3. Substantial Contribution
In evaluating whether a customer made a substantial contribution to a proceeding, we look at several things. First, we look at whether the Commission adopted one or more of the factual or legal contentions, or specific policy or procedural recommendations put forward by the customer. (§ 1802(i).) Second, if the customer's contentions or recommendations paralleled those of another party, we look at whether the customer's participation unnecessarily duplicated or materially supplemented, complemented, or contributed to the presentation of the other party. (§§ 1801.3(f) and 1802.5.)
As described in § 1802(i), the assessment of whether the customer made a substantial contribution requires the exercise of judgment.
In assessing whether the customer meets this standard, the Commission typically reviews the record, composed in part of pleadings of the customer and, in litigated matters, the hearing transcripts, and compares it to the findings, conclusions, and orders in the decision to which the customer asserts it contributed. It is then a matter of judgment as to whether the customer's presentation substantially assisted the Commission.5
With this guidance in mind, we turn to the claimed contributions NRDC and UCS made to the proceeding.
UCS claims it made substantial contributions to D.07-09-017 on the issues of reporting and tracking of GHG emissions and determination of default emissions factors; to D.08-03-018 on the overall strategy for regulating GHG emissions in the electricity and natural gas sectors, including the point of regulation for GHG emissions; and to D.08-10-037 on the issues of cost-effectiveness modeling, allowance allocation, 33% renewables mandate, and flexible compliance. UCS participated actively in these issues and asserts it made unique contributions to these decisions.
NRDC claims it contributed to this proceeding by actively participating in Phase 2. NRDC asserts that decisions D.07-09-017, D.08-03-018, and D.08-10-037 reflected NRDC's analysis on a number of substantive issues and adopted both the recommended course and portions of suggested language by NRDC.
In general, we agree with the above assessments. We analyze with more specificity UCS' and NRDC's claims below. We note that the intervenors filed most of the comments jointly, and that the decisions refer to the intervenors as "NRDC/UCS." We refer to them in the same manner below.
3.1. UCS' and NRDC's Contributions to D.07-09-017
D.07-09-017 focused on one principal issue: a proposal for an electricity sector GHG emissions reporting and verification protocol for recommendation to ARB as part of ARB's implementation of AB 32. In the proceedings leading to D.07-09-017, numerous comments were filed and a workshop on reporting and tracking was held.
D.07-09-017 refers to NRDC/UCS' opinion on several occasions.
On the issues of covered entities for the purpose of GHG reporting, NRDC/UCS reminded the Commission about the fact that the California Department of Water Resources (DWR) procures electricity to meet the needs of the State's water projects, but was not covered in the Joint Staff's6 proposal. In accordance with this, the Commission recommended that DWR, as well as any other state agencies that generate or procure power from entities other than retail providers to meet their electricity needs, report using the retail provider portion of the reporting Protocol. (D.07-09-017 at 11).
The Commission explored attributing GHG emissions to various sources of electricity. NRDC/UCS participated on several points. NRDC/UCS supported the adoption for "unspecified sources"7 of higher default emission factors than those recommended by the Joint Staff, in order to encourage retail providers to contract with low- and zero-emission resources. NRDC/UCS recommended that the emission factor for all natural gas plants be set at the emission factor for the least efficient natural gas plant (1,640 lbs. CO2e/Mwh). The Commission discussed the NRDC/UCS proposal and agreed with the intervenors' recommendations: "In setting a default emissions factor, we are persuaded to use a higher, conservative value." (D.07-09-017 at 40-41).
Further, the Commission considered when to calculate default emission factors for unspecified sources. The Joint Staff recommended that default emission factors be calculated on an ex ante basis to provide greater market certainty to retail providers. NRDC/UCS argued that ex post calculation of emission factors would provide a higher level of precision. As a compromise, NRDC/UCS suggested that, to provide greater market certainty for retail providers, a hybrid approach could establish, on an ex ante basis, a range for allowable emission factors for each region. The specific emission factor would then be determined ex post on an annual basis, but would be limited by the adopted range. The Commission agreed with the Joint Staff, as a general policy, that default emission factors should be calculated on an ex ante basis to provide greater market certainty to retail providers.
While UCS/NRDC did not prevail on all of the issues, they did make substantial contributions to D.07-09-017 and our discussion leading to the decision.
3.2. UCS' and NRDC's Contributions to D.08-03-018
D.08-03-018 adopted recommendations to ARB for a mix of direct mandatory and regulatory requirements for the electricity and natural gas sectors and a cap-and-trade system for the electricity sector. D.08-03-018 recommended to ARB that "deliverers" be the point of regulation for GHG emissions in the electricity sector. The decision considered GHG regulatory approaches for the natural gas sector, and the distribution of emissions allowances in a cap-and-trade system. The record for D.08-03-018 was developed through Commission workshops and parties' comments.
NRDC/UCS along with several other parties urged the Commission to move forward with a cap-and-trade program without waiting for a resolution of GHG issues at the regional or federal level, and to create a cap-and-trade program for a 2012 implementation date. D.08-03-018 adopted that position (D.08-03-018 at 26, Finding of Fact 12 at 125, Ordering Paragraph 7 at 134).
On other emission reduction approaches, NRDC/UCS advocated for a dual approach, whereby a cap-and-trade system would be implemented at the same time that the stringency of existing programs such as Renewables Portfolio Standard (RPS), energy efficiency, and the EPS would be increased. NRDC/UCS further argued that both a cap-and-trade system and increased regulatory measures are necessary because regulatory policies in the absence of a cap on absolute emissions would not guarantee that the electric sector will meet the GHG reductions goals of the state for this sector. D.08-03-018 specifically discussed NRDC/UCS' view that the cap-and-trade system need only produce a relatively small portion of the overall emissions reductions in the short term. The Commission recommended that ARB design a cap-and-trade system as a complement to existing policies and their expansions, and incorporated this recommendation into Findings of Fact 6 and 7 (D.08-03-018 at 124).
On the point of GHG regulation in a cap-and-trade system, D.08-03-018 considered NRDC/UCS positions in several areas. While supporting, in general, any of three point of regulation options (retail provider, deliverer, or hybrid), NRDC/UCS emphasized that each has different strengths, and that a retail provider-based cap will produce stronger incentives for retail providers to invest in low-GHG emitting technologies. The Commission discussed but did not adopt this position. (D.08-03-018 at 44, 48, 50-51), D.08-03-018 concludes that the retail provider point of regulation would perform least well in terms of compatibility with a national or regional system. (See D.08-03-018 at 63).
We also considered allowance distribution, the manner in which auction proceeds should be used and the manner in which any free allowances should be allocated. NRDC/UCS and other parties asserted that auctions of the emissions allowances would provide revenues to invest in further carbon reductions or to compensate consumers. NRDC/UCS stated that auction proceeds should be returned to the electricity sector and used in the public interest and to further the goals of AB 32. D.08-03-018 adopted this position. (Finding of Fact 30 at 128; Ordering Paragraph 9 at 135).
NRDC/UCS participated in the discussion on the policy design for the natural gas sector, and addressed the regulatory approach best suited for GHG emissions from large industrial end users. The decision referred to NRDC/UCS' support of lowering the threshold for regulating industrial end users as point sources to 10,000 metric tons of CO2e 8 per year but did not adopt NRDC/UCS' recommendations. (D.08-03-018 at 104 and 111).
NRDC/UCS supported including infrastructure emissions within the natural gas sector for purposes of GHG emissions regulation. (D.08-03-018 at 105). NRDC/UCS supported programmatic measures to address fugitive emissions (direct natural gas emissions through leaks and emergency maintenance operations), and urged that fugitive emissions be considered for inclusion in a cap-and-trade program at a later date if the reported data is accurate enough. NRDC/UCS also supported regulating natural gas vehicles as part of the transportation sector, rather than the natural gas sector. The Commission did not adopt these recommendations.
On attributing emissions from combined heat and power (CHP) facilities to the electricity and natural gas sectors, NRDC/UCS recommended further evaluation once the design of an overall GHG regulatory system has been developed. With respect to another source of GHG emissions, distributed generation facilities where end users combust natural gas for the purpose of meeting on-site electricity needs, NRDC/UCS supported including these emissions within the electricity sector, but stated that this issue may need further investigation once the design of the overall GHG regulatory system has been determined.
NRDC/UCS advocated including the natural gas sector in a multi-sector cap-and-trade system. While the Commission recommended that the natural gas sector not be included in a multi-sector GHG emissions cap-and-trade system at this time, the decision did not reject Green Power Institute's (GPI) and NRDC/UCS' argument that eventual inclusion of all fossil fuels in a multi-sector cap-and-trade system could maximize its benefits. D.08-03-018 concluded that taking a programmatic approach for the natural gas sector now would not preclude its future inclusion in a multi-sector GHG emissions cap-and-trade system. (D.08-03-018, Findings of Fact 33, 40, 43, 44, and 45 at 129-130, and Ordering Paragraph 10 at 135).
We note that the Commission explored many of the above issues but left some of them open for future consideration. We find that NRDC/UCS provided some direct substantial contributions to D.08-03-018, where it adopted NRDC/UCS' position, or contributed through offering alternative views for our consideration leading to the decision.
3.3. UCS' and NRDC's Contributions to D.08-10-037
D.08-10-037 adopted further recommendations to ARB regarding GHG regulations for the electricity and natural gas sectors, including information about the potential reductions and cost estimates associated with different GHG policy scenarios. It also recommended a structure for allowance distributions to the electricity sector under a cap-and-trade system, and provided additional recommendations to ARB on cap-and-trade design and flexible compliance options. The record for D.08-10-037 was largely developed through Commission workshops and parties' comments.
NRDC/UCS participated in the testing of the E3 model and provided the results to the Commission. They also submitted alternative scenarios, in support of their comments, based on the GHG Calculator. NRDC/UCS criticized certain aspects of the model (for example, NRDC/UCS found the model's assumed capital costs for combined cycle gas turbines (CCGT) too low, and had concerns about the low natural gas prices used by E3 in its scenarios). The decision approved the E3 model as a tool to obtain a general sense of the relative costs and emissions impacts of various policies. D.08-10-037 at 12. We find that the intervenors contributed to this finding.
In the emission reduction measures and overall contributions of electricity and natural gas sectors to AB 32 goals, NRDC/UCS argued in favor of mandating that 33% of California's electricity come from renewables as part of our package of recommendations to ARB. D.08-03-018 recommended that at least 33% of the electricity delivered to the State's customers be obtained by renewable resources by the year 2020. (D.08-10-037, Findings of Fact 12, 13, and 14 at 283; Ordering Paragraph 5 at 294). D.08-10-037 specifically relied on NRDC/UCS' recommendations.
NRDC/UCS recommended a number of emissions reduction measures (solar hot water heating, efficiency gains, including time-of-sale energy efficiency requirements, appliance feebates, water-use efficiency, and biomethane as a powerful abatement opportunity in the natural gas sector). The Commission agreed with some of these measures: "We agree with ARB, NRDC/UCS, and others that solar hot water is worthy of inclusion in the Scoping Plan, with potential to go beyond current mandates." (D.08-10-037 at 100). The decision directly referred to NRDC/UCS recommendations of several efficiency initiatives to help increase savings of energy and water: "These additional energy efficiency measures should be considered by both Commissions, and where advisable and within our jurisdictions, directly implemented. Some highly significant measures, such as time-of-sale efficiency upgrades, may need to be addressed by ARB or the Legislature." (D.08-10-037 at 104).
On the mandatory and market-based approaches to emission reductions, NRDC/UCS advocated for a combination of additional mandates and a cap-and-trade program, to achieve incremental reductions within the electricity sector. D.08-10-037 adopted these recommendations. (D.08-10-037 at 111; Finding of Fact 2 at 285.)
On the issue of contributions of electricity and natural gas sectors to AB 32 goals, NRDC/UCS emphasized that allocation of responsibility to the sectors and annual cap recommendations should be important aspects of the Commission's recommendations to ARB. D.08-10-037 adopted this approach (see for example, Findings of Fact 23-26 at 284-285).
NRDC/UCS participated on the issue of the distribution of GHG emission allowances in a cap-and-trade program, including evaluation criteria, principles, and goals. In the criteria, NRDC/UCS included a broad category ("Benefit consumers") that contained four sub-criteria: avoid windfall profits, minimize costs/maximize benefit for consumers, benefit disadvantaged communities, and improve technology investment. The Commission considered minimizing costs to consumers among the criteria of the GHG emission allowances evaluation. The first criterion identified by the Commission focused on the first three of the NRDC/UCS' sub-criteria. (D.08-10-037 at 133-134). NRDC/UCS also supported the "administrative simplicity" criterion advanced by the Staff and approved by the Commission (D.08-10-037 at 135 and 147).
NRDC/UCS provided several recommendations on structuring allowance distributions in the electricity sector. They recommended all or most emissions allowances be auctioned, and argued that auctioning would improve market liquidity. (D.08-10-037 at 180). They argued against giving allowances to deliverers because it would result in windfall profits to independent deliverers, with significant transfers of wealth from consumers to those deliverers. NRDC/UCS opposed historical emissions-based distributions to deliverers, arguing that it would penalize entities that have already invested in low-GHG technologies and fuels, that some generators would receive an unearned windfall of the allocation value, and that clean utilities could pay twice under an emissions-based allocation: once for clean investments and a second time to generate what are more expensive emission reductions to meet the cap or obtain allowances (D.08-10-037 at 183). NRDC/UCS suggested that auction revenue distributions to retail providers in 2012 based partly on emissions and partly on sales adjusted for verified energy savings would provide some accommodation for those carbon-intensive retail providers that need to reduce their emissions the most, but at the same time would reward and not penalize those utilities that took early actions prior to the start of the program in 2012. NRDC/UCS recommended that the distribution approach for retail providers transition to 100% sales-based, adjusted for verified energy efficiency savings, by 2020 or earlier. NRDC/UCS urged the Commission, in determining allocation policies, to focus on the equity impacts for all entities involved. At the same time, NRDC/UCS expressed concerns that distributions to retail providers on an emissions basis would tend to reward the dirtier utilities while penalizing the cleaner utilities, while sales-based distributions would have the opposite effect. (D.08-10-037 at 191). D.08-10-037 did not adopt NRDC/UCS's position and recommended to ARB that emission allowances be made available in a phased approach, with 20% of the emission allowances allocated to the electricity sector to be auctioned beginning in 2012, with 80% distributed administratively for free to electricity deliverers. The recommended goal is to transition by 2016 to 100% auctioning. The decision also recommended that each retail provider should receive all auction revenues from the sales of the allowances that were distributed to it, and that the distribution of allowances to individual retail providers for subsequent auctioning should transition over time from being based initially on historical emissions in the retail provider's portfolio to being allocated based on sales by 2020. (D.08-10-037 at 15-16).
NRDC/UCS also advocated allocating allowances to retail providers on a sales basis that includes verified energy efficiency savings. NRDC/UCS contended that any sales-based allocation of allowances to retail providers that does not include energy efficiency would deter energy efficiency savings. (D.08-10-037 at 217). The Commission expressed its intent to consider these issues at a later date. (D.08-10-037 at 218).
NRDC/UCS supported the use of auction revenues to fund energy efficiency and renewable development programs, as well as to maintain affordable electricity rates. The Commission agreed:
All auction revenues should be used for purposes related to AB 32, and all revenue from the auction of allowances allocated to the electricity sector should be used for the benefit of the electricity sector, including the support of investments in renewables, energy efficiency, new energy technology, infrastructure, customer bill relief, and other similar programs. (D.08-10-037 at 16).
NRDC/UCS recommended further that such investments be subject to oversight and verification that the investments meet appropriate criteria, with forfeiture of the revenues to the State if a retail provider does not use the revenues in appropriate ways and within a specified time limit. While the decision did not support the "use it or lose it" approach advocated by the NRDC/UCS, it recommended that ARB, in consultation with the Commission and the CEC, specify that free distribution of allowances to each retail provider would be conditioned on a demonstration of adequate progress in complying with energy efficiency and renewable energy procurement targets established for the retail provider. (D.08-10-037 at 228).
On the cap-and-trade market design and flexible compliance, NRDC/UCS warned against the excessive use of flexible compliance options. The Commission agreed that the need for flexible compliance options is tied directly to the size of the market, the emissions targets, and the trajectory of required reductions towards those targets. The Commission favored equal annual reductions in the multi-sector emissions cap between 2012 and 2020. (D.08-10-037 at 257). NRDC/UCS further participated in the discussion on linking the California cap-and-trade system with other cap-and-trade markets. NRDC/UCS pointed out that use of allowances from other systems could transfer economic activity and co-benefits outside of the State. NRDC/UCS supported linking only with cap-and-trade systems that have equally stringent rules. The Commission agreed with these recommendations with respect to the bilateral linkage (D.08-10-037, Finding of Fact 62 at 292).
On the issue of allowance borrowing, NRDC/UCS, along with other parties, argued that borrowing should not be allowed, and if allowed, should be limited. The Commission agreed with the opposition to the borrowing option. (D.08-10-037 at 265).
On the issue of the use of a price trigger or safety valve in the cap-and-trade program, NRDC/UCS, along with other parties, argued that these measures would threaten the effectiveness of the program. NRDC/UCS explained that such mechanisms would have the potential to break the emissions cap, undermining the purpose of the State's emissions reduction law. They submitted that a safety value is unnecessary because the Governor already can suspend any part of the program under the authority of AB 32 in the event of extraordinary circumstances. The Commission agreed with these arguments:
We are convinced that price triggers and safety valves could very likely distort or defeat the cap-and-trade market by creating uncertainty that investments in emissions reduction technologies would achieve returns commensurate with the level of reductions needed to meet the State's emissions reduction goals. ...We therefore recommend that ARB, in developing a cap-and-trade system, avoid creating any price triggers, ceilings, floors, or safety valves. (D.08-10-037 at 266-267).
On the issue of unlimited banking, many parties supported a market feature that would allow parties to bank allowances and offsets for use in future compliance periods. NRDC/UCS, however, argued for restrictions in order to discourage allowance "hoarding" and market manipulation. NRDC/UCS, along with GPI and Sacramento Municipal Utility District, suggested that the number of allowances an entity is allowed to bank should be limited. They suggested limitations on the length of time that entities would be allowed to hold banked allowances. The Commission recognized and addressed these concerns:
We agree with those parties that suggest that allowance and offset banking likely would lead to greater market liquidity and compliance flexibility. ...However, we recognize the concerns about "hoarding" and market manipulation, and strongly encourage ARB to ensure that there are adequate safeguards to reduce these risks. With such safeguards, we suggest that ARB allow unlimited banking of allowances and offsets by all market participants. (D.08-10-037 at 271).
On the issue of high-quality offsets, NRDC/UCS argued that an offset program should be approached "with an abundance of caution." NRDC/UCS asserted that offsets would reduce incentives for investments in emissions reductions in sectors within the cap, and that ensuring that offsets actually achieve the reductions that they claim would be difficult and expensive. They also suggested that emissions in sectors outside the cap can be directly regulated or covered by another program. The Commission acknowledged these and other concerns, but encouraged ARB to allow covered entities to use offsets at levels that are appropriate given other program design parameters. (D.08-10-037 at 274). In support of geographic limits, NRDC/UCS argued that only offset projects within California would provide co-benefits to the State and would ensure that California's high standards for quality are met. Regarding different perspectives on whether California should accept offsets from the Clean Development Mechanism, NRDC/UCS along with GPI asserted that the Clean Development Mechanism fails to guarantee that its offset projects provide real, truly additional, verifiable, permanent, and enforceable GHG reductions. The Commission acknowledged these concerns, but concluded that geographic limits are not consistent with the underlying goals of the offset program to contain costs and encourage reductions beyond those that are covered by an emissions cap. (D.08-10-037 at 276).
Among the legal issues related to the market design and flexible compliance, some parties took the position that an offset can only be accepted if it complies with the provisions of California Health and Safety Code Sections 38562(b) and 38570(b). NRDC/UCS recognized that the factors set out in these two sections apply to ARB's regulations, and not to individual projects, but expressed concern that "[i]t is not certain that offsets will achieve the...co-benefits for Californians as required by AB 32." (NRDC/UCS June 2, 2008, Comments at 25). Responding to these concerns, the decision explains that AB 32 required ARB to do certain things "to the extent feasible" and to balance a number of potentially conflicting goals, including minimizing costs (Section 38562(b)(1)). The Commission pointed out that using offsets is one way to minimize costs. The Commission concluded that NRDC/UCS had not shown9 that their concerns would apply to the offset program as a whole. (See discussion in D.08-10-037 at 281-282).
We conclude that although NRDC/UCS' position did not always prevail, they made substantial contributions to D.08-10-037 in several major areas.
5 D.98-04-059, 79 CPUC 2d 628 at 653.
6 Staff from the two agencies: the Commission and the CEC.
7 For purposes of reporting GHG emissions, the Joint Staff explained that the sources of power used to meet retail load fall into two categories: power that can be tracked to a specific facility (specified sources) and power that can only be tracked to a mix of power plants at one of various geographic levels (unspecified sources). D.07-09-017 at 12.
8 CO2e means "carbon dioxide equivalent."
9 NRDC/UCS argued that Section 38562(b)(8) means that the regulations should "prevent leakage of co-benefits outside of the state." (NRDC/UCS June 2, 2008, Comments at 28.) However, Section 38562(b)(8) refers to minimizing "leakage" and Section 38505(j) defines "leakage" as a "reduction in emissions of greenhouse gases within the state that is offset by an increase in emissions of greenhouse gases outside the state." The concern of NRDC/UCS, however, is not with an increase in GHGs outside of California, but rather with a reduction in GHGs outside California. (See NRDC/UCS June 2, 2008, Comments at 28).
