Thursday, December 20, 2012

California Utilities Like Cap & Trade Program

From (Sacramento Municipal Utility District (SMUD) to Southern California Edison, the state's utilities have been placed in a special class that will hold their rates neutral and that effectively cushions companies and their ratepayers from the cost of reducing carbon emissions. Ratepayers of the investor-owned utilities, such as Pacific Gas and Electric Company, will even get a small "climate dividend" under a mechanism ratified today by the PUC. It could be as much as $30 every six months, but the amount will really depend on the market price of carbon, Murtishaw said. It will come in the form of a rebate. The dividend is in addition to rate stabilization. It is supposed to help compensate California consumers for the higher costs they'll be paying for other goods as a result of cap and trade.

By contrast, most industries subject to the cap-and-trade program say the carbon restrictions will cost them plenty – more than $1 billion a year. The California Chamber of Commerce is suing to dismantle the whole enterprise, saying it's an unconstitutional tax. Utilities, though, say they're comfortable with cap and trade.

AB 32, the state's landmark climate-change bill, which requires Californians to reduce greenhouse gas emissions to 1990 levels by 2020, says utilities should be spared "duplicative" regulations.
Already, electric companies and their customers are bearing the cost of using more solar, wind and other renewable energy sources, which are generally more expensive than traditional sources. Fully one-third of their power must come from renewables by 2020. The program has already survived a failed 2010 ballot initiative that would have overturned AB 32.

Cap and trade is an attempt to inject market forces into the fight against global warming. The state has placed a ceiling on the amount of carbon that can be emitted by more than 400 manufacturers and other big companies; the cap will decline slightly each year. The state wants companies to reduce emissions as much as they can, perhaps by investing in green technologies. Otherwise, if they need emissions allowances they'll have to buy them from the state or on the open market. The point is, there's now a price for carbon pollution – it was trading Wednesday at $13.75 a ton.

Most companies get 90 percent of their emissions allowances for free, from the state, and have to buy the rest. The first state-run auction was held in November and raised around $290 million; another is set for February.

Electric utilities aren't exempt from cap and trade. They have to keep their emissions below a certain threshhold, just like everyone else. But unlike cement-makers, refiners and other industries, they're getting all of their emissions allowances doled out for free. As a result, state officials believe there will be no impact on their rates from cap and trade.

The utilities get all of their allowances for free – but are required to sell them off. Indeed, most of the allowances sold at the state's inaugural auction in November belonged to them.  They then have to purchase whatever allowances they need to comply with the emissions ceiling. The revenue they get from selling their free credits is supposed to offset their costs. The revenue must go to ratepayers – 85 percent to residential customers and the rest to businesses – to hold down rates. (Sacramento Bee, 12/20/2012)

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