US: CPUC to discuss procurement for natural gas utilities on 29 April

10 April 2014 20:23 Source:ICIS

The California Public Utilities Commission (CPUC) will discuss with natural gas distributors at the end of April rules for buying carbon permits that will apply to the sector when it enters the cap-and-trade programme in 2015, a document issued earlier this year shows. The commission regulates the state’s utilities.

It will accept until Thursday comments on whether the rules for regulated electricity utilities, already included in the programme, should also govern gas utilities. It will then reply to comments by 17 April and a debate on the issue before a judge is scheduled on 29 April.

Natural gas distributors, including Southern California Gas Company (SoCalGas), will join the cap-and-trade from the second compliance period. As such, they will have to pay for emissions resulting from burning the natural gas they deliver to California end-user customers, minus those from fuel distributed to entities that are separately covered by the scheme.

Investor-owned power utilities (IOUs) such as Pacific Gas & Electric and Southern California Edison are subject to several limitations when buying carbon permits as they: cannot trade via brokers; can only buy offsets for which the seller assumes the invalidation risk (so-called Golden offsets); cannot purchase options, swaps or derivative products; and are subject to annual maximum purchasing limits.

SoCalGas has previously said that rules for carbon trading should reflect the greater flexibility of rules governing gas trading, when compared to power trading ( see EDCM 3 April 2014 ). SoCalGas would like the option of trading trough brokers and exemption from having to buy Golden offsets only.

The commission in the document acknowledged that there are “significant differences” between electric and natural gas companies, and that therefore gas utilities deserve separate rulemaking. However, it did not states if this could result in different rules.

Other question marks

The CPUC is also asking if any rules should apply equally to each gas company, or whether different rules should be in place, depending on the size whether it is an integrated electric and gas utility.

However, the commission also said that “the scope and schedule” of the rulemaking may change as draft rules for free allowance allocation to gas utilities have been put forward by cap-and-trade regulator Air Resources Board (ARB).

Under the ARB proposal, gas distributors would receive free allowances equal to their total compliance obligation based on 2011 emissions, multiplied by an adjustment factor declining every year. A minimum of 25% of these allowances will have to be consigned at auction in 2015, and that quota would increase annually ( see EDCM 24 March 2014 ).

The ARB will consider the amendments at its April board meeting.

The commission is also seeking feedback on the use of auction revenues; and policies concerning the treatment of emissions-intensive and trade-exposed entities that are customers of natural gas companies. Silvia Molteni

By Silvia Molteni