Electrical Distribution Utility and Natural Gas Supplier Allowance Allocation

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Overview

CARB allocates allowances to electrical distribution utilities (EDU) and natural gas suppliers (NG suppliers or NGS) on behalf of their ratepayers.  Under the Cap-and-Trade Regulation (Regulation), allocated allowance value must be used for the primary benefit of retail electricity or natural gas ratepayers of each EDU or NG supplier, consistent with the goals of Assembly Bill 32. Sections 95892 and 95893 of the Regulation specify how the value of allocated allowances may be used.  The requirements depend on the type of entity, but broadly speaking the allowable uses include:

  • Climate credits for ratepayers
  • Energy efficiency programs
  • Renewable energy
  • Building and transportation electrification
  • Building decarbonization programs
  • Compliance (for some entities)

Electrical Distribution Utility Allocation Methodology

CARB allocates free allowances annually to each EDU to benefit their ratepayers, consistent with the goals of AB 32.  The number of allowances allocated to each EDU is based on its anticipated Cap-and-Trade Program (Program) compliance costs.  The EDU allocation calculation methodology uses each utility’s demand forecast, their supply forecast, and additional information to calculate its expected annual Program compliance costs.  Allocation to individual EDUs may vary from year to year, but allocation to the EDU sector as a whole declines over time.

In order to support the transition to lower-carbon electricity sources and to provide certainty to EDUs regarding ratepayer protection, CARB set the annual EDU allowance allocation in the Regulation multiple years ahead of time.  Tables 9-3, 9-3A, and 9-4 of the Regulation specify the vintage 2013–2020 and vintage 2021–2030 allowance allocations to each EDU.  For detailed calculations and background information see:

Natural Gas Supplier Allocation Methodology

CARB allocates free allowances annually to natural gas suppliers (NG suppliers) to benefit their ratepayers, consistent with the goals of AB 32.  NG suppliers have been covered by the Cap-and-Trade Program and have received allowance allocation since 2015.  The number of allowances allocated to each NG supplier each year is calculated based on its 2011 natural gas sales (excluding sales to facilities directly covered by the Program) and the cap adjustment factor, which declines each year in proportion to the overall annual caps.  Allowances allocated to NG suppliers represent approximately 12 percent of the Program’s annual allowance budget.

    EDU Use of Allocated Allowance Value

    Investor-owned EDUs are annually required to consign all allocated allowances to auction.  Publicly owned EDUs and electrical cooperatives may consign allocated allowances to auction, deposit them for compliance, or do some of each.  All value from free allowances must be used to benefit each utility’s retail ratepayers in conformance with the Regulation and, for investor-owned EDUs, with California Public Utility Commission requirements.  

    For investor-owned utility ratepayers, all Cap-and-Trade Program costs are passed through in electricity rates, and proceeds from the auction of allocated allowances are used to benefit ratepayers.  The majority of the EDU allowance value is returned to electricity ratepayers as California Climate Credits.  Other uses include renewable energy, energy efficiency, and transportation electrification projects.  CARB provides summary reports of how EDUs have used their allocated allowance value in prior years.  The summary reports are based on the annual reports each EDU provides to CARB pursuant to section 95892 of the Regulation.  The current summary report is available below.  The most recent summary report supersedes prior reports.

    Prior reports on EDU use of allocated allowance value are available below.

    NG Supplier Use of Allocated Allowance Value

    Natural gas suppliers are required to consign a minimum percentage of their allocated allowances to auction each year.  This minimum percentage increases by five percent each year and will reach 100 percent in 2030.  For customers of investor-owned NG suppliers, the percentage of allowances consigned to auction is equal to the percentage of Program costs that is passed through in rates.  After consigning the minimum percentage to auction, NG suppliers may use the remaining allocated allowances for Cap-and-Trade Program compliance. 

    Proceeds from the auction of allocated allowances are used primarily for providing California Climate Credits to residential customers, netting against past Program compliance costs (for 2015-2017 only), and decarbonizing buildings.  The California Public Utilities Commission (CPUC) is developing building decarbonization programs funded by proceeds from the auction of NG suppliers’ allocated allowances per SB 1477 (Stern 2018).  Less than two percent of allowances allocated to NG suppliers go to publicly owned NG suppliers.  The summary report below provides more detail regarding the use of allowances allocated to NG suppliers. The most recent summary report supersedes prior reports.

    Prior reports on natural gas supplier use of allocated allowance value are available below.

    California Climate Credit

    The California Climate Credits are rebates that are funded by proceeds from the sale of EDU and NG supplier allocated allowances and provided to residential electricity, small business electricity, and residential natural gas ratepayers of investor owned utilities.  More information on the California Climate Credits is available at the CPUC's California Climate Credit web page.

    Reporting on Use of Allocated Allowance Value

    Each EDU and NG supplier that receives an allowance allocation has until June 30 of each year to submit a report to CARB describing how all allocated allowance value that was used during the prior calendar year was used in compliance with the Regulation.  EDUs and NG suppliers may use the forms and calculation tools below to fulfill this reporting requirement.  These forms are provided for clarity and convenience and do not supersede any law or regulation.

    Account Distribution of Allocated Allowances

    Publicly owned utilities (POUs), electrical cooperatives (COOPs), and NG suppliers have until September 1 each year to specify to CARB the destination accounts for allowances that will be allocated to them by October 24 for the following year.

    POUs, COOPs, and NG suppliers may use the forms below to specify to CARB the destination accounts of their allocated allowances.  These forms are provided for clarity and convenience and do not supersede any law or regulation.  

    A generator or Federal Power Marketing Administration that plans to receive allocated allowances from a POU or COOP may submit a completed Recipient Confirmation Form to CARB to confirm the amount of allocated allowances they expect to receive.

    Contact Us

    For EDU allocation questions or comments, please contact EDU team lead Paulina Kolic at edu-allocation@arb.ca.gov or (279) 208-7914.

    For NG supplier allocation questions or comments, please contact NG supplier team lead Michael Turgeon at ngs-allocation@arb.ca.gov or (279) 208-7976.