CLFP Engaged in GHG Revenue Allocation Proceeding at CPUC

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CLFP is party to the Greenhouse Gas (GHG) Revenue Proceeding (R11-03-012) at the CA Public Utilities Commission. This proceeding will determine what amount, if any, of the funds generated from the sale of electric utility allocations will be returned to the ratepayers to offset electricity cost increases resulting from AB 32.

Starting in 2012, electric utilities will be receiving allowances totaling approximately 90 percent of their 2008 electricity sector emissions. These free allocations are authorized under the cap-and-trade in order provide refunds to ratepayers so as to prevent rate shock to residential and commercial/industrial customers due to anticipated electricity cost increases from the implementation of AB 32. CLFP has joined with the California Farm Bureau, the Agricultural Council of California, and the Agricultural Energy Consumers Association as the "Agricultural Parties" for purposes of this proceeding.

On March 30, 2011, the Commission issued an Order Instituting Rulemaking (OIR) to address the use of these revenues as well as the use of revenues the electric utilities may receive from the sale of Low Carbon Fuel Standard (LCFS) credits, and the treatment of potential GHG compliance costs associated with electricity procurement.

At the urging of the parties, the Commission bifurcated this proceeding. The Commission divided the proceeding into two tracks. The first track will focus on the use of allowance revenues generated from the auction of emission allowances allocated to the electric utilities pursuant to the ARB’s cap-and-trade program, and the second track will address the allocation of revenues from the sale of LCFS credits.

The main questions addressed under Track 1 are:

1. How should the electric utilities, under Commission jurisdiction, allocate the revenues from the auction of GHG emission allowances received from ARB?

a. Of those revenues, what portion, if any, should be returned directly to customers to offset GHG compliance costs versus held for use for other purposes?

b. If all or a portion of the revenues is to be returned directly to customers to offset GHG compliance costs, how should that value be returned?

c. If a portion of the revenues is not returned to ratepayers, what programs or purpose can it be used to fund?

The primary concern for the Agricultural Parties is that electricity rates may rise due to GHG legislation, increasing the cost of production for farmers and food processors. If costs were to increase, the California agricultural industry likely represent an increased leakage risk as production may shift out‐of‐state or abroad, increasing demand for electricity in more carbon‐intensive markets. The statute defines leakage as "a reduction in emissions of greenhouse gases within the state that is offset by an increase in emissions of greenhouse gases outside the state."

The Agricultural Parties position is California farmers and food processors are particularly vulnerable to leakage as a result of GHG regulation. Most compete in a global market and cannot control the pricing of their goods. For example, California growers and food processors compete with tomato, dairy, peach, garlic, and onion growers and food processors in other states as well as China, Europe, and South America. Since the trade prices for these commodities will not adjust to reflect California’s GHG regulation costs, California growers and food processors will be forced to pass on their cost increases to consumers.

The main position of the Agricultural Parties, and of the electric utilities, is that 100 percent of revenues generated as the result of the sale of electric utility allowances should be returned to ratepayers on a volumetric basis. In returning the money to ratepayers, rate increases will be mitigated in proportion to each ratepayer’s GHG cost burden. Additionally, other objects identified by the Commission may also be achieved, such as preserving the current carbon price signal; preventing economic leakage; reducing adverse impacts on low income households, and maintaining competitive neutrality across load serving entities.

In opposition to the commercial and industrial parties, the joint coalition of environmental, community activists, and renewables groups’ (Joint Coalition) proposals would increase costs for all commercial and industrial customers. In general, their position is that only residential customers should receive most or all of the revenues, eliminating all cost increases for residential customers and that some or all of the GHG Revenues should be diverted to other purposes such as energy efficiency programs and research and development. Additionally, they would also see money handed to low-income ratepayers even though tier 1 and tier 2 rates will not see any increases as a result of AB 32.

The allocation revenues are estimated to be about $200 million in the first year with AG rates totaling about $63 million for PG&E E-19 and E-20 customers combined.

Article written by John Larrea, Director, Government Affairs

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