Contract Shuffling and Leakage

Several parties that comment on the risks of contract shuffling and leakage submit that any system that includes imports in the cap faces the same contract shuffling and leakage concerns for the imports. For example, Morgan Stanley states that each approach for dealing with imports "is only an administrative approximation and is vulnerable to leakage and contract shuffling. The challenges for dealing with imports are essentially the same for each ... and the flaws for each approach are roughly equal."

Several parties assert that a deliverer system would reduce contract shuffling for in-state resources. WPTF submits that, under a retail provider-based system that uses contracts and settlement data to assign emissions to retail providers, there would be on-going potential for contract shuffling but that contract shuffling would be reduced under a deliverer approach since the portion of load for which it would be necessary to assign emissions, i.e., some imports, would be smaller than under a retail provider-based system.

EPUC/CAC cite the Market Advisory Committee report as observing that linkage with other regional GHG programs is required to eliminate the leakage problem. EPUC/CAC state that contract shuffling issues result similarly where regulation does not address all potential sources of emissions. While they see the adopted Emissions Performance Standard as a good step toward reducing leakage and contract shuffling for long-term import contracts, they argue that inclusion of imports in California's GHG regulatory scheme is important to mitigate the potential for short-term leakage and shuffling.