N O R T H E R N C A L I F O R N I A P O W E R A G E N C Y

AB32 Implementation: What Really Keeps Us Up at Night?

Scott TomashefskyNorthern California Power Agency

May 16, 2012

PANC Spring Seminar

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An Initial Thought or Two

We have designed our regulation to carefully ensure that the initial price on carbon is strong enough to being immediately sending the right price signals without creating economic shockwaves. We have done this through the design of the allocation. Chairman Mary Nichols, Testimony to CaliforniaSenate Select Committee on Environment, Economy &Climate Change, June 29, 2011

Those who forget history are doomed to repeat it. George Santayana, “The Life of Reason or the Phases of Human Progress,” 1905

N O R T H E R N C A L I F O R N I A P O W E R A G E N C Y

Established in 19683

Joint Powers Agency

14 members and 2 associate members serving 700,000 residents in communities throughout Northern California.

Builds and operates jointly owned power plants and operates a power pool for members.

Represents members before legislative and regulatory bodies.

NCPA Overview

Established in 1968

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• NCPA members already obtain significant percentages of their power supply from eligible renewable energy resources

• Also significant large hydro resources which help to mitigate any emissions considerations

• Overall, NCPA members currently exceed the 20% RPS requirement for the first compliance period (2011-2013).

• NCPA continues to assess additional renewable and low emissions projects on behalf of members

AB32 Implementation Aligns with NCPA’s Commitment to a Clean Generation Portfolio

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Power Supply from Renewable Fuels - 2011

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What Keeps Us Up at Night?Cap-and-Trade Implementation

Market design dominates implementation discussion

What Is Known Today Auctions will be held quarterly Bids will be sealed Price floors and purchase limits will apply California will link with Quebec All that register to participate in auction can

bid for allowances, but only covered entities can bid for allowances from allowance reserve

CARB reluctant to acknowledge potential for flaws in market design

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How Will Allowances Be Distributed?

Allowance Price Containment Reserve1% of 2013-2014 Total

4% of 2015-2017 Total

7% of 2018-2020 Total

Auctions

Advance Auction(10% from 2015-2020 Total)

Proceeds go to Air Pollution Control Fund, available upon appropriation from Legislature

Regular Auction

Free Distribution to Electric Distribution Utilities

Mitigates impact of program on consumers

95.8 MMT in 2013, declines to 83.1 MMT by 2020

Free Distribution to Industrial Sector

Output–based so allowance allocation which depends on industrial activity

In 2013, expected to be 31% of total allowances

Voluntary Renewable Electricity Reserve Account

0.5% of 2013-2014 Total

0.25% of 2015-2020 Total

No free allowances have been set aside for natural gas utilities

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What Does the Electricity Sector Really Get from a Free Allocation of Allowances?

Allowance value on behalf of customers Closest link to the California consumer

Calculation for every known utility in state

Allowance distribution generally driven by 10-year utility resource plans submitted to California Energy Commission in 2009

Early action credit capped at 25% of a utility’s cost burden

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N O R T H E R N C A L I F O R N I A P O W E R A G E N C Y

Expected GHG Allowance Allocation NCPA Members

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Total 2013 2014 2015 2016 2017 2018 2019 202097,700,000 97,700,000 97,700,000 97,700,000 97,700,000 97,700,000 97,700,000 97,700,000

0.981 0.963 0.944 0.925 0.907 0.888 0.869 0.851Alameda 456,862 50,998 54,061 52,340 55,489 55,410 62,847 62,852 62,864 Biggs 50,433 6,517 6,859 6,216 6,154 6,495 6,168 6,028 5,995 Gridley 114,981 14,539 14,593 14,489 14,469 14,621 14,376 14,043 13,852 Healdsburg 253,461 31,533 30,775 28,831 30,049 31,609 32,768 33,018 34,878 Lodi 1,224,009 159,254 157,875 151,117 151,284 154,357 151,982 148,526 149,615 Lompoc 373,974 47,500 46,901 45,072 46,415 47,852 47,179 46,203 46,851 Palo Alto 2,582,952 340,533 336,044 322,284 320,461 324,672 317,776 310,204 310,979 Port of Oakland 244,257 31,408 31,471 31,459 31,070 30,935 30,079 29,299 28,535 Plumas Sierra 483,116 61,474 61,710 61,517 61,119 61,401 60,062 58,531 57,302 Redding 3,696,831 428,901 472,891 462,122 461,379 469,503 473,540 463,621 464,876 Roseville 3,778,849 468,514 471,583 469,085 479,498 492,773 475,432 463,756 458,208 SVP 8,897,917 1,084,232 1,080,276 1,050,440 1,091,908 1,148,649 1,156,739 1,134,663 1,151,011 Truckee Donner 945,915 115,865 116,807 117,582 118,090 119,452 119,049 119,295 119,775 Ukiah 266,455 33,890 32,958 30,113 32,082 27,027 36,456 36,847 37,082 Total - NCPA 23,370,012 2,875,159 2,914,803 2,842,667 2,899,466 2,984,755 2,984,453 2,926,887 2,941,822

Value of allowances to NCPA members exceed $350 million through 2020, assuming a $15 per ton carbon price

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What Can Electric Distribution Utilities Do With the Allowance Value?

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Auction proceeds and allowance value obtained by the electric distribution utility shall be used exclusively for the benefit of retail ratepayers of each electrical distribution utility, consistent with the goals of AB32, and may not be used for the benefit of entities or

persons other than such ratepayers.Section 95892(d)(3) of the Regulations

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Mechanics of Cap-and-TradeOptions for Use of Free Allowances

Place in Limited Use Holding

Account

Place in own Compliance

Account

Transfer to Auction

Surrender Allowances to Meet Obligation

Purchase allowances to cover obligation

Receive proceeds from sale of allowances freely

distributed

Funds used for AB32 purposes at local level

Place in Compliance

Account of JPA(POU/Coops Only)

Surrender Allowances to Meet JPA Obligation

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And Now A Reality Check…Designing an Auction Market by August November

• CARB outsourcing market design effort• $2 million in consulting services awarded• Western Climate Initiative involved as well

• Link to Quebec (led by California)• Provide administrative support for tracking system

• Timeline is very, very, very tight• Testing provisions limited in scope

• Scope of consulting work does includes “fallback measures” in the event an auction must be cancelled or the system has “failing functionalities”

• CARB focusing on “core functionalities”

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NCPA Focus Going Forward

Despite expected societal benefits of AB32 program, consumers will clearly bear a financial burden

NCPA Objective: Helping membership find lowest cost solution to the AB32 equation Energy Efficiency Renewables Market-based mechanisms Integration of energy decisions with local

governance that extend beyond AB32- Land use planning related to SB375- Coordination with city services (Loading order of local

government)

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A Final ThoughtValue of The Joint Utility Group

Expected Activities Will be very active in

Phase 2 proceeding at CARB

Will be relied upon for guidance on

Resource shuffling issue

Auction design Other technical

issues that come up

The Joint Utility Group

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