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The California Public Utilities Commission on March 24 opened a rulemaking to address utility cost and revenue issues associated with the state’s greenhouse gas emissions regulations, despite a state court order that casts doubt on what expenses utilities will pay.

In the unanimously approved order, the commission said the primary focus will be on the possible use of revenues that electric utilities may generate from auction of allowances allocated to them by the California Air Resources Board.

CARB has advised an auction reserve price for 2012 auctions be set at $10 per metric ton. At that price, the electric utilities could receive an estimated $650 million for the quarterly auctions that the agency planned for 2012, the PUC order said. Natural gas utilities would also get auction revenues, said PUC President Michael Peevey, who proposed the order, though he noted the likelihood that emission reduction measures would drive up costs for all utilities.

The commission acknowledged the San Francisco Superior Court has blocked CARB from implementing its greenhouse gas regulatory program and could result in delays or changes to that program.

“The action by the San Francisco Superior Court enjoining ARB’s implementation of its scoping plan creates significant uncertainty, both as to the schedule and scope of ARB’s ultimate implementation of A.B. 32 and its scoping plan, including the GHG emissions allowance cap-and-trade program,” the PUC’s order said.

Peevey said the rulemaking is a “very big issue,” but the court decision may result in delays or changes to measures CARB plans to institute, including the cap-and-trade program. “Nonetheless, I urge the commissioners to vote with me to open the rulemaking so we will be prepared in the event cap and trade is launched in 2012,” Peevey said.

In order to avoid additional delays, the PUC must open the rulemaking to ensure it is prepared to address the issues if and when the problems identified by the court are resolved, and to be prepared if the cap-and-trade auctions begin as scheduled, Peevey added.

Prior to the court decision, CARB expected its cap-and-trade regulation would be finalized in the fall and would go into effect in December 2011. The board was planning the first auction of emissions allowances on Feb. 14, 2012, with auctions to be held quarterly thereafter. These dates are now uncertain because of the court’s decision, the PUC order said.To the extent CARB changes its regulatory program, the scope and schedule of this rulemaking may also change. The PUC is considering authorizing utilities to buy and sell greenhouse gas allowances and offsets in a separate long-term procurement planning proceeding and may consider guidelines for utilities to participate in emissions allowance and offset markets. However, Peevey said rules for how utilities participate in the markets will probably be moved into this proceeding.

With the potential for implementation of a cap-and-trade system, the utilities may face greenhouse gas cost exposure, including allowance and offset markets and arrangements in bilateral contracts, the order said.

Regulations being considered at CARB would provide some guidance on the use of revenues from the auctioning of greenhouse gas emissions allowances and how they would be allocated to utilities. The PUC said it will consider additional guidelines, such as percentages, or dollar amounts, of potential auction revenues to be used for specified purposes, including customer bill relief; energy efficiency programs; programs that achieve environmental justice goals; and research, development and demonstration of greenhouse gas emissions-reducing technologies.

Commissioners vow to consider risk on customers

Commissioner Mike Florio, who was a senior attorney at The Utility Reform Network consumer advocacy group for many years before his appointment on Jan. 25 to the PUC, said he is concerned about the risk of rising energy costs and bigger bills for ratepayers. He lauded the state’s greenhouse gas reduction goals as long as “responsible progress toward those goals comes at a just and reasonable cost to the ratepayers we represent and they shoulder only their fair share of the burden. Any proceeds http://www.snl.com/InteractiveX/article.aspx?id=12533227&KPLT=4&Printable=1 3/24/2011 from this allowance auction should be used efficiently and without delay for the benefit of electricity consumers.”

In its order, the PUC said it may consider the use of potential revenues the utilities receive from the sale of low carbon fuel standard credits given to them by CARB and how to evaluate requests for reimbursement from merchant generating facilities when the facilities buy allowances but utilities are responsible for the greenhouse gas compliance costs associated with electricity purchased from those plants.

Commissioner Timothy Simon said the environmental justice groups whose lawsuit resulted in the court order “have raised very appropriate concerns.” The court ruling “should ensure that we appropriately weigh the risk of emissions reductions on low income people who often live in communities of color and are affected by the smokestacks,” he said. “We must begin to work on how to promote the best interests of all consumers as we ask them to underwrite greenhouse gas reduction measures.”

The rulemaking issues may be resolved through a combination of workshops and filed comments, but evidentiary hearings will not be necessary, the order said.

In another matter, numerous speakers in the public portion of the meeting objected to proposals to grant Pacific Gas and Electric Co.’s general rate increases for 2011, 2012 and 2013, retroactive to Jan. 1. But PUC President Michael Peevey delayed a vote on the rate increase until April 14. The PG&E Corp. subsidiary would get an increase for 2011 of about $450 million, or 8%, over its current authorized level of $5.58 billion based on two proposed decisions under the PUC’s consideration. Rates would then increase by $180 million in 2012 and $185 million in 2013. Concerned about being able to pay their bills, many speakers said PG&E should get no increases.

During the public portion, a total of 47 speakers spoke for almost three hours in opposition to PG&E’s rate increase and smart meters.

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