Incorporation of Price of Carbon into Energy Market Prices

Several parties, including SCE, PG&E and Powerex, assert that, because electricity deliverers would be responsible for obtaining allowances, the deliverer approach would incorporate GHG compliance costs within electricity costs, thereby providing the correct price signal to the market to place generation in the appropriate dispatch order. SDG&E/SoCalGas describe that some deliverers may not have adequate information to include carbon costs into their offers in the day ahead or real-time auctions, specifically sellers making intraday trades. SDG&E/SoCalGas submit however that, if that information became valuable, it is likely that the needed information would become available.

PG&E argues that this approach would provide stronger price signals for development of low-emitting or zero-emitting renewable energy supplies. It contends, in particular, that the profitability and competitiveness of renewable energy producers bidding into wholesale power markets would be increased under this approach, compared to a retail provider-based approach which would not directly internalize the cost of GHG emissions.

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."

TURN is concerned that adoption of a source-based or deliverer-based regulatory framework could increase the cost of electricity for California ratepayers.