In response to the establishment of several high-level state policies related to climate change, the California Public Utility Commission (CPUC), which regulates privately owned electric companies, is currently considering several approaches to limiting greenhouse gas (GHG) emissions associated with electricity use in the state. One initiative is the design of a GHG emissions cap for companies who provide electricity to end use customers. In addition, the CPUC is also continuing to consider a GHG performance standard for electricity procurement from generating facilities.
Though both approaches are still under development, the following questions and responses provide initial information to explain these initiatives.
Why set a cap on greenhouse gas emissions?
In June 2005, citing California’s particular vulnerability to climate change and its threat to water supply, air quality and human health, California Governor Arnold Schwarzenegger issued Executive Order #S-3-05 which established GHG emission targets for California. The Executive Order targets specify the reduction of GHG emissions to 2000 levels by 2010; to 1990 levels by 2020; and to 80 percent below 1990 levels by 2050. The Executive Order established a Climate Action Team, led by Cal EPA, to develop strategies to achieve the targets.
Earlier this year, the Climate Action Team finalized its report to Governor Schwarzenegger and the California Legislature identifying approaches to achieving the GHG reduction targets. Among the recommendations contained in the report was the development of a multi-sector, market-based system with a GHG cap based on the Governor’s targets. More specifically, the Climate Action Report recommended that long-term commitments for new energy generation for use in the state by load serving entities (LSEs) should come from sources with GHG emissions equivalent to or less than a new combined cycle natural gas power plant. The Climate Action Team further encouraged the California Public Utilities Commission (CPUC) to ensure that efforts focusing on LSEs would be consistent with the development of the larger multi-sector cap and trade program.
The CPUC is pursuing the Climate Action Team recommendations through design of a load serving entity cap (decision 06-02-032 on the “Procurement Incentive Framework”, as it is officially called) as well as continuing to consider a GHG performance standard for investor-owned utilities relative to this cap (through rulemaking process 06-04-009 which now addresses both the emission performance standard and cap initiatives.)
What is a load serving entity cap?
The proposed GHG cap is being designed to encompass all the energy generated or otherwise obtained (“procured”) by load serving entities (LSEs), which are the organizations that directly deliver electric power to end use customers (i.e.“load”). A load-based cap would encompass all emissions of the six major GHGs produced by providing electricity, from generation to use. Under a load-based cap, the LSEs would be subject to GHG emission limits for all resources procured to serve their load, including imported power. The cap level would be determined relative to an as-yet-to-be-developed historical baseline.
In California, load serving entities (LSEs) consist of Pacific Gas and Electric, Southern California Edison, San Diego Gas and Electric, municipal utilities, irrigation districts, the Department of Water Resources, and private electric providers. However, consistent with CPUC’s regulational authority over privately owned entities, the load-based cap would initially only apply to the GHG emissions of PG&E, SCE, SDG&E, and non-utility LSEs that provide electric power to customers within the PG&E, SCE or SDG&E service territories. Each covered LSE will be required to hold allowances equalling the emissions associated with power they deliver to customers.
The cap will affect the LSEs immediately by requiring submission of additional information about existing GHG emission profiles and future GHG emissions implications within their 2006 procurement plans.
How is the GHG performance standard related to the LSE CAP?
In October 2005 (prior to the report by the California Action Team), the CPUC had announced adoption of policy regarding design and implementation of a GHG emissions performance standard. As originally proposed, the standard would have limited GHG emissions levels for Investor Owned Utility (IOU) energy procurement to be no higher than the emissions of a combined-cycle natural gas turbine for all contracts that exceed three years and all new IOU generation.
Since making the decision to design the load-based GHG cap, the CPUC has continued to consider if and how a performance standard could be used relative to and consistent with the cap. Ideas on this issue have included developing the standard as an interim step, to be used prior to the cap, and then either maintaining or discontinuing its use after the cap has been implemented.
What is the status of these initiatives?
The load-based GHG cap has been proposed to begin January 1, 2008. The CPUC is tentatively targeting completion of the performance standard to allow its implementation by January 1, 2007. To achieve these milestones, CPUC efforts on these initiatives have been divided into Phase 1 and Phase 2 programs.
The Phase 1 program is focused on issues associated with the performance standard, including its need, design, and relationship relative to the load-based cap, especially in the short term prior to the implementation of the cap. Beginning in June, the CPUC will hold a workshop to facilitate the development of understanding needed to design the performance standard. Information from the workshop will be used to draft a report discussing the details of the GHG performance standard to be issued in late August/early September. This report will be used to construct a draft “decision” on the standard, with the final rule to be established in December.
In Phase 2, the CPUC will address issues associated with the load-based cap. Though general aspects of the load-based cap design (i.e. the Procurement Incentive Framework) were identified in decision 06-02-032, specific details regarding its implementation remain to be determined. These issues include quantification of LSE baseline GHG emissions, required reductions relative to this baseline, allocation of emission allowances, and development of flexible compliance mechanisms. Phase 2 is also expected to discuss the permanence of the GHG performance standard relative to the implementation of the load-based cap. Efforts toward these Phase 2 issues are expected to begin in the fall of 2006. A more detailed process and schedule for Phase 2 has yet to be developed.
The CPUC will be working with parties on the development of these initiatives though rulemaking process 06-04-009. Further information about this process can be obtained from the CPUC via email at public.advisor@cpuc.ca.gov or by phone at (866) 836-7875.
Where can I get more information?
Click the links below to be directed to sources outside the First Environment website.
Governor’s Executive Order S-3-05
Climate Action Team Report to Governor/Legislature
Climate Action Team Cap and Trade Program Design Options
California’s Proposed Greenhouse Gas Emissions Cap on Load Serving Entities
