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FOR IMMEDIATE RELEASE
Docket #: R.11-03-012
CPUC ISSUES PROPOSAL ON USE OF REVENUE FROM SALE OF GREENHOUSE GAS ALLOWANCES
SAN FRANCISCO, November 16, 2012 - The California Public Utilities Commission
(CPUC) today issued a Proposed Decision that would direct how revenues
generated from the sale of greenhouse gas emission allowances allocated to the
investor-owned electric utilities should be used. If approved by the CPUC, the
Proposed Decision would return approximately 85 percent of the allowance value
directly to households as a rate reduction and a semi-annual “climate
dividend.” The total amount of revenue to be returned to ratepayers between
2013 and 2020 is expected to range from $5.7 billion to $22.6 billion. For most
non-residential customers, the Proposed Decision would follow the “polluter
pays” principle by reflecting the cost of greenhouse gas emission allowances in
rates. By putting a price on greenhouse gas pollution, this approach maintains
the incentive provided by the Cap-and-Trade program to reduce total greenhouse
gas emissions through increased efficiency and greater reliance on clean
As part of the California Air Resources Board’s (ARB) Greenhouse Gas
Cap-and-Trade program, the ARB allocated allowances to the state’s electric
distribution utilities to help compensate electricity customers for the costs
that will be incurred under Cap-and-Trade. The investor-owned electric
utilities are required to sell all of their allowances at ARB’s quarterly
auctions, the first of which occurred on Wednesday. The proceeds from the
auction are to be used for the benefit of retail ratepayers, consistent with
the goals of Assembly Bill 32. The Proposed Decision is the result of the
CPUC’s detailed consideration of how the utilities should use the revenues
resulting from the sale of these allowances.
The Proposed Decision establishes several primary policy objectives to guide
the use of the allowance revenues. These primary objectives are to:
· Preserve the carbon pollution price signal in electricity rates;
· Ensure that economic activity does not shift to other states and
countries as a result of the Cap-and-Trade program;
· Reduce adverse outcomes on low income households; and,
· Maintain competitive neutrality among the utilities and Community
Choice energy programs and Direct Access providers.
The Proposed Decision finds that, in general, electricity rates should reflect
the cost of carbon, as determined by the price of emission allowances sold in
the Cap-and-Trade program. Preserving the carbon price signal is critical to
providing appropriate incentives for businesses and individuals to reduce
greenhouse gas emissions when making decisions regarding their energy use.
However, in some circumstances, other important factors need to be considered.
Following an extensive, stakeholder driven process, the Proposed Decision would
allocate the revenues to each of the uses described below.
First, to ensure the program does not disadvantage California industries, the
Proposed Decision directs the investor-owned utilities to return allowance
revenues to businesses operating in industries identified by ARB as
emissions-intensive and trade-exposed. These businesses emit large amounts of
greenhouse gas emissions and operate in competitive markets. This allocation of
revenue is expected to cover the majority of the Cap-and-Trade-related costs
these industries will experience in electricity rates while preserving
incentives for these entities to reduce their emissions. The Proposed Decision
also commits to consider in a follow-up process expanding the list of eligible
industries to include trade-exposed entities that, while not
emissions-intensive, face substantial indirect Cap-and-Trade costs through
Second, consistent with the direction provided by Senate Bill 1018, a bill that
was attached to this year’s state budget, the Proposed Decision directs the
investor-owned utilities to use allowance revenue to offset the Cap-and-Trade
costs in small business electricity rates. Over the 2013-2020 period, the
electricity rates small businesses are subject to will gradually rise to
reflect the cost of carbon. This is intended to enable small businesses to
adjust to the Cap-and-Trade program through investments in energy efficiency,
operational improvements, and clean energy technologies. The Proposed Decision
defines qualifying small businesses as any non-residential customer – including
agriculture, nonprofits, and others – that consumes less than 20 kilowatts of
power. A proposal attached to the Proposed Decision sets forth a preliminary
formula for revenue distribution to small businesses that will be further
refined via a subsequent decision following a public workshop process.
All of the remaining allowance revenue would be returned to residential
customers, through two mechanisms. First, the Proposed Decision directs the
use of the allowance revenue to fully mitigate the carbon costs that would
otherwise be reflected in residential rates. While not in keeping with the
general preference to preserve the carbon pollution price signal, in the case
of the three large investor-owned utilities (Pacific Gas and Electric Company,
Southern California Edison, and San Diego Gas & Electric), the Proposed
Decision finds that an exception is warranted given the tiered structure of
residential rates, which due to statutory constraints prevents carbon costs
associated with residential consumption from being passed through to
lower-tiers. Including the carbon cost only in upper-tier rates would further
exacerbate the large gap that has developed between lower and upper-tier rates.
The Proposed Decision finds that including additional carbon costs resulting
from the Cap-and-Trade program in upper-tier rates would be unfair to customers
with consumption in the upper tiers.
After using revenues for compensating emissions-intensive, trade
exposed-industries and offsetting the carbon costs in small business and
residential rates, the remaining revenues would be given to residential
customers as an equal semi-annual bill credit for each residential account.
This “climate dividend” is intended to help offset any increases in the costs
of goods and services that may result from the Cap-and-Trade program. In
essence, under the compensation framework envisioned by the Proposed Decision,
households will be paid by polluters for the right to emit greenhouse gases.
This framework holds entities to account for their contributions to climate
change, while limiting the impact of the Cap-and-Trade program on household
The vote on the Proposed Decision is currently scheduled for December 20, 2012.
Members of the public can comment on the Proposed Decision by contacting the
CPUC’s Public Advisor’s Office at 415-703-2074 or 866-849-8390 (TTY
866-836-7825) or firstname.lastname@example.org<mailto:email@example.com>
or CPUC Public Advisor, 505 Van Ness Avenue, Room 2103, San Francisco, CA
94102. Please reference proceeding number R.11-03-012.
The Proposed Decision is available at
For more information on the CPUC, please visit
Media Contact: Terrie Prosper, 415.703.1366, firstname.lastname@example.org
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