1. California Public Utilities Commission CPUC Climate Change Activities Paul Clanon Executive Director August 28, 2007 Presentation to the Senate Energy, Utilities & Communications Committee Subcommittee on Alternative Energy

2. California Public Utilities Commission 2 California’s Greenhouse Gas Emissions Source: CA Energy Commission

3. California Public Utilities Commission 3 Electric Utility Emissions 2004 Total: 107 million metric tons Source: CA Energy Commission Emissions Inventory

4. California Public Utilities Commission 4 Regulatory and Market-Based Solutions Regulatory Renewables Portfolio Standard Energy Efficiency Emissions Performance Standard Market-based GHG emissions cap

5. California Public Utilities Commission 5 Emissions Cap Policy Development  Development of policy being handled jointly by CPUC and CEC  Designed to dovetail with Air Resources Board implementation of AB 32  CPUC/CEC will develop guidelines for electricity sector (investor-owned and publicly-owned utilities) for ARB adoption; separate track will also address natural gas distribution utilities  Major outcome of proceeding: size of contribution to 2020 required reductions from electricity and natural gas sectors  CPUC adopted policy framework in February 2006 (prior to AB 32 consideration), based on workshops and rulemaking conducted in 2004-2005

6. California Public Utilities Commission 6 Proceeding Organization Work happening on six separate tracks:  Reporting issues  Baseline development  Emission reduction measures and annual emissions caps  Flexible compliance mechanisms  Allowance Allocation  Modeling to support evaluation of costs

7. California Public Utilities Commission 7 Reporting and Tracking (electricity only)  Decision to be adopted by CPUC on September 6 th and CEC on September 12 th  Decision will be incorporated by CARB into package to be submitted to the Office of Administrative Law (OAL) at the end of September for ALL mandatory reporting to start 1/1/08 (as per AB 32)  CPUC reporting protocols are for electricity sector, and deal with the controversial topic of “contract shuffling” - this is where a utility might own a coal plant but sell its output rather than use it and then buy another existing resource (such that no reductions in GHG emissions occur, but they look on paper like they reduced their emissions)  CPUC proposal is designed to strictly guard against this possibility and start sending those signals to the market NOW, even though mandatory compliance doesn’t begin until 2012

8. California Public Utilities Commission 8 Baseline Development  The 1990 baseline finalization for all sectors is occurring at CARB  CPUC is working on developing the individual baselines for regulated entities in the electricity and natural gas sectors  Can be difficult given differing conditions (low or high hydro conditions) to pinpoint – CPUC is likely to need multiple years on which to base current emissions levels

9. California Public Utilities Commission 9 Emissions Reductions Measures Identification  This effort dovetails closely with the Modeling Track  Analysis will be conducted by the modeling consultants in collaboration with staff - will help determine the level of emissions reductions available in the electricity and natural gas sectors  CPUC staff is analyzing how a potential cap and trade market would intersect with Energy Efficiency (EE) and the Renewable Portfolio Standard (RPS) - initial assumption is that EE will remain a separate (but related) mandatory program  CPUC staff is identifying the current and projected levels of emission reductions attributable to EE and RPS – as well as their costs – to determine where the electricity sector will be WITHOUT any potential cap and trade program  Staff will then analyze how much further EE and RPS (and other) strategies will need to expand WITH a cap and trade program – as well as analyze the costs of various measures  Workshops on Sept 5-7 regarding Renewable Energy Credits (RECs) will discuss issue

10. California Public Utilities Commission 10 Allowance Allocation  Currently evaluating policy issues surrounding allowance allocation – track addresses issues about how to set emissions caps for each entity in the electricity and natural gas sectors  CPUC held workshop on June 22 to discuss options with stakeholders.  CPUC staff preparing a set of questions and a straw proposal on which to take comments from parties in writing.

11. California Public Utilities Commission 11 Flexible Compliance  Track encompasses such issues as trading, compliance periods, banking, borrowing, and offsets  CPUC staff held workshop in April  CPUC staff preparing a proposal to be issued in September for comment  Comments on this will help narrow what scenarios are being modeled

12. California Public Utilities Commission 12 Modeling  Consultants were recently brought on and are working on base case – jointly managed with input from CEC, CARB and CalEPA  CARB has also co-funded contract to ensure that they can ask consultants to run additional scenarios, if necessary, later in the process  Basic output of this is effort is to show what is cost effective for the electricity and natural gas sectors to achieve as part of the 2020 goal  Results will be fed into CARB macroeconomic model of whole state economy, to compare costs of compliance with other sectors  Base case development should be complete by November 2007 - initial runs will be ready by April 2008  Consultants are also developing non-proprietary spreadsheet tool that stakeholders can use to run their own scenarios and test their own assumptions (to help in stakeholder process)

13. California Public Utilities Commission 13 Summary  The CPUC and the CEC will jointly adopt a “framework” policy decision in the February/March 2008 timeframe to give some key initial policy recommendations to CARB before their multi- sector integration workshop in March or April 2008.  The CPUC and CEC will continue to refine analysis during 2008 and MAY issue a subsequent decision in September 2008 in time for CARB to incorporate into their final scoping plan.