The draft decision of Commissioner Peevey on this matter was served to the parties in accordance with Pub. Util. Code § 311(g)(1) and Rule 77.7 of the Commission's Rules of Practice and Procedure (Rules). Comments were filed on February 2, 2006 by Independent Energy Producers, GPI, California Manufacturers & Technology Association, NRDC and UCS (jointly), DRA, Sempra, PG&E, SDG&E, EPUC, CCAR, TURN, and SCE.37 Reply comments were filed on February 7, 2006 by AREM, NRDC, SCE, Sempra, and SDG&E.
We have carefully reviewed the comments, and make certain clarifications and modifications in response to them. In particular, we modify the draft decision with respect to flexible compliance issues by deferring any determinations regarding the scope of offsets, trading, banking and borrowing of allowances until these and other flexible compliance issues can be further explored during the implementation phase. We also defer to that phase the timing and details associated with CCAR registration requirements, as discussed in Section 4.5.2. In addition, we clarify our intent that the load-based GHG emissions cap will ultimately apply to all six major GHGs as soon as practicable.
However, we do not alter the draft decision in terms of the threshold "fork in the road" policy issue or its guidance regarding other implementation issues, as some parties recommend. In particular, SCE argues that a load-based cap is unlikely to be compatible with a national program, and therefore establishing one at this juncture will not achieve the Commission's goals. SDG&E expresses similar concerns that a load-based cap may be difficult to reconcile with generation-based caps that may be established nationally or in the western United States. We decline to abandon a load-based cap in favor of the alternative (generation-based cap), or abandon the concept of imposing a cap altogether, for the reasons discussed in this decision. We note that the Climate Action Team draft report also recognizes the advantages of a load-based cap for the electric sector.38 Clearly, if a comprehensive regional or national plan for generation-based caps were implemented in the future, thereby addressing the leakage problems that a load-based helps to mitigate, we would be open to revisiting the structure of the GHG cap for California. However, in the meantime, we believe that the arguments for a load-based cap are persuasive, and will pursue the implementation of one at this juncture.
PG&E and Sempra urge us to condition the implementation of today's adopted decision upon the expansion of the program to include municipal utilities, either by statute or by order of the Governor. SCE also urges us not to proceed with the implementation of a cap program for just the electricity sector, or just a portion of the electricity sector. Sempra concurs, arguing that non-IOUs should actually be exempt from the program for some period of time to see if a regional or national program emerges. In effect, these parties ask us to "wait and do nothing" with respect to a GHG emissions cap until all the pieces of a coordinated state, regional or national program becomes operational. As we discuss in today's decision, we do not believe that this is a viable option. Instead, we will move forward with today's decision in close coordination with the Governor's Climate Action Team and other California agencies, and work with them to ensure that the broadest possible GHG emissions reduction program is implemented in California to meet the aggressive GHG reduction goals articulated in Executive Order S-3-05.
The comments of SCE and DRA raise issues concerning the scope of this proceeding. In particular, the comments of DRA urge us to adopt a carbon tax. We agree with SDG&E that DRA's proposal is improper. Per Rule 77.3, "Comments shall focus on factual, legal or technical errors in the proposed decision and in citing such errors shall make specific references to the record." A carbon tax proposal is neither mentioned in the draft decision, nor does DRA make any specific reference to the record where this issue was raised in the proceeding. Our review of the record indicates that a carbon tax proposal was not raised as a proposal to be explored in pre-workshop comments, was not discussed in the workshop report, in the ALJ ruling soliciting comments on that report, or in post-workshop comments. Moreover, a carbon tax proposal has not been identified for investigation in any Commission decision, policy statement or ruling. DRA's proposal is beyond the scope of this proceeding.
SCE argues that "[a]t the outset, this proceeding was limited to the investigation [of] procurement incentives and the so-called `Sky Trust' proposal" and asserts that a load-based GHG emissions cap is out of the scope of this proceeding.39 We disagree. As NRDC points out in its reply comments, from the start of this process, we have set out two complementary purposes for this proceeding: (1) to address GHG emission reduction policies as an overall procurement incentive framework, and (2) to address risk/reward financial incentive mechanisms for total portfolio and/or resource-specific procurement. Commission staff structured the workshops to cover both sets of issues, and the ALJ ruling soliciting comments did so as well. Contrary to SCE's claim, the Order Instituting Rulemaking dated April 1, 2004 made it clear that the Sky Trust staff proposal was "intended to illustrate one approach . . . and other alternatives can be explored."40 Indeed, the March workshops and the two rounds of pre- and post-workshop comments were not limited to the Sky Trust proposal, and parties explored various alternatives in great detail. We find no merit to SCE's assertion that today's determinations are outside the scope of this proceeding.
Finally, some parties request that we provide additional guidance in today's decision on the specific design of a load-based cap. In particular, SCE requests that such a cap be designed to reflect load increases. SDG&E requests that we establish the cap and reduction schedules to reflect factors beyond the LSE's control, such as population, economic activity, and pre-existing contracts. SCE and SDG&E also recommend that the cap include "off ramps" or "safety valves" for the program, based on a price cap equal to the Commission's adopted GHG adder.
We decline to resolve these issues today. Instead, along with other implementation details, these proposals should be explored during the implementation phase, where the pros and cons of a wide range of implementation and design options can be carefully considered. We also decline to include in today's decision a specific sequence or list of issues for the implementation phase, as some parties suggest in their comments on the draft decision. We delegate that responsibility to the Assigned Commissioner and ALJ, as discussed in Section 6 above.
37 Opening comments on the draft decision were also submitted by Redefining Progress and California Council for Environmental and Economic Balance. However, these organizations are not parties to this proceeding, and they did not submit timely motions to intervene. Therefore, we do not consider these comments in addressing the issues in this decision.
38 See Climate Action Team Report to the Governor and Legislature, December 8, 2005, pp. 62-63.
39 Southern California Edison Company's Comments on Draft Decision on Procurement Incentives Framework, p. 8.
40 Order Instituting Rulemaking 04-04-003, April 1, 2004, pp. 16-17.