Today, the California Public Utilities Commission (CPUC) issued a new Order Instituting Rulemaking (OIR) to review the Commission's climate credit programs established for utility customers. The OIR requests comment on a staff proposal that makes specific recommendations to improve program processes and outcomes in response to administrative and regulatory compliance challenges in four topic areas:
- (1) The Small Business Climate Credit;
- (2) The Bear Valley Allowance Auction Proceeds;
- (3) The Large Emissions-Intensive Trade Exposed (EITE) California Industry Assistance; and
- (4) The Small and Medium EITE California Industry Assistance.
The staff proposal also requests input on two topic areas where Energy Division staff has not developed specific recommendations but where staff see potential for streamlining administration, delivery, and improving program outcomes:
- (1) The Residential California Climate Credit; and
- (2) The Residential California Climate Credit Distribution to Submetered Households.
The proposed OIR will make sweeping changes with respect to all of the climate credit programs currently administered by the CPUC. However, we only highlight the proposed changes to the California Industry Assistance Credit programs below because, if adopted, these changes will have a significant impact on California industry that is emissions-intensive and particularly sensitive to these changes.
The Global Warming Solutions Act of 2006 (AB 32) set a goal of reducing statewide greenhouse gas emissions to 1990 levels by 2020. To achieve this goal, the California Air Resources Board (CARB) created the statewide Cap-and-Trade Program in December 2011. As part of the program, CARB sets a limit (a "cap") on the number of available allowances (pollution permits) each year.
CARB directly allocates some allowances at no cost to entities required to participate in the Cap-and-Trade Program, while others are available for purchase. After each compliance period, participating entities must surrender to CARB allowances or other compliance instruments equal to their covered emissions during each compliance period.
Investor Owned Utilities (IOUs) are required to consign all CARB-allocated allowances within the year they are allocated to CARB's quarterly auctions and use the proceeds to benefit ratepayers. Public Utilities Code Section 748.5 imposes restrictions on the use of allowance proceeds, requiring that proceeds "be credited directly to the residential, small business, and emissions-intensive trade-exposed retail customers of the electrical corporation." An exception is made for up to 15 percent of proceeds, which the CPUC can use at its discretion for "clean energy and energy efficiency projects."
Staff Proposals for Changes to California Industry Assistance Credits
The staff proposal makes recommendations to improve program processes and outcomes and requests input on various topic areas. Below is a summary of proposed changes to the California Industry Assistance Credit programs.
- 1. Large EITE California Industry Assistance
Both CARB and the CPUC currently provide assistance to Large EITE facilities required to participate in the Cap-and-Trade Program. Large EITE facilities are generally large emitters (>25,000 metric tons of CO2e/yr).
At present, CARB allocates allowances directly to these facilities to minimize leakage risk, and the CPUC directs IOUs to provide an on-bill (or if requested, check) credit in the form of the California Industry Assistance Credit for Large EITE facility electricity purchases. The staff proposal describes this dual crediting process as "not administratively simple, efficient, or transparent." Additionally, the CPUC crediting formula for Large EITE facilities that qualify as refineries expires at the end of 2020.
i. Large EITE Crediting Agency
Energy Division staff propose consolidating the assistance for Large EITE facilities into one credit administered by CARB. In place of on-bill assistance provided by the IOUs in the form of the California Industry Assistance Credit, CARB would likely allocate additional allowances to Large EITE covered entities to minimize leakage risk associated with electricity costs.
The CPUC would then direct IOUs to cease providing on-bill assistance in the form of the California Industry Assistance Credit to Large EITE facilities. Small and Medium EITE facilities would continue to receive the California Industry Assistance Credit using the existing CPUC methodologies.
To implement this proposal, CARB would need to adopt Cap-and-Trade Regulation amendments through a formal public process to modify allowance allocation to EITE entities. No such amendment process has yet been proposed by CARB.
ii. Refinery Allocation Formula Post-2020
Energy Division staff propose to continue the existing petroleum refinery allocation formulas post-2020 if the proposed handoff in crediting of Large EITE facilities does not occur in time for CARB to credit these facilities for the 2021 crediting year.
If the handoff occurs in time for the 2021 crediting year, as Energy Division staff do not anticipate any refineries that qualify as Small or Medium EITE facilities, the CPUC would not need to develop refinery formulas post-2020. Post-handoff, if any refinery was not a covered entity (i.e., qualified as a Small or Medium EITE facility), it would receive a California Industry Assistance Credit using the energy-based formula.
- i. Large EITE Crediting Agency
2. Small and Medium EITE California Industry Assistance
The CPUC directs IOUs to provide the California Industry Assistance Credit to Medium facilities and Small facilities that qualify as EITE.
- Medium facilities are generally facilities that emit 10,000-25,000 metric tons CO2e per year and have a reporting obligation to CARB.
- Small facilities emit less than 10,000 metric tons CO2e per year and are not required to report their emissions to CARB.
Energy Division staff calculates credits for all Medium and Small facilities that have not opted into the Cap-and-Trade Program using an energy-based formula. In order to receive the California Industry Assistance Credit, each Small EITE facility must file a self-attestation form each compliance period stating that they qualify as an EITE.
Energy Division staff proposes to continue crediting Small and Medium EITE facilities with the California Industry Assistance Credit. The staff proposal recommends changing the crediting formula for Small and Medium EITE facilities to eliminate the need for a true-up allocation, shifts the responsibility for performing crediting calculations to the IOUs, and recommends continuing existing attestation and auditing requirements.