3. Amended Scope of Phase 2
3.1. Breadth of Natural Gas Inquiry in Phase 2
It is appropriate to expand the issues to be considered in Phase 2 related to GHG emissions in the natural gas sector. Because CARB must determine statewide GHG emissions limits, consistent with AB 32, we believe it would be helpful for the Commission, in collaboration with the CEC, to provide recommendations to CARB regarding appropriate GHG emission policies for a broader portion of the natural gas sector than specified in the OIR.
The natural gas sector in California includes production, gathering, processing, transmission, storage, and distribution of natural gas, in addition to the end use of natural gas by residential, commercial, and industrial (including electricity generation) customers. GHG emissions from customer use of natural gas for electricity generation will be considered in the load-based GHG emissions cap for the electricity sector, as specified in the Phase 2 Scoping Memo.4
In the natural gas inquiry in Phase 2, we will consider GHG emissions from customer use of natural gas for non-electricity generation purposes, as contemplated in D.06-02-032, the OIR, and the Phase 2 Scoping Memo. In order to provide CARB with recommendations regarding treatment of GHG emissions from a broader portion of the natural gas sector, we expand the natural gas inquiry in Phase 2 to also consider GHG emissions due to the transmission, storage, and distribution of natural gas delivered to all end-use customers in California, including natural gas delivered for use in electricity generation.
California's electricity sector operates physically and financially as a single, integrated market that includes electrical corporations, other LSEs, and POUs. Because of this, the Phase 2 Scoping Memo specified that Phase 2 will provide CARB with recommended guidelines for the electricity sector that could be applied both to LSEs and to POUs.
Most end users in California are served similarly via a single, integrated natural gas market, which includes investor-owned utilities (IOUs), POUs, and interstate pipeline companies selling directly to end-use customers. However, some consumers receive natural gas through other means, for example, proprietary natural gas pipeline operations or their own facilities and natural gas supplies. Phase 2 will develop guidelines and recommendations, to the extent practicable, regarding GHG emissions in the natural gas sector that CARB could apply both to natural gas IOUs, which we regulate, and to natural gas entities that we do not regulate.
In summary, the natural gas inquiry in Phase 2 will address GHG 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.
We encourage the electricity and natural gas POUs, interstate pipeline companies, other natural gas entities that we do not regulate, and/or their representatives to participate in Phase 2, to help identify potential impacts to them of policies under consideration and to ensure that the guidelines we develop for CARB's consideration address their specific concerns. The breadth of the Commission's consideration in this rulemaking of GHG emission policies for the electricity and natural gas sectors, and our encouragement that electricity and natural gas POUs and other natural gas entities that we do not regulate participate in this proceeding, does not indicate any assertion of regulatory authority (real or implied) over them. Any requirements that the Commission may adopt would not apply to the entities that we do not regulate, although CARB has been granted authority under AB 32 to impose similar requirements on these entities.
3.2. Issues to be Considered in Natural Gas Inquiry in Phase 2
We expect that there are many issues in common and that the electricity and natural gas inquiries in Phase 2 may be similar in many respects. In D.06-02-032, the Commission focused on developing policies regarding a load-based GHG emission cap for the electricity sector. While concluding that a comprehensive procurement incentive framework should address GHG emissions associated with customer use of natural gas,5 we did not determine the manner in which limits should be set on GHG emissions from the natural gas sector, other than natural gas used for electricity generation. In Phase 2 of this rulemaking, we will determine if the policies established in D.06-02-032 are appropriate for the natural gas sector. Our initial recommendations to CARB regarding GHG emissions policies for the natural gas sector may be less comprehensive and detailed than our recommendations regarding the electricity sector. However, we anticipate coordinated recommendations to CARB regarding GHG emissions policies for the electricity and natural gas sectors.
The Phase 2 Scoping Memo identified six issues related to development of guidelines for a load-based GHG emissions cap for the electricity sector:
(1) reporting requirements;
(2) development of 1990 electricity sector baseline and current entity-specific GHG emissions levels;
(3) GHG emissions reduction measures and annual emissions caps;
(4) flexible compliance mechanisms;
(5) entity-specific allowance allocation; and
(6) modeling to support policy design and evaluation of costs.
Many, if not all, of these issues will also need to be addressed when considering GHG emissions policies for the natural gas sector.
There are areas of potential overlap between the electricity and natural gas sectors. In particular, the treatment of distributed generation and combined heat and power facilities requires close examination and coordination as we consider GHG emission policies for the electricity and natural gas sectors.
As specified in the Phase 2 Scoping Memo, Phase 2 will address whether the electricity load-based GHG emissions cap should apply to the additional respondents added by D.06-10-020, as described above.
With today's expansion of the scope of the rulemaking, Phase 2 will address whether GHG emissions cap(s) should be applied in the natural gas sector, in the context of the statewide GHG emissions limits required by AB 32, and, if so, the form of such caps. Among other issues, Phase 2 will consider the appropriate form of GHG emissions caps for the natural gas sector if adopted, e.g., load-based or source-based.
As noted in the Phase 2 Scoping Memo, while a primary outcome of Phase 2 will be the submission of guidelines for CARB's consideration, the Commission may also adopt regulations to address GHG emissions of entities subject to our regulation.
The assigned Commissioner will issue an additional scoping memo in Phase 2 specifying the issues to be considered regarding the natural gas sector after a prehearing conference, and may further refine this scope in that ruling.
4 The load-based GHG emissions cap being developed in Phase 2 for the electricity sector would apply at this time only to emissions occurring during the production, transmission, and distribution of electricity. It would not encompass GHG emissions associated with production or transportation of fuels used in electricity generation, construction of electricity generation facilities, or other activities not directly involved in the production, transmission, and distribution of electricity. Consistent with the Phase 2 Scoping Memo, the Commission may consider analysis of lifecycle GHG emissions during a later proceeding.
5 D.06-02-032, Ordering Paragraph 5.
