COM/MP1/rbg Date of Issuance 9/7/2007
Decision 07-09-017 September 6, 2007
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Implement the Commission's Procurement Incentive Framework and to Examine the Integration of Greenhouse Gas Emissions Standards into Procurement Policies. |
Rulemaking 06-04-009 (Filed April 13, 2006) |
INTERIM OPINION ON REPORTING AND VERIFICATION
OF GREENHOUSE GAS EMISSIONS IN THE ELECTRICITY SECTOR
INTERIM OPINION ON REPORTING AND VERIFICATION OF GREENHOUSE GAS EMISSIONS
IN THE ELECTRICITY SECTOR 1
I. Summary 2
II. Background 7
III. Overview of Tracking of GHG Emissions in the Electricity Sector under a Load-based Regulatory System 8
IV. Definitions, Criteria for Establishing GHG Reporting and Verification Protocols,
and Covered Entities 10
V. Attributing GHG Emissions to Various Sources of Electricity 12
A. AB 32 Requires Accurate Reporting and Real Emissions Reductions that Are
Enforceable by ARB 13
1. Staff's Proposal to Ensure Real GHG Emission Reductions 14
2. Positions of the Parties 15
3. Discussion 17
B. Specified Sources 30
1. Emission Factors for Owned or Partially-owned Specified Sources 30
2. Emission Factors for Purchases from Specified Sources 32
C. Unspecified Sources 37
1. Default Emission Factors 37
2. 43
3. When to Calculate Default Emission Factors 43
4. Updating Default Emission Factors 44
D. Retail Providers' Wholesale Sales 45
E. Reporting Requirements for Marketers 50
VI. Recommended Reporting Protocol 51
A. What Will Be Reported 51
B. Submission Process 53
1. State Agency Responsibilities for Receiving and Maintaining Data 53
2. Frequency of Reporting 53
3. Verification 53
4. Reporting Template 54
C. Reducing Reporting Burden 55
D. Review of Adopted Protocols 55
E. Reporting and Tracking under Deliverer/First-Seller Regulation 55
F. Confidentiality 56
VII. The Need for Regional Reporting and Tracking 57
VIII. Comments on Proposed Decision 59
IX. Assignment of Proceeding 59
FINDINGS OF FACT 60
CONCLUSIONS OF LAW 61
INTERIM ORDER 62
Attachment A |
Proposed Electricity Sector Greenhouse Gas Reporting and Tracking Protocol |
INTERIM OPINION ON REPORTING AND VERIFICATION
OF GREENHOUSE GAS EMISSIONS IN THE ELECTRICITY SECTOR
I. Summary
The California Public Utilities Commission (Public Utilities Commission) and the California Energy Commission (Energy Commission) recommend that the California Air Resources Board (ARB) adopt the proposed regulations contained in Attachment A to this order, as reporting and verification requirements applicable to retail providers and marketers in the electricity sector. These requirements would be adopted as part of ARB's implementation of Assembly Bill (AB) 32, which requires that statewide greenhouse gas (GHG) emissions be reduced to 1990 levels by 2020, and that ARB adopt regulations by January 1, 2008 regarding the reporting and verification of statewide GHG emissions.1
The proposed electricity sector reporting and verification protocol (Protocol) in Attachment A that we recommend to ARB would apply to all retail electricity providers in California, including investor-owned utilities (IOUs), multi-jurisdictional utilities, electric cooperatives, publicly-owned utilities (POUs), energy service providers (ESPs), and community choice aggregators (CCAs). The California Department of Water Resources (DWR) and other state agencies would be required to report the power that they generate or procure from entities other than a retail provider to serve their own loads. Because the Western Area Power Administration (WAPA) sells a small amount of power to end users in California, it would be requested to report as a retail provider under the recommended Protocol. Separate reporting requirements in Attachment A would apply to marketers that import power into or export power from California. The annual reports submitted in compliance with the recommended reporting Protocol would complement the electricity source-based reporting requirements that are being developed separately by ARB.
The Public Utilities Commission and the Energy Commission have developed the recommended reporting Protocol to collect the information that would be needed to track and verify GHG emissions attributed to the electricity sector under a load-based GHG regulatory approach. In addition, the Protocol provides for the collection of information from marketers that would be needed if a GHG regulatory approach that focuses on entities that deliver power to the California transmission grid (sometimes called a "deliverer" or "first-seller" approach) is adopted instead of a load-based approach. We take no position at this time on whether a load-based, first-seller, or some other approach should ultimately provide the framework for the electricity sector regulatory approach under AB 32.
The recommendations proposed in today's decision build upon the reporting protocols of the California Climate Action Registry (CCAR), as required by AB 32 (Section 3850(3)). Voluntary reporting to CCAR already encompasses most of the California electricity sector's GHG emissions. Our recommended reporting protocol is best regarded as an interim measure that refines and standardizes the CCAR conventions and applies them uniformly to all California retail providers. Implementing mandatory reporting for the entire industry is an important first step toward creating a comprehensive GHG regulatory framework. We anticipate that further refinements will be made once that framework is developed.
AB 32 requires that regulations adopted by ARB ensure that identified GHG emission reductions are "real, permanent, quantifiable, verifiable, and enforceable" by ARB. (Section 38562(d)(1).) To that end, Attachment A contains certain recommendations regarding the manner in which GHG emissions associated with owned power plants, purchases from specified sources, and wholesale sales are attributed to retail providers.
A particularly contentious issue in this proceeding has been whether and how to address transactions classified as "contract shuffling" in the context of the reporting and verification protocol. Contract shuffling refers to a situation in which a retail provider modifies its power contracts to make it appear that emissions have been reduced whereas in fact, emissions are unchanged. Opportunities and incentives to enter such transactions are a natural consequence of the state's limited jurisdiction within an electricity market that encompasses almost the entire western United States (as well as parts of Canada and Mexico). California is particularly vulnerable to contract shuffling because on average about half of the emissions associated with our electricity consumption are from imported power. Establishing a cap on GHG emissions that includes other western states, as envisioned by the Western Regional Climate Initiative, would diminish these incentives and opportunities. A cap spanning the entire Western Electricity Coordinating Council (WECC) region would eliminate them almost entirely.
We intend to consider the issue of contract shuffling in depth in the next phase of the proceeding, which will focus on developing recommendations on the regulatory approach for the electric sector. We will be better situated to develop policies related to this issue once the question of the overall regulatory approach has been resolved, and when the Western Regional Climate Initiative has progressed further. However, the issue of contract shuffling is not entirely distinct from the reporting and verification policies that are the focus of this decision. AB 32 requires that emissions reductions that are counted toward the state's GHG reduction goals be "real." By definition, contract shuffling does not yield real emissions reductions. The reporting and verification protocol should therefore not recognize apparent emissions reductions resulting from such transactions. The complexity of energy markets makes it difficult to discern all instances of contract shuffling or to determine the motivation for a particular transaction. Therefore in this decision we focus exclusively on a class of transactions that are most likely to yield GHG reductions that are not real. These transactions involve sales of energy from high-emitting generating units that are offset by purchases from nuclear and hydroelectric plants. As explained in Section V.A such transactions would only result in real emissions reductions in extremely unusual circumstances. To accommodate such exceptional cases, the reporting and verification protocol allows for review of the emissions factors applied to individual transactions.
We take this limited action to address contract shuffling in today's decision for two reasons. First we wish to send a clear signal that we intend for California's system of GHG regulations to provide real emissions reductions. Ensuring the environmental integrity of our regulations is critical in order to position California to be able to trade with other states, regions and nations. Second, we wish to convey to retail providers that contract shuffling is not a viable strategy to meet their (yet to be determined) GHG emissions reduction targets under AB 32. Moreover, by creating a deterrent to the most conspicuous form of contract shuffling at this time, we also seek to avoid a situation in which retail providers have amassed significant paper reductions by the time that we consider this issue in greater depth in the context of developing the compliance regime.
We recommend that, when the source of a power purchase is not identified, ARB use a regional default emission factor of 1,100 pounds of carbon dioxide equivalent emissions per megawatt-hour (lbs CO2e/MWh). This value would be used for purchases from both in-state and out-of-state unspecified sources, and should be in effect until a regional tracking system for GHG emissions from electricity is implemented.
The recommendations we adopt today apply to the reporting and verificaton of GHG emissions for 2005 through 2008. In addition to modifications to the default emission factors once a regional electricity tracking system is implemented, modifications to other aspects of the reporting protocol may be warranted for future years once the type of GHG regulation for the electricity sector is determined. We recommend additionally that a comprehensive review of GHG reporting requirements for the electricity sector be undertaken in 2010, so that updated reporting requirements can be in place prior to the commencement of the GHG regulatory scheme in 2012.
We strongly support the call made by several parties in this proceeding for a multi-state regional GHG reporting and tracking system. A regional solution to reporting and tracking would greatly increase the accuracy of GHG reporting in California and could decrease the reliance on default emission factors. We urge ARB to lead California's participation in a regional effort to develop and implement such a system promptly, as is the intent of the Governors' Western Climate Initiative. The Public Utilities Commission and the Energy Commission are prepared to assist in this effort.
1 Section 38530(a). Unless indicated otherwise, citations to Sections refer to California Health and Safety Code sections added by AB 32.
