Contract Shuffling

The CAISO Market Surveillance Committee expresses concern that the ability to regulate the GHG content of imported electricity may be grossly overstated because of contract shuffling concerns. It submits that there is enough "clean" generation available in the West-wide market, "such that there is likely to be more than enough clean generation that can be assigned, on paper, to California imports, without actually changing system operations, or investment, in the West." Several parties argue that there is no way to entirely combat contract shuffling, except through a national or at least region-wide source-based system.

PG&E, SCE, and WPTF express the view that, while the potential magnitude of contract shuffling for imported electricity is likely to be similar for all points of regulation, it may be of greater concern under a retail provider point of regulation since in-state sources could be shuffled as well. PG&E contends that there would be the possibility of "greenwashing through exports," in which a high-GHG in-state generator could export power from California and import cleaner power to sell to a California retail provider.

NRDC/UCS contend that contract shuffling concerns would be approximately the same under a retail provider-based, first seller or hybrid system. They contend, however, that contract shuffling would become less of a concern over time because of the Western Climate Initiative or, potentially, a federal system and, moreover, that new infrastructure investments will require long-term financial commitments that would lend themselves to easier emissions tracking and therefore be less prone to contract shuffling.

Some parties, including SCPPA, CMUA, and SMUD, believe that the threat of contract shuffling does not warrant much concern. CMUA states that, "...there is little threat of actual contract shuffling within a California-only retail provider-based program. Robust verification procedures will serve as an adequate deterrent to virtually eliminate actual contract shuffling by retail providers." SMUD contends that other Western states' RPS requirements limit the potential for contract shuffling.

3.3.1.2. In-State Generators as the Point of Regulation, Imports not in Cap-and-Trade

PacifiCorp is the only party to support an in-state generator-only point of regulation. DRA supports the CO2RC method described by WRA, but DRA suggests a source-based point of regulation as a second choice, stating that it would be simpler and easier to track, and would minimize legal risk.

Morgan Stanley states that, "a source-based approach for in-state resources is necessary to ensure that dispatch decisions reflect the price signal for GHG emissions. This in turn, will provide market participants with incentives to alter behavior." However, it concludes that the deliverer approach would be superior to other alternatives for dealing with imports.