A decision by the California PUC directs the state's largest electric utilities to include CO2 costs between $8-25 per ton when evaluating the economics of future energy resource additions.
In a December 2004 decision [published formally on January 20, 2005] the California Public Utilities Commission (PUC) adopted a range of values to explicitly account for the financial risk associated with greenhouse gas (GHG) emissions. Investor-owned utilities [PG&E, Southern California Edison and San Diego Gas & Electric] are ordered to use a value between $8 to $25 per ton of carbon dioxide (CO2) in the evaluation of future fossil generation bids.
The adder is applicable to longer-term power acquisitions with contractual terms lasting more than five years. Through about the year 2011, up to 2,200 MW of capacity additions have been forecasted by the three utilities that would apply the CO2 adder.
The GHG value will be added to the prices bid in future request for offers (RFOs), and will be used to develop a more accurate price comparison between and among fossil, renewable and demand-side bids. The PUC order states, "Regardless of which bid is ultimately selected, the adder will not be paid to that generator or charged to ratepayers; it is an analytic tool only. Winning bidders are to be paid the prices that they bid.
Thus, the effect of the adder is to potentially change which bids and resources are selected - not to change the price of selected bids."
The PUC concluded, "To further California's goal of promoting environmentally responsible energy generation and to protect customers from the financial risk associated with likely future regulation of GHG, it is reasonable to adopt a policy that reflects and attempts to mitigate the impact of GHG emissions in influencing global climate patterns and to direct the IOUs to employ a GHG adder when evaluating fossil generation bids and in future long-term power purchases (LTPPs). This method, which will be refined in future proceedings, will serve to internalize the significant and under-recognized cost of GHG emissions; help protect customers from the financial risk of future GHG regulation; and will continue California's leadership in addressing this important problem."
In addition to the GHG adder, the IOUs are directed to employ, when finalized and approved by the Commission, the additional environmental avoided cost values under development in the Avoided Cost Rulemaking (R.04-04-025). It is anticipated that these values will be adopted in approximately March 2005, and will include a fixed value for GHG (not simply a range) as well as values for other, non-GHG pollutants.
The PUC is also going to evaluate a cap-and-trade emissions system that may establish annual limits on carbon-based energy procurement. The PUC notes, "We will address the effectiveness of this proposal, as well as other approaches to "carbon caps" on utility procurement, to minimize utility contribution to climate change, in subsequent decisions in this rulemaking docket or other appropriate proceedings."