6. Assignment of Proceeding
President Michael R. Peevey is the assigned Commissioner in this proceeding, and Charlotte F. TerKeurst and Jonathan Lakritz are the assigned Administrative Law Judges in Phase 2 of this proceeding.
1. The state Energy Action Plan lays out a "loading order" for investment in electricity resources in California that puts energy efficiency as the top priority, with renewable resources second, and clean fossil-fired generation to the extent other options are not available.
2. Energy efficiency building codes and appliance efficiency standards promulgated by the Energy Commission provide a base for energy and GHG emissions reductions.
3. Consistent with AB 2021, the Energy Commission has recommended statewide energy efficiency goals at the level of all cost-effective investment in energy efficiency, to be met through a combination of utility and non-utility programs, including building codes and appliance standards.
4. The Public Utilities Commission sets requirements and energy savings goals for energy efficiency programs for the IOUs, and has set up a risk/reward mechanism for the IOUs that allows them to earn financial incentives as they approach meeting the adopted energy savings goals and assesses penalties if they fail to meet at least 65% of their goals. In addition, during 2008 the Public Utilities Commission will adopt IOU energy efficiency goals for the years 2014 to 2020.
5. It is reasonable for the State of California to apply minimum requirements in the areas of cost-effective energy efficiency and renewables to all retail providers of electricity.
6. It is reasonable that existing California policies regarding energy efficiency building codes and appliance efficiency standards, retail provider energy efficiency programs, the renewables portfolio standard program, solar photovoltaic and solar water heating programs, and the emissions performance standard be maintained and strengthened as recommended in this decision.
7. For the electricity sector, a cap-and-trade system, in conjunction with the continuation and strengthening of existing policies regarding energy efficiency building codes and appliance efficiency standards, retail provider energy efficiency programs, the renewables portfolio standard program, solar photovoltaic, and the emissions performance standard as recommended in this decision, is likely to be a less expensive means of complying with AB 32 GHG emission reduction requirements than sole reliance on existing and increased mandatory programmatic requirements.
8. For the electricity sector, GHG emissions trading would maximize flexibility in achieving emissions targets by allowing obligated entities to rely on least-cost options across the entire economy.
9. For the electricity sector, a GHG emissions cap-and-trade program would encourage investment in research and innovation in technologies that lower GHG emissions.
10. For the electricity sector, a GHG emissions cap-and-trade program would allow market participants to manage risk associated with compliance obligations.
11. For the electricity sector, a GHG emissions cap-and-trade program would internalize GHG externalities and should distribute the cost of GHG reductions most efficiently across all capped entities.
12. Implementing a GHG emissions cap-and-trade system in 2012 for the electricity sector would allow entities to gain experience with finding real least-cost GHG emission reduction opportunities.
13. It is reasonable for ARB to proceed to design a multi-sector GHG emissions cap-and-trade system for California that includes the electricity sector, for implementation in 2012, as described in this decision provided that ARB finds that the tests outlined in Part 4 and Part 5 of AB 32 are met.
14. For the electricity sector, placing the compliance obligation in a GHG emissions cap-and-trade system on the entities that deliver power to the electricity grid in California, which we call "deliverers," is reasonable because this point of regulation best meets, on balance, the most important criteria, as described in this decision.
15. The "deliverer" is the entity that owns electricity as it is delivered to the grid in California.
16. For electricity whose deliverer would otherwise be a federal entity not subject to California regulation, it is reasonable for the deliverer for AB 32 compliance purposes to be the first non-federal entity that owns the electricity thereafter on the physical path in California.
17. By choosing a deliverer point of regulation we are simply choosing a trigger that determines which entities have to comply, but what is being regulated is the amount of GHGs being produced in California or to supply electricity to customers located in California.
18. The deliverer point of regulation does not single out wholesale sales of electricity, but rather applies uniformly to electricity consumed in California and electricity generated in California.
19. An entity with compliance obligations under a deliverer form of regulation, if it does not already possess enough allowances, would have an opportunity after delivery of the energy to acquire allowances on the market or to show compliance using flexible compliance mechanisms such as offsets (to the extent they are allowed).
20. The GHG regulatory program we are proposing would not prevent even high-GHG sources from providing reliability services when needed.
21. A deliverer point of regulation would treat all electricity delivered to the California grid the same, whether that electricity is generated in California or elsewhere. In either case, the deliverer would later have to surrender GHG allowances (or secure adequate offsets to the extent they are allowed) based on the amount of GHG emissions associated with that electricity.
22. "Global warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. The potential adverse impacts of global warming include the exacerbation of air quality problems, a reduction in the quality and supply of water to the state from the Sierra snowpack, a rise in sea levels resulting in the displacement of thousands of coastal businesses and residences, damage to marine ecosystems and the natural environment, and an increase in the incidences of infectious diseases, asthma, and other human health-related problems." (Health & Safety Code § 38501(a).)
23. "Global warming will have detrimental effects on some of California's largest industries, including agriculture, wine, tourism, skiing, recreational and commercial fishing, and forestry. It will also increase the strain on electricity supplies necessary to meet the demand for summer air-conditioning in the hottest parts of the state." (Health & Safety Code § 38501(b).)
24. The local benefits to California of reducing GHG emissions are further elaborated in the Final Climate Action Team Report to the Governor and the Legislature (presented to the Legislature in March 2006) and other sources.
25. Additional local benefits of the GHG program we are recommending include its encouragement of a wide range of clean energy sources, which protects the reliability of the grid, and the avoidance of unnecessary costs and inefficiencies that would result if California were to wait until the federal government begins regulating GHG emissions.
26. Any burdens on interstate commerce that may result from the implementation of AB 32 under the regulations that we recommend to ARB (including a deliverer point of regulation) would be purely incidental, while the local benefits to California of reducing GHG emissions, and therefore the impact of global warming, would be most significant.
27. The proposed GHG regulations are intended to change the way that electricity is generated and consumed and are expected to increase the use of (i) renewable resources to generate electricity, (ii) low-emitting sources of generation, and (iii) more efficient methods of using electricity. To the extent such actions are unable to sufficiently reduce GHG emissions associated with the use of electricity, these regulations are expected to result in investments outside of the electricity sector that will cost-effectively reduce GHG emissions from other activities.
28. The emissions associated with multi-jurisdictional utilities' deliveries of electricity to the California grid should be regulated using a deliverer point of regulation. Nevertheless, the methodology for tracking and accounting for the GHG attributes of the electricity these utilities deliver to California may not be identical to that of other entities not similarly situated.
29. The auctioning of some portion of the emission allowances available to the electricity sector would promote least-cost GHG emission reductions throughout the California economy, promote liquidity in the emission allowance market, improve incentives for investing in energy efficiency and low-GHG technologies and fuels, improve the accuracy of emission allowance prices as a reflection of marginal emission reduction costs, and allow new market entrants access to allowances on an equal basis with other parties.
30. It is reasonable to require that some portion of the GHG emissions allowances for the electricity sector be auctioned in a GHG emissions cap-and-trade system in which deliverers are the point of regulation for the electricity sector. As part of this approach, the majority of proceeds from the auctioning of allowances for the electricity sector would be used in ways that benefit electricity consumers in California.
31. The record in R.06-04-009 is not sufficient, at this time, to determine a reasonable mixture of auctioning and the administrative allocation of GHG emissions allowances for the electricity sector, nor the extent to which there should be a transition from a small amount of auctioning to a greater reliance on auctions.
32. The record in R.06-04-009 is not sufficient, at this time, to determine a reasonable approach for the administrative allocations of GHG emissions allowances, if such distributions are undertaken.
33. It is reasonable for the State of California to apply the same minimum requirements in the areas of energy efficiency and energy conservation to all entities that provide retail sales, transportation, and/or distribution of natural gas to end-users in California.
34. Key differences between the electricity and natural gas sectors make it reasonable to recommend that ARB proceed to design a multi-sector GHG emissions cap-and-trade system for California but not include the natural gas sector at this time.
35. Entities in the natural gas sector have fewer options to reduce GHG emissions than entities in the electricity sector.
36. There are limited commercially available lower carbon alternative sources of natural gas.
37. The only options in effect for reducing GHG emissions in the natural gas sector are energy efficiency programs.
38. The Legislature has recently approved financial incentives for residential and commercial customers to install solar water heating equipment which will reduce GHG emissions when implemented.
39. It is reasonable for the State of California to apply minimum requirements in the areas of energy efficiency or other demand reduction programs to all entities that provide transportation, distribution, and/or retail sales of natural gas to end-users, including IOUs, POUs, and interstate pipelines.
40. The incremental benefits from including the natural gas sector in a multi-sector GHG emissions cap-and-trade system are likely to be less than those from including the electricity sector.
41. Reporting protocols for GHG emission arising from the storage, transportation and distribution of natural gas to end-users are under development and do not yet include provisions for reporting end-user combustion related GHG emissions.
42. Implementing a multi-sector GHG emissions cap-and-trade system that includes small end-users of natural gas now may expose those customers to greater price risk than small end-users in the electricity sector.
43. Including all fuels in a multi-sector cap-and-trade system could maximize the benefits of a market-based system.
44. Taking a programmatic approach to the natural gas sector now does not preclude future inclusion of the natural gas sector in a multi-sector GHG emissions cap-and-trade system.
45. It is reasonable for ARB to not include the natural gas sector when designing a multi-sector GHG emissions cap-and-trade system for California, for implementation in 2012, as described in this decision.
1. AB 2021 requires the Energy Commission, in consultation with POUs and the Public Utilities Commission, to set statewide energy efficiency goals. The statute requires POUs to establish 10-year energy efficiency goals on a triennial basis.
2. SB 1078 as amended by SB 107 requires that IOUs, CCAs, and ESPs obtain at least 20% of delivered electricity from renewable sources by 2010.
3. SB 1078 as amended by SB 107 requires POUs to set RPS targets, but does not specify minimum delivery requirements or the types of renewables that should qualify.
4. SB 1 requires the development of a solar photovoltaic program for California, including both the IOUs and the POUs.
5. SB 1368 directed the Public Utilities Commission and the Energy Commission to develop an emissions performance standard for non-renewable, generally fossil-fueled generation resources, for all retail providers of electricity.
6. The Federal Power Act (FPA) does not address GHG emissions, nor is there any suggestion in the FPA or in its administration that Congress intended to forbid states from enacting GHG regulations on their own.
7. 16 U.S.C. § 824(a) states: "Federal regulation . . . [under the FPA extends] only to those matters which are not subject to regulation by the States." This broad savings clause supports the conclusion that because air pollution is subject to regulation by the States, and not by the FPA or the FERC, state regulation of GHG emissions caused by the generation and consumption of electricity is not preempted by the FPA, but may be regulated by the States.
8. Because the FPA expressly leaves room for state regulations dealing with electricity and because there is nothing in the FPA that deals with the regulation of emissions (either generally, or GHG emissions specifically) the deliverer approach is not preempted by the FPA.
9. A GHG regulation that incorporates a deliverer point of regulation is an environmental regulation whose purpose is to decrease the impact of global warming on California insofar as that impact is caused by electricity used or generated in California. Such a GHG regulation is not a regulation of wholesale rates or other terms and conditions of wholesale power sales or electric transmission that the FPA and FERC exclusively regulate.
10. There is no field preemption here because, in enacting the FPA, Congress did not intend, either explicitly or implicitly, to occupy the field of environmental regulation of the power sector.
11. There is no FPA field preemption here because, under AB 32, California will not be regulating the same subject matter as the FPA, nor will its regulations be for the same intended purpose. California will be regulating GHG emissions for the purpose of reducing them and lessening the impacts of global warming on California.
12. While GHG regulation may have some impact on the wholesale prices paid for electricity, such regulation is no more preempted by the FPA than state regulations limiting the amount of other pollutants that may be emitted by electric power plants -- that may affect the cost of generating electricity and therefore indirectly affect the price of wholesale electricity.
13. The inclusion, in FERC-jurisdictional rates, of any costs of compliance with California's GHG regulations would be subject to FERC review under § 205 of the FPA (16 U.S.C. § 824d). All wholesale sales subject to FERC jurisdiction would occur at the FERC-authorized rate.
14. The proposed structure for regulating GHG emissions would not prevent anyone from selling wholesale electricity into the California market, nor would it require a license to do so.
15. The proposed deliverer point of regulation would not conflict with the FPA's electric reliability provisions.
16. A deliverer point of regulation is not preempted by the FPA.
17. The regulations we are proposing are facially neutral, as between interstate and intrastate commerce, and do not have a discriminatory purpose or effect.
18. Under Pike v. Bruce Church, Inc. (1970) 397 U.S. 137, 142, a state enactment "will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits."
19. The use of a deliverer point of regulation would not violate the dormant Commerce Clause.
20. The deliverer point of regulation would only regulate electricity that is generated in, or delivered for consumption in, California. Thus, it would not regulate any commerce that occurs totally outside of California, and therefore would not regulate extraterritorially in violation of the Commerce Clause.
21. The fact that the Legislature required reporting by retail providers does not mean that retail providers must be the point of regulation for achieving the required reductions in GHG emissions.
22. Power that is merely wheeled through California is not part of the electricity sector and is not subject to the emissions reduction requirements of AB 32.
IT IS ORDERED that:
1. We recommend that the California Air Resources Board (ARB) set energy efficiency requirements in its scoping plan at the level of all cost-effective energy efficiency in the State. This would be achieved through a combination of utility and non-utility programs coordinated at the State level, with consistent requirements across all types of retail providers.
2. We recommend that the ARB adopt mandatory minimum levels of cost-effective energy efficiency savings for publicly owned utilities (POUs), at levels recommended by the California Energy Commission (Energy Commission).
3. We recommend that ARB adopt mandatory minimum levels of cost-effective energy efficiency for investor owned utilities, Community Choice Aggregators, and Electric Service Providers consistent with the programs and goals adopted by the California Public Utilities Commission (Public Utilities Commission).
4. We recommend that ARB require POUs to deliver at least 20 percent renewable electricity to their customers by 2017.
5. We recommend that ARB work with the Public Utilities Commission and the Energy Commission to seek legislation that requires retail providers of electricity to deliver more than 20 percent of their power from renewable sources in the future, at levels and dates to be determined.
6. We recommend that, if ARB concludes that it does not have authority to adopt regulations consistent with Ordering Paragraphs 1, 2, 3, and 4, ARB seek such authority from the Legislature.
7. We recommend that ARB design a multi-sector cap-and-trade system for greenhouse gas (GHG) emissions in California, to be implemented in 2012, provided that ARB finds that the tests outlined in Part 4 and Part 5 of AB 32 are met. This GHG emissions cap-and-trade system should include the electricity sector.
8. We recommend that, for the electricity sector, ARB establish the compliance obligation in the GHG emissions cap-and-trade system on the entities that own electricity as it is delivered to the California electricity grid, as described in this decision.
9. We recommend that some portion of the GHG emission allowances available to the electricity sector be auctioned, with the majority of the proceeds from the auctioning of allowances for the electricity sector being used in ways that benefit electricity consumers in California.
10. We recommend that, for the natural gas sector, ARB rely on programmatic measures to achieve emission reductions and not include the natural gas sector in a multi-sector GHG emissions cap-and-trade system at this time. We recommend consideration of the inclusion of the natural gas sector in a cap-and-trade program at a later date.
This order is effective today.
Dated March 13, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
PARTIES THAT HAVE FILED COMMENTS IN
PHASE 2 OF RULEMAKING 06-04-009
Party
AES Southland L.L.C. AES
Alliance for Retail Energy Markets AREM
American Gas Association AGA
CalEnergy Operating Corporation CalEnergy
California Manufacturers and
Technology Association CMTA
California Independent System Operator CAISO
California Municipal Utilities Association CMUA
California Solar Energy Industries Association
and the Solar Rating Certification Corp. CALSEIA/SRCC
California Wind Energy Association, Bright
Source Energy, Inc., ASURA Inc., and
Abengoa Solar Inc. CalWEA et al.
Caithness Energy, LLC Caithness
Calpine Corporation Calpine
Carson Hydrogen Power Project Carson
Center for Energy Efficiency and
Renewable Technologies CEERT
Center for Resource Solutions CRS
Clean Energy Fuels Corp. Clean Energy
Climate Protection Campaign CPC
Coalition of California Utility Employees CUE
Community Environmental Council Environmental Council
Constellation Energy Commodities Group, Inc.
and Constellation NewEnergy, Inc. Constellation
Covanta Energy Corporation Covanta
Division of Ratepayer Advocates DRA
Dynegy Morro Bay LLC, Dynegy Moss Landing,
And Dynegy South Bay LLC Dynegy
El Paso Natural Gas Company and Mojave
Pipeline Company El Paso
Energy Producers and Users Coalition and
Cogeneration Association of California EPUC/CAC
Environmental Defense Environmental Defense
FPL Energy Project Management, Inc FPL
Green Power Institute GPI
Independent Energy Producers Association IEP
Indicated Producers IP
International Emissions Trading Association IETA
Kenneth C. Johnson Johnson
Lodi Gas Storage, LLC Lodi
Los Angeles Department of Water and Power LADWP
M-S-R Public Power Agency M-S-R
Modesto Irrigation District MID
Morgan Stanley Capital Group Inc. Morgan Stanley
Natural Resources Defense Council NRDC
Northern California Power Agency NCPA
Pacific Gas and Electric Company PG&E
PacifiCorp PacifiCorp
Powerex Corp. Powerex
Redefining Progress Redefining Progress
Sacramento Municipal Utility District SMUD
Salt River Project Agricultural Improvement
And Power District Salt River
San Francisco Community Power SF Community Power
San Diego Gas & Electric Company and
Southern California Gas Company SDG&E/SoCalGas
Sempra Global and Sempra Energy Solutions Sempra
Sierra Pacific Power Company Sierra Pacific
Silicon Valley Leadership Group [6/22] SVLC
Southern California Edison Company SCE
Southern California Public Power Authority SCPPA
Southwest Gas Corporation Southwest Gas
Sustainable Conservation Sustainable Conservation
Terra-Gen Power, LLC Terra-Gen
The Redding Electric Utility Redding
The Utility Reform Network TURN
Union of Concerned Scientists UCS
Western Power Trading Forum WPTF
Western Resource Advocates WRA
Wild Goose Storage, LLC Wild Goose
(END OF ATTACHMENT A)
