The California Public Utilities Commission let stakeholders take a stab at ground rules for developing a load-based cap on carbon dioxide emissions. Setting a ceiling on total utility load - the amount of electricity a utility needs to serve all of its customers - to curb global warming gases is viewed as more manageable than a greenhouse gas cap on emissions sources, such as a power plant. It also ostensibly allows regulators to control power plant emissions beyond its borders. "This is the first day of a truly historic proceeding," said CPUC president Mike Peevey during a November 28 prehearing conference on the commission's greenhouse gas reduction rulemaking. "What we decide here will go way beyond California," he said, adding that it may also affect the Kyoto Protocol emissions levels set for 2012. The goal is for the commission rule to feed into the California Air Resources Board's regulatory process. The air board is charged with implementing AB 32, which requires a 20 percent cut in CO2 emissions by 2020. The air board is expected to rely on the CPUC and the California Energy Commission to develop energy-efficiency and rate-setting strategies for cutting emissions in the energy sectors, said Mike Scheible, air board deputy executive director. The two energy agencies are also charged with implementing SB 1368, which will set emissions standards for in-state and imported power supplies. "We will push you as hard as we can so we don't have to make the regulatory effort," Scheible added. The presumption is that a broad-based greenhouse gas cap-and-trade program will be developed, although it's an optional strategy under AB 32. The idea of a load-based cap for the energy market, which is expected to be developed before any allocation of greenhouse gas emissions credits, generated considerable controversy. Some, including investor-owned utilities and generators, noted that unlike a source-based cap, a limit set on utility load bumps up against the problem of how to account for emissions from imported power supplies dispatched by the grid operator. In the newly redesigned California Independent System Operator day-ahead market, bids for cheaper out-of-state coal-fired power will be dispatched, displacing higher-cost utility bids, warned John Jurewitz, Southern California Edison director of regulatory policy. "Who gets blamed for the greenhouse gases?" he asked. The CPUC plans to develop a cap, as well as rules for ratcheting down annual emissions for investor-owner utilities, community-choice aggregators, and municipal power agencies. Public power agencies are concerned about the CPUC's developing rules. Regulators are including them in their CO2 reduction rules although the commissioners lack authority over munis. Annual emissions reduction goals will be based on a 1990 CO2 baseline that will be established by the air board at the end of 2008. Many bet that the state will be sued under the Interstate Commerce Clause for setting regulations that affect utilities in other states. Separate CO2 reduction rules will be developed for the natural gas sector. CARB is planning on developing regulations that look at the life cycle of natural gas facilities, including liquefied natural gas terminals. In addition, the air board will hold a December 1 hearing on mandatory reporting requirements under AB 32. "We are still very much getting organized and have not gotten additional resources," Scheible said. Performance-based standards are not on the table at this time. - Elizabeth McCarthy
