Posted: April 28, 2008
Editor’s note: This story by Margot Roosevelt appeared in the April 20 edition of the Los Angeles Times.
Fighting
global warming is the feel-good cause of the moment.
But in
California, the self-congratulation that followed the 2006 passage of the
nation’s first comprehensive law to curb emissions of planet-warming greenhouse
gases is fast turning to acrimony.
A ferocious
behind-the-scenes brawl over how to regulate electricity plants, the biggest
source of carbon dioxide after motor vehicles, has pitted Southern California’s
public power generators against its for-profit utilities.
Why? Because
some taxpayer-owned utilities, such as Los Angeles’ Department of Water and
Power, get close to half their electricity from the nation’s dirtiest energy
source: coal.
And under the
system envisioned by Gov. Arnold Schwarzenegger to implement the greenhouse gas
law, utilities would probably be required to buy the right to pollute from the
state.
On Monday and
Tuesday (April 28-29), the state’s utilities and energy commissions will hold
public workshops in San Francisco on proposals that could make high-carbon
polluters such as the DWP, the nation’s biggest municipal utility, pay dearly.
Investor-owned companies with cleaner nuclear and hydroelectric power could
reap windfalls since they might pay proportionately less. And, overall, the
money the state collects could be redistributed based on which utility sells
the most electricity—and investor-owned ones such as Southern California Edison
are atop that list.
A decision on
how to control greenhouse gases from utilities will be made by the California
Air Resources Board at the end of the year. But scenarios under consideration
have Los Angeles Mayor Antonio Villaraigosa and DWP chief H. David Nahai on a
lobbying streak in Sacramento. Nahai recently accused the state commissions of
promoting “a scheme to line the pockets of large corporations” and “shift
billions of dollars away from our communities and our customers and into the
pockets of for-profit utilities.”
Los Angeles’
customers, who thus far have benefited from some of the lowest rates in the
state, could shell out $450 million to $700 million a year—money that the
utility was planning to spend building wind and solar plants. Smaller coal-reliant
cities, such as Anaheim, Burbank and Pasadena, also could pay high fees.
Customers’ bills could soar under such a plan, municipal utility directors,
including Nahai, warn.
California’s
battle over the design of this “cap-and-trade” system, which would also allow
industries to buy and sell pollution permits among themselves, has erupted as
Congress appears likely to adopt a similar market-based system nationwide.
Utilities around the country are jockeying for position on the
penalty-versus-windfall balance sheet.
Michael
Peevey, president of the California Public Utilities Commission, which is
charged with recommending global-warming rules for the electricity industry to
the air board, dismisses Los Angeles’ complaints, saying its officials “are
fighting with phantoms. . . . They’re doing a preemptive strike to carve
themselves out” of a statewide program.
“There’s no free
lunch,” Peevey warns. “We have to reduce CO2 by 174 million tons by 2020. But
no one wants to face up to the cost. Everyone wants everyone else to pay.”
California’s
law requires cutting greenhouse gases to 1990 levels by 2020, about 25% below
expected levels in that year, and aims to reduce them by 80% by midcentury. A
draft plan on how to meet those goals will be released in June by the air board.
Under a
cap-and-trade program, the state would impose a ceiling on emissions. Emissions
permits would either be given away, auctioned or some combination of the two.
Companies whose emissions are below the ceiling, or cap, could sell their
pollution permits to industries that pollute above the cap. The system has been
launched with mixed success in Europe, where it has been undermined by dubious
emissions accounting.
Monitoring
smokestacks inside California is the easy part of the regulation. But the power
that California imports from states such as Utah and Arizona presents a
problem.
Because
California has no authority to clamp down on coal plants in other states, the
utility and energy commissions are recommending that the air board regulate “first
deliverers” who bring the power to the border of the state—be they utilities or
middlemen, such as the former Enron, who market imported electricity.
But Nahai
calls that “bad policy, ripe for gaming and manipulation.” He adds, “First
deliverers can be faceless foreign companies beyond our control, with no assets
and no interest in keeping the lights on.”
Gary Stern, an
economist for Southern California Edison, which supports the first-deliverer
rule, acknowledged that out-of-state generators could obscure the source of
their emissions from California regulators.
“If I want to
buy power from Utah, then the Utah company can arrange a deal to sell coal to
the Northwest, and buy hydro from the Northwest and sell it to us. It will look
clean, and we won’t know that it sold coal.”
But he said
that the rule would at least prevent California-based generators from gaming
the system.
To critics,
the complexities of cap and trade recall the sort of wheeling and dealing that
cheated California out of millions of dollars when it deregulated the power
system in the late 1990s.
Legislative
leaders want Schwarzenegger to withdraw the utility and energy commissions’
preliminary design. It’s “a scheme that gambles with California’s energy supply
in a way reminiscent of the events leading to the energy crisis,” Assembly
Speaker-elect Karen Bass (D-Los Angeles) and several other legislators
representing the city wrote the governor.
Under
scenarios to be considered, the state might auction 50% to 100% of emissions
credits that utilities will need.
If that
happens, the state could collect billions of dollars a year from polluters, and
as Air Resources Board Chairwoman Mary Nichols notes, “A big pot of money means
someone has to figure out what to do with it, and that involves politics.”
Pacific Gas
& Electric wants the money to be redistributed to utilities according to
their size. And that would enable the utility to cut rates.
“We’re looking
out for our customers who have invested in clean energy for decades,” said
PG&E spokesman Keely Wachs.
But if
utilities first have to pay for pollution credits and then to build renewable
energy plants, Nahai says that would “cripple” the city’s effort to green
itself. In the last two years, the DWP has boosted its renewable energy mix to
8% from 3% and is on target to get 20% of its power from renewables by 2010, an
expensive undertaking.
Nichols, of
the Air Resources Board, sees an auction system as the most efficient way to
achieve greenhouse gas reductions and says she would be reluctant to exempt the
Los Angeles utility from a cap-and-trade program, as Nahai has asked. Of the
state’s major utilities, “DWP is the biggest CO2 polluter,” Nichols said. “Having
this forced on them could be the best thing that ever happened to them.”
Compromises
are being discussed. Nonetheless, she acknowledges, “I don’t see us coming up
with a system that involves PG&E making a profit on DWP’s misfortune. You
could have an auction where the state keeps 5% of the revenue and 95% stays at
DWP, as long as they show they will use it to reduce carbon.”
In the end,
given the fact that half of California utilities’ carbon emissions come from
imported power, many experts see a broader system as the only way to make
cap-and-trade work. A bigger tent would make it more difficult for coal plants
to escape regulation.
“We need
national legislation for the electricity markets,” Nichols says. “Electrons don’t
carry little flags as they move around.”
Regional
compacts in the West, Midwest and Northeast have already been formed to design
multistate trading programs.
And the cap-and-trade
climate bill, sponsored by Sens. Joe Lieberman (I-Conn.) and John Warner
(R-Va.), is expected to come to a vote in June, although final legislation may
have to await the election of a new president.
Meanwhile, California is moving full speed ahead, trying to bob and weave around the regulatory complexities.