A key component of California\u2019s global warming reduction legislation found stakeholders begging to disagree this week when state officials explored whether greenhouse gas regulation should primarily target utilities or power generating units August 20. Proponents of a carbon dioxide cap-and-trade system aimed at utilities (known as \u201cload based\u201d) maintain that keeping regulation there would be cost-effective. Utilities, however, say that regulation at the power plant level (known as \u201cfirst seller\u201d) is as, or potentially more, economic. A decision on which regulatory road to take to curb greenhouse gases could have major economic consequences to power plant owners, regulated utilities, and consumers. \u201cA load-based system has the potential to save ratepayers a lot of money,\u201d said Bruce Biewald, Synapse Energy president. He estimated the savings could be between $2 billion to $5 billion a year. Biewald\u2019s ratepayer savings estimate assumes the cost of carbon is $30\/ton and that there will be 100 million tons of carbon dioxide allowances traded in a state market. However, investor-owned utilities, which prefer a cap on the source of in-state power fed into the grid, rejected Biewald\u2019s estimate. Gary Stern, Southern California Edison\u2019s director of market strategy and resource planning, said the cost impacts are unknown because creating a load-based system would alter the current market, creating uncertainty and possible market disturbances. Whether a load-based system would generate ratepayer savings also was questioned by Jim Bushnell, University of California, Berkeley, Energy Institute professor. He further questioned the notion that this type of cap would avoid legal challenges. \u201cBecause it is legal, doesn\u2019t mean it is a good idea,\u201d said Bushnell, who also sits on the California Independent System Operator market surveillance panel. The discussion took place during a high-level joint meeting of the California Public Utilities Commission and the California Energy Commission. The CPUC proposed a load-based cap earlier this year, under which utilities and other power providers would be regulated. A prime reason for this approach was to avoid legal challenges to a state carbon cap under the Interstate Commerce Clause of the U.S. Constitution because in and out of state power supplies would be treated the same. The Commerce Clause forbids disparate state treatment of energy supplies or other imported products. A load-based strategy also is expected to be in sync with the commission\u2019s renewables portfolio standards and energy efficiency mandates. The CPUC bases the mandated level of renewable supplies and power savings from efficiency measures on a utility\u2019s load. Early this summer, the now-disbanded state Market Advisory Committee first proposed the CPUC drop its load-based cap in favor of one with ceilings on in-state units and wholesale imports, with the latter based on emission estimates (Circuit, June 8, 2007). The committee, which was created to advise the California Air Resources Board on market measures to slash carbon gases, often met behind closed doors. Unlike the energy agencies, the committee insisted it was not subject to the state\u2019s open meetings law. Steven Kelly, Independent Energy Producers policy director, urged that the members of the two commissions investigate how well a load-based cap would withstand legal challenges. He and others also insisted that the consumers bear the cost of carbon reductions, under a market that would tie electricity sales to carbon reduction market schemes. \u201cConsumers are going to pay for this,\u201d noted Scott Cachois, Division of Ratepayer Advocates senior manager for energy resources and pricing. He questioned the wisdom of a load-based cap because it might be undone by region wide and\/or national efforts. \u201cWe are really after tracking imports,\u201d he noted. The biggest culprit of greenhouse gases associated with power supplies feeding the state comes from imported juice from coal-fired plants. The Los Angeles Department of Water & Power, which receives nearly half its supply from coal-fired imports, backs a load-based cap. \u201cIt will give us the needed tools to make AB 32 [the state\u2019s global warming reduction law] a reality,\u201d said Leilani Johnson Kowal, LADWP\u2019s environmental supervisor. The state\u2019s global warming reduction law is about getting real greenhouse gas cuts not creating a cap-and-trade market, she stressed. Johnson Kowal pointed out that her muni did not renew its long-term out-of-state coal deals to import electricity to Los Angeles (Circuit, Nov. 27, 2006). In addition, the LADWP has budgeted nearly $2 billion over the next nine years to develop solar and other renewable energy supplies. Other supporters of a load-based emissions ceiling insisted this approach would increase energy efficiency. \u201cA load based system provides incentives to the load serving entities to pursue long term investments in carbon reductions,\u2019 said Audrey Chang, Natural Resources Defense Council staff scientist. The CPUC expects to issue a draft ruling on its recommended cap-and-trade strategy next February or March.