Advisories
California Public Utilities Commission

Proposed CPUC Decision Establishes Interim Greenhouse Gas Emissions Performance Standard

12.01.06
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On Dec. 13, 2006, the California Public Utilities Commission (CPUC) issued a proposed decision (“Proposed Decision”) in Phase 1 of its rulemaking addressing the regulation of greenhouse gas (GHG) emissions. The Proposed Decision would adopt an interim GHG emissions performance standard for all new long-term financial commitments for baseload generation undertaken by load-serving entities (LSEs) in the State. Under the Proposed Decision, LSEs would be prohibited from investing in, or contracting for, long-term generation unless the generation meets the GHG emissions standard.

Senate Bill (SB) 1368 directs the CPUC to establish a GHG emissions performance standard no later than Feb. 1, 2007, and the standard that would be adopted by the Proposed Decision is intended to serve as an interim measure as California transitions to a statewide GHG emissions cap system. If approved by CPUC Commissioners, the Proposed Decision would apply to the State’s three large investor-owned utilities, small electrical corporations, energy service providers, and community choice aggregators serving load in California. SB 1368 also directs the California Energy Commission (CEC) to implement an emissions performance standard by June 30, 2007 for all publicly-owned electric utilities consistent with the standard to be adopted by the CPUC. Thus, the emission standard to be adopted by the CPUC will likely apply to all LSEs in the State, whether subject to the CPUC’s direct jurisdiction or not.

Covered Procurement Activities

The interim performance standard would apply to (1) new “ownership investments” in baseload generation made by an LSE that are intended to extend the life of the resource by five or more years or results in a net increase in a resource’s rated capacity; and (2) new contract commitments entered into by an LSE with terms of five years or more. Under the standard, baseload generation is defined as “generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60 percent.”

SB 1368 provides that combined-cycle gas turbine (CCGT) powerplants that are currently in operation or have a received a final permit from the CEC to operate as of June 30, 2007 are “deemed compliant” with the emissions performance standard. The Proposed Decision would also find that generation facilities utilizing solar thermal, wind, geothermal, and certain types of biomass fuels to be compliant. Thus, LSEs will be free to contract with existing CCGT units and certain types of renewable resources without demonstrating that the generation meets the emissions performance standard.

The Emissions Performance Standard

SB 1368 directs the CPUC to set the emissions performance standard at a rate of emissions “that is no higher than the rate of emissions of greenhouse gases for combined cycle natural gas baseload generation.” The Proposed Decision would set the GHG emissions performance standard at 1,000 pounds of carbon dioxide (CO2) per megawatt-hour (MWh). According to the Proposed Decision, a rate of 1,000 lbs of CO2 per MWh is above the 2004-2005 weighted average of reported data in the CEC’s Continuous Emissions Monitoring System, but lower than the emission rates associated with the oldest, most inefficient CCGT powerplants that are currently in operation and would be “deemed compliant” with the emissions standard under SB 1368.

Exemptions from the Performance Standard

The Proposed Decision would allow an LSE to request an exemption from the performance standard if necessary to address system reliability concerns or in the event of “extraordinary circumstances, catastrophic events, or threat of significant financial harm.” Requests for an exemption from the emissions performance standard would be considered by the CPUC on a case-by-case basis.

Several parties also requested that the CPUC create additional exemptions, including exemptions for qualifying facilities and research and development projects related to coal sequestration. The Proposed Decision rejects these requests. The Proposed Decision would also reject requests to allow LSEs to demonstrate compliance with the emissions performance standard through the use of offsets and portfolio averaging.

Other Provisions and Requirements

Other provisions and requirements that would be adopted by the Proposed Decision include:

  • Long-term contracts must specifically identify generating unit(s) that can demonstrate compliance with the emissions performance standard. As a result, LSEs would be prohibited from entering into non-unit specific long-term contracts.
  • The emissions rate for cogeneration facilities would be determined by dividing the facility’s total GHG emissions by the sum of its generation output and the useable thermal energy output produced by the facility.
  • The emissions rate for renewable resources would be calculated based on actual emissions profile, irrespective of whether any renewable energy credits associated with the resource have been transferred or sold.
  • The State’s three large investor-owned utilities would be required to demonstrate compliance with the emissions performance standard at the time they seek CPUC approval for the procurement of any long-term generation resources.
  • Small electrical corporations, energy service providers, and community choice aggregators would be required to make annual filings with the CPUC demonstrating compliance with the emissions performance standard for the preceding year.

Implications for Coal-Fired Generation

If adopted by the CPUC Commissioners in its current form, the Proposed Decision could deal a blow to coal-fired generation, which accounts for about 20 percent of California's electricity supply. While LSEs would still be able to enter into short-term agreements with coal-fired generators, the Proposed Decision would effectively preclude any long-term commitments. The inability to obtain long-term contracts could impact the financial viability of both existing and proposed new coal-fired generation projects.

Next Steps

Parties may file comments on the Proposed Decision by Jan. 2, 2007. Replies to comments are due Jan. 8. The CPUC Commissioners are expected to vote on the Proposed Decision no later than their
Jan. 25, 2007 meeting.

A copy of the Proposed Decision can be found at http://www.cpuc.ca.gov/EFILE/PD/62840.PDF

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