Leakage

NRDC/UCS argue that a pure source-based point of regulation likely would fail AB 32 requirements to minimize leakage. Several other parties express similar concern about leakage under a pure source-based program. WPTF states that a system that solely covers in-state generation would impose a cost differential between in-state and imported power and contribute to leakage, at least in the short term. SCE and Calpine express similar views. SMUD asserts that a source-based system has to be West-wide or national, and that an in-state-only system would drive generation out-of-state.

Other parties are less concerned about leakage under a pure source-based system. These parties cite four principal factors that, in their view, would limit leakage. First, DRA submits that the existing surplus transmission capacity for importing additional power is limited. Second, several parties, including PG&E, PacifiCorp, SDG&E/SoCalGas, SCE, IEP, and Constellation, view the implementation of the Emissions Performance Standard as an important factor limiting leakage. Third, some parties argue that the current Western Electricity Coordinating Council generation mix and capacity factors of coal-fired resources limit the potential for leakage. PG&E and PacifiCorp state that marginal generators are often gas combined cycle units, so that leakage would merely cause in-state combined cycle usage to be shifted to out-of-state combined cycle. Parties argue that out-of-state coal plants have such low running costs that they will run at high capacity factors regardless of programs California imposes. Fourth, Constellation, PacifiCorp, PG&E, and WPTF consider the likelihood of a regional or national GHG emission reduction program as largely mitigating the threat of a long-term shift of production to regions outside the state.