emerging multi-state greenhouse gas markets, the Market Advisory Committee noted in its recent report. Meanwhile, the CPUC plans to ask for written comments on the first-seller approach in its greenhouse gas proceeding for investor owned utilities, she said. A key question, according to Fitch, is whether a first-seller approach would run afoul of the Interstate Commerce Clause of the U.S. Constitution. ?We don?t want to wind up with a design that can be legally challenged,? she said. At issue is who would be regulated under the competing regulatory concepts. Under a load-based cap, in-state utilities would be regulated so the Commerce Clause likely would not be an issue. Greenhouse gas emissions would be capped based on a utility's total power load. It would be up to the utility to manage its power procurement to keep emissions associated with serving the load under the cap. In contrast, under the first-seller approach, California would control emissions directly from in-state generating plants and emissions associated with companies that import power across state lines. State control of these importers conceivably could be prevented under the Commerce Clause. CPUC attorneys are busy studying the issue, said Fitch. "I have concerns that it may raise Commerce Clause issues," agreed Steven Kelly, Independent Energy Producers policy director. Power producers do not want to plan billions of dollars of investment in emissions controls under a first-seller regulation only to find that it is legally overturned, he said. Accordingly, he said, the Independent Energy Producers Association plans to ask the state Market Advisory Committee in a letter expected to be sent today to publish material it claimed shows a first-seller approach to regulating greenhouse gases would not violate the Commerce Clause. Ultimately, Kelly said a load-based cap on utilities and other load-serving entities would be an easier way to control carbon and establish price signals to power producers that favor clean generation. "The problem is nobody else is doing this in the country," he said. The CPUC's decision to entertain the first-seller approach comes after the state's investor-owned utilities endorsed such a plan over the load-based concept for regulating the power industry under the state's climate change law, AB 32. Utilities support the first-seller approach because they claim it would allow for more accurate tracking of greenhouse gas emissions. ?Pacific Gas & Electric believes that accurate monitoring and reporting of emissions is fundamental to the functioning of cap-and-trade markets,? said Keely Wachs, spokesperson for the utility. "A first-seller point of regulation in the electric sector significantly improves monitoring and reporting." However, a key observer said, on a not-for-attribution basis, that utilities prefer the first-seller approach because it would minimize their responsibility for reducing greenhouse gases. The potential change of course by the CPUC comes a year-and-a-half after the commission decided to develop a load-based cap for utilities, even before AB 32 was enacted into law (Circuit, Feb. 17, 2006). AB 32 put the California Air Resources Board in charge of regulating greenhouse gas emissions. However, state air regulators have indicated they would strongly consider any regulatory concept the CPUC develops for the power sector as they devise a strategy to carry out the climate change law. At the same time, they agreed to consider the recommendations of the Market Advisory Committee. With the panel?s recommendations now on the table, state air regulators have turned their attention to studying the first-seller approach, though they are not ready to endorse it, said Dimitri Stanich, Air Board spokesperson. The Market Advisory Committee issued a report outlining recommendations for creating a carbon market?including the first seller approach for the power sector?earlier this month. It held a hearing on the document this week. Utilities first publicly expressed their preference for the first-seller approach at a California Independent System Operator meeting on climate change late last week. They also are expected to outline their preferences in further detail in comment letters to be filed on the Market Advisory Committee report June 15 (see related stories below).

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CPUC to Consider First-Seller Instead of Load-Based Cap

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