Overview of CPUC/CEC Proposed Decision: Recommendations for the Electricity Industry

September 2008

Nancy Ryan

Chief of Staff, Office of Commissioner Peevey

California Public Utilities Commission

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Outline

• Overview of proposed decision

• Recommendations in key areas:– Allowance allocation– Market design and flexible compliance

• What’s next?

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Overview of Proposed Decision: Mandates

• Pursue all cost-effective energy efficiency• Expand renewable energy use to 33 percent• Require comparable investment in renewable

energy and energy efficiency from all retail providers of electricity

• Consistent with Draft Scoping Plan

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Overview of Proposed Decision: Cap and Trade Program

Endorses creation of a multi-sector, regional cap-and-trade market

• Recognize that WCI is the principal forum• Focus on specific electric sector issues• Recommendations in 4 key areas

– Contribution of electric sector to meeting AB32 target– Allowance allocation– Market design and flexible compliance– Treatment of CHP

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Industrial Facilities (Over 40% Petroleum Refineries), 23%

In-State Electricity

Generation, 10%

Out-of-State Generation, 10%

Other, 16%Transportation,

41%

The Electric Sector Accounts for 20-25% of California’s GHG Emissions

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Nearly 40% of reductions from mandates are from electric sector programs

Cap and Trade

Electric Sector

Transportation

Other

Mandates

20% 80%

37%

45%

18%

Cap and trade to yield additional reductions

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Retailers start from different places

0

100

200

300

400

500

600

PG&E SDG&E SMUD SCE LADWP

Emissions Intensity(Tons CO2e/GWh)

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Recommended Approach to Allowance Allocation for Electric Sector

2012 2013 2014 2015 2016 2017 2018 2019 2020

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f A

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wan

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Free Allocation Auction: Historical Basis Auction: Sales Basis Cap

Declining Cap

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Market Design and Flexible Compliance: Key Principles

Must assure environmental integrity Flexibility important due to electricity sector

characteristics – annual variations in weather, hydro conditions, fuel prices

Allow open and transparent trading with many participants

Flexible compliance options can reduce costs

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Market Design and Flexible Compliance:Key Recommendations

Multi-sector, regional cap-and-trade market Link to other equally stringent cap-and-trade

programs No restrictions on market participation Three-year compliance periods Unlimited banking of allowances and offsets No geographic limits on offsets No safety valves or price triggers

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Next Steps

Proposed Final Opinion released on September 12 Stakeholder/party comments due on October 2 Reply comments due on October 7 Public Utilities Commission vote on October 16 Energy Commission vote on October 16 Final Opinion delivered to Air Resources Board on

October 17

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Thank You