The California Public Utilities Commission, which regulates the state’s investor-owned utilities including Pacific Gas & Electric Co. and Southern California Edison, issued a proposed ruling Friday directing how AB 32 cap-and-trade proceeds will be allocated to utility customers. The cap-and trade rule developed by the state’s Air Resources Board requires the utilities to use proceeds from the sale of carbon pollution allowances exclusively on behalf of their customers, but tasks the Commission with filling in the details.
After more than a year of deliberation, those details emerged late Friday afternoon – and spell good news for California households.
Under the Commission’s proposed ruling, all of the cap-and-trade proceeds in the electricity sector will be returned to customers, with the lion’s share – roughly 85 percent – flowing directly to California households. On the heels of a decision approving a suite of energy efficiency programs that will slash at least $1 billion from customer utility bills over the next two years, the Commission is keeping a close watch on consumers as it continues California’s march towards clean energy.
Households to Receive Lion’s Share of Proceeds
The proposed decision comes in the wake of the state’s first auction of pollution allowances last Wednesday (check back tomorrow for an overview of the auction results). Under the cap-and-trade program, power plants and other large emitters must either reduce their carbon pollution or purchase pollution permits, known as allowances, to account for their carbon emissions. As the cap declines, so too does the number of available allowances, leveling the playing field for clean energy alternatives and elevating the visibility of our cleanest source of all, energy efficiency, which has consistently proven to be cheaper and more reliable than any supply-side alternative.
Under the Commission’s proposed decision, all of the proceeds from the sale of pollution allowances put up for auction by the utilities will go directly to customers. Three groups of customers are eligible to receive the proceeds: industrial and commercial customers that face competition from out-of-state firms not held accountable for their carbon pollution (to prevent so-called “leakage”), small businesses, and households. The Commission projects roughly 5 percent of the proceeds will flow to leakage-exposed businesses and 10 percent to small businesses, leaving roughly 85 percent available for California households.
The proposed decision also takes a strong stand in favor of accurate and transparent price signals. Save for a subset of residential customers whose electricity rates are subject to legislative constraints, the decision categorically rejects proposals that would obscure or eliminate the carbon price in electricity rates. This approach makes sense. Allowance proceeds should mitigate costs on California businesses and households, but preserve the price signal embedded in carbon-intensive goods and services to drive cleaner and more efficient choices in the general economy.
Importantly, the proposed decision also takes account of the indirect impacts from carbon pricing in the general economy, which will fall disproportionately on low income households. The decision authorizes every residential customer – independent of energy usage – to receive a ‘climate dividend,’ which will appear as a biannual bill credit. Climate dividends will put an estimated $60 in the pocket of every California household starting next year.
The full Commission is scheduled to vote on the proposed decision at a meeting on December 20.
Utility Customers Benefit from Clean Energy, Energy Efficiency Initiatives
Since 2009, the Regional Greenhouse Gas Initiative (RGGI) has put a cap on carbon emissions from power plants in the Northeast and Mid-Atlantic states, and relied chiefly on an auction as a means of distributing pollution allowances. Most of the participating states have invested the auction proceeds in a variety of energy efficiency, clean energy and utility bill payment assistance programs.
According to a recent study, the program has been a boon to consumers: the first three years led to over 16,000 new “job years,” with each of the ten participating states showing net job additions. Jobs related to RGGI activities are located around the economy, with examples including engineers who perform efficiency audits; workers who install energy efficiency measures in commercial buildings; or educators training teachers on energy issues. Electricity customers across all sectors – including households, businesses, government users, and others – are also enjoying a net gain of nearly $1.1 billion as their overall electric bills drop over time thanks to efficiency gains.
The RGGI results stand in stark contrast to the dire predictions forecast by the California Chamber of Commerce, which just last week filed a lawsuit challenging CARB’s authority to hold an auction and charge large emitters for their carbon pollution. Under the Commission’s proposed decision, the Chamber’s warning bells already begin to ring hollow: if approved, the cap-and-trade program would result in no net increase in household utility bills.
What Friday’s decision represents is California’s aggressive pursuit of win-win strategies for utility customers. Thanks in part to California’s pioneering efforts in energy efficiency, the state’s average residential utility bills are 25% lower than the national average according to the U.S. Energy Information Administration. Just ten days ago, the Commission unanimously approved nearly $2 billion for energy efficiency programs over the next two years that will continue that trend: the programs are projected to avoid the need for 1.5 large power plants, provide at least $1 billion in net utility bill savings for consumers, and cut annual pollution by more than two million tons of carbon dioxide (equivalent to the emissions from more than 500,000 cars).
The cap-and-trade program adds the final piece to the equation: by holding large emitters accountable for their carbon pollution, the program creates a market incentive to develop and deploy cleaner alternatives. By directing the proceeds back to customers, the Commission is ensuring we all reap the benefits from California’s drive towards clean energy.