Climate Change

Since the passage of the Global Warming Solutions Act in 2006 (Assembly Bill 32), the California Public Utilities Commission (CPUC) and California Energy Commission (CEC) have been developed recommendations for the electricity and natural gas sectors and issued an Interim Opinion on March 14, 2008. These recommendations have been forwarded to the California Air Resources Board (CARB). The CPUC and CEC also participate in inter-agency working groups related to climate change.

LUSCAT Workshops

In mid-March 2008, the Land Use Subgroup of the Climate Action Team (“LUSCAT”) hosted three identical workshops around California concerning land use, transportation, and local government measures to reduce GHG emissions. LUSCAT is composed of employees of 16 different state agencies, each having a different relationship to land use and other local government decisions. LUSCAT provides a centralized location for stakeholder input and will eventually develop and disseminate tools and resources to assist local governments in their efforts to adopt and implement emissions reductions.

In the March workshops, LUSCAT representatives noted that their recommendations for the AB 32 Scoping Plan will be primarily transportation related, as reductions from energy savings, water use, forestry, and other areas are mostly captured in other sectors. In addition, LUSCAT recommendations will likely include providing regional and local governments with technical and financial assistance to inventory GHG emissions, providing information on best practices for reducing GHG emissions, and providing model “Climate Action Plans.” 

The next public meeting of the LUSCAT Subgroup is scheduled for April 28, 2008 in Sacramento. In June 2008, CARB will release a draft Scoping Plan that includes the land use and local government-related measures necessary to achieve the emissions reductions required under AB 32. These measures are likely to mirror the LUSCAT recommendations. CARB is expected to adopt the final Scoping Plan at its meeting in November 2008.

Local Government Protocols for Estimating Emissions of Greenhouse Gases

CARB held a public workshop on March 11, 2008 addressing protocols for calculating greenhouse gas (GHG) emissions from local governments. These protocols are in the early stages of development and will address buildings and facilities, electricity generation, district heating/cooling, vehicle fleets, employee commutes, street lighting, traffic signals, water and wastewater treatment, and waste management. The protocols are intended to assist local governments not only in identifying the sources of GHG emissions but also in planning future emissions reductions. While the current process contemplates voluntary reporting and reduction by local governments, CARB staff would not comment on whether the voluntary protocols might later become mandatory, though the AB 32 Scoping Plan might address this issue.

At the workshop, a representative from the California Climate Action Registry presented an overview of three areas to be addressed by the protocols. Scope 1 concerns direct emissions from local government, focusing on the fuel used in buildings and by equipment, the fuel consumed by the government’s vehicle fleet, and emissions from government-operated power generation, waste, water, and wastewater services. Scope 2 involves indirect emissions, including emissions from electricity use, streetlights, and purchased steam. Scope 3 addresses emissions from contractor fleets, employee commutes and business travel, along with emissions caused by waste produced by government operations.

A workgroup convened by the California Climate Action Registry held a kick-off meeting on March 13, 2008, and will draft protocols and unveil them in April 2008. Following a comment period in May 2008, the workgroup may publish an intermediate draft before finalizing the protocols in August 2008.

Climate Change and Renewable Energy Credits

In September 2007, the CPUC and the CEC held a succession of workshops in the Greenhouse Gas (GHG) implementation proceeding (R.06-04-009) on the subject of tradable renewable energy credits (TREC). These workshops examined tracking systems and compliance rules for TRECs and issues associated with combining a TREC market with the Cap and Trade program anticipated for implementation of AB32.

The CPUC subsequently took up the issue of TRECs in its renewables policy proceeding (R.06-02-012). Over the past six months, the CPUC has held workshops, taken comments from parties, and issued a draft strawman proposal on which parties commented in November and December.

The key issues are whether load-serving entities, including utilities, can use tradable RECs to meet renewable portfolio standard requirements. Many parties have urged the CPUC to keep TRECs separate and distinct from emission reduction credits that exist in other national and international venues and which are beginning to develop in California. The CPUC held another prehearing conference on December 10, 2007 to determine what further proceedings, if any, are required before it issues a decision.

On February 25, 2008, the CPUC issued a Second Amended Scoping Memo and Ruling (Scoping Memo). In the Scoping Memo, the CPUC noted several developments related to TRECs, including
(1) SB 107, which resolved the status of renewable energy credits (RECs) for renewable energy generated by qualified facilities and which required the CPUC and CEC to determine that the Western Renewable Generation Information System (WREGIS) is ready to support the use of unbundled and/or TRECs for RPS compliance;
(2) D.07-01-018, which determined that RECs associated with customer-side renewable distributed generation belonged to the system owner;
(3) Comprehensive workshops last fall on TRECs, after which parties filed comments and reply comments; and
(4) Development of the Western Region Electricity Generation Information System (WREGIS), which the CPUC believes will be complete by May 1, 2008.

Given these new developments, namely the status of WREGIS, and the need to coordinate with the CEC, the CPUC anticipates a proposed decision on TRECs in the second quarter of 2008.

Climate Change and the Cap-and-Trade Program

In the GHG implementation proceeding (R.06-04-009), the CPUC, on March 14, 2008, issued its Interim Opinion on Greenhouse Gas Regulatory Strategies (March 14, 2008 Opinion) in which it provided multiple recommendations to CARB. In particular, with regard to the cap-and-trade (CAT) program, the CPUC recommended that CARB implement a multi-sector CAT program with “deliverers of electricity to California” being designated as the responsible entities (or the point of regulation for the electricity sector). The CPUC considered all entities that own electricity on the portion of the physical path just before the point where it is delivered to the California transmission grid as “deliverers.” Significantly, the CPUC noted that it did not believe that the natural gas sector should be included in the CAT system and thus, declined to make a recommendation on this issue at this time.

Natural Gas Sector and AB 32 Compliance

In the GHG implementation proceeding (R.06-04-009), the CPUC issued a Ruling on July 12 commencing the natural gas sector phase of the CPUC/CEC examination and consideration of the regulatory treatment of GHG emissions in the natural gas sector.

The natural gas phase inquiry was designed to address emissions associated with (1) combustion of natural gas by non-electricity generator end-use customers, and (2) all transmission, storage, and distribution of natural gas within California. In this regard, the CPUC intended to develop guidelines and recommendations regarding GHG emissions in the natural gas sector so that CARB could apply them both to investor-owned utilities regulated by the CPUC and to other natural gas entities that are not regulated by CPUC.

The March 13, 2008 Opinion (D.08-03-018) also contained the CPUC’s evaluation of the regulatory treatment for GHG emissions in the natural gas sector. In this opinion, the CPUC recommended that CARB use programmatic measures to achieve emission reductions. Specifically, the CPUC recommended that all entities be required to provide some level of energy efficiency programs to their customers.

Compliance Mechanisms

In a Ruling issued in December, the CPUC indicated that it will issue a straw proposal recommending compliance mechanisms for the electricity and natural gas sectors in March 2008. CPUC staff indicated informally that the straw proposal has been delayed and will likely be issued at the end of April 2008. The consideration of emissions reduction measures and annual sector emissions caps will continue this month and likely continue through at least May 2008. While the Ruling did not specify any deadline for the consideration of entity-specific emission allowance allocation issues, CPUC staff said that an updated Scoping Memo will be issued by the end of April 2008. The new Scoping Memo may provide a timeline for these allocation issues.

Inventory of Greenhouse Gas Reduction Programs

A coalition of large energy users and The Utility Reform Network (TURN) filed a motion in three different proceedings asking the CPUC to order a multi-utility inventory of all GHG reduction programs and funding levels in place or under consideration. Based on conversations with the different Administrative Law Judges (ALJs), there is some confusion at the CPUC over how to treat the motion in each proceeding, or even whether to turn it into a separate proceeding.

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