CPUC Preliminary Ruling on Greenhouse Gas Emissions Performance Standard

Selected Extracts

GREENHOUSE GAS EMISSIONS PERFORMANCE STANDARD

1. Introduction and Summary

Today, we adopt an interim greenhouse gas (GHG) emissions performance standard for new long-term financial commitments to baseload generation undertaken by all load-serving entities (LSEs), consistent with the requirements and definitions of Senate Bill (SB) 1368 (Stats. 2006, ch. 598).2 Our adopted emissions performance standard or “EPS” is intended to serve as a near-term bridge until an enforceable load-based GHG emissions limit is established and in operation.3 At that time, as directed by SB 1368, we will reevaluate and continue, modify or replace this standard through a rulemaking proceeding, and in consultation with the California Energy Commission (CEC) and the California Air Resources Board (CARB).

As discussed in this decision, an EPS is similar to an energy efficiency appliance standard. If a consumer wants to purchase a new refrigerator in California, for example, he or she has a variety of models to choose from--each with a different upfront purchase price, operating cost and other design attributes. However, at a minimum, each refrigerator must meet the threshold for appliance efficiency established by the standard. Similarly, SB 1368 establishes a minimum performance requirement for any baseload generation facility that represents a new long-term financial commitment entered into by entities providing power to California ratepayers.4 The new law establishes that the GHG emission rates for these facilities must be no higher than the GHG emissions rate of a combined-cycle gas turbine (CCGT) powerplant.5

An EPS is needed to reduce California’s financial risk exposure to the compliance costs associated with future GHG emissions (state and federal) and associated future reliability problems in electricity supplies. Put another way, it is needed to ensure that there is no “backsliding” as California transitions to a statewide GHG emissions cap: If LSEs enter into long-term commitments with high-GHG emitting baseload plants during this transition, California ratepayers will be exposed to the high cost of retrofits (or potentially the need to purchase expensive offsets) under future emission control regulations. They will also be exposed to potential supply disruptions when these high-emitting facilities are taken off line for retrofits, or retired early, in order to comply with future regulations. A facility-based GHG emissions performance standard protects California ratepayers from these backsliding risks and costs during the transition to a load-based GHG emissions cap. As directed by SB 1368, we have considered the effects on system reliability and overall costs to electricity customers in developing an EPS that will achieve these objectives.6

SB 1368 provides specific direction on many design and implementation aspects of the EPS. We briefly describe that direction in the following summary of today’s adopted standard.

1.1. Covered Procurements

SB 1368 describes what types of generation and financial commitments will be subject to the EPS (“covered procurements”). Under SB 1368, the EPS applies to “baseload generation,” but the requirement to comply with it is triggered only if there is a “long-term financial commitment” by an LSE. The statute defines baseload generation as “electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60%.”7 For LSE-owned baseload generation, a longterm financial commitment occurs when there is a “new ownership investment.” For baseload generation procured under contract, there is a long-term commitment when the LSE enters into “a new or renewed contract with a term of five or more years.”8

In sum, the interim EPS will apply to the following long-term financial commitments made by an LSE to baseload generation (“covered procurements”):
(1) New ownership investments in baseload generation made by an LSE, defined as: 

(a) Investments in new baseload powerplant (new construction).

(b) Acquisition of new or additional ownership interest in existing baseload powerplant previously owned by others.

(c) New investments in the LSE’s own existing, non-CCGT baseload powerplants that are: 1) intended to extend the life of one or more units by five years or more, 2) result in a net increase in the rated capacity of the powerplant, or 3) intended to convert a non-baseload plant to a baseload plant, or

(d) Units added to a deemed-compliant CCGT plant that result in an increase of 50 MW or more to the powerplant’s rated capacity, or

(2) New contract commitments (including renewal contracts) of five years or greater by an LSE with:

(a) baseload generation facilities, unless those facilities represent deemed-compliant CCGT powerplants, or

(b) any deemed-compliant CCGT powerplant that added units resulting in an increase of 50 MW or more to the powerplant’s rated capacity. (The contracting LSE need only show that the added units meet the EPS).

1.2. EPS Performance Level (Emissions Rate)

Pursuant to SB 1368, the performance level of the EPS must be “no higher” than the emissions rate of a CCGT powerplant.11 However, the statute does not specify the emissions rate for a CCGT. Based on our review of emissions rates associated with a broad range of CCGT powerplants of varying vintages, we adopt an EPS emissions rate of 1,000 pounds of carbon dioxide (CO2) per
megawatt-hour (MWh).12 We select a level that is somewhat above the 2004-2005 weighted average of the reported data in CEC’s Continuous Emissions Monitoring System, but lower than the emission rates associated with the oldest, most inefficient “deemed-compliant” CCGT powerplants still in operation. Based on the record in this proceeding, we find that this level reflects the intent of the Legislature to base the EPS on representative CCGT emission rates. At the same time, our adopted level avoids establishing a performance standard that is representative of the most inefficient, older CCGT powerplants currently in operation. We believe that this is appropriate in light of the statute’s grandfathering provisions, which reflect the Legislature’s concern that some of the older, less efficient CCGT powerplants in operation may not be able to meet the standard.