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Comment 16 for May 4 Cap-and-Trade Electricity Workshop Comments (5-4-electricity-ws) - 1st Workshop.


First Name: Jeanine
Last Name: Divis
Email Address: jeanine.divis@aps.com
Affiliation: APS

Subject: Public Comments Related to the May 4th Public Workshop
Comment:
Arizona Public Service Company (“APS”) is a wholly-owned subsidiary
of Pinnacle West Capital Corporation and is engaged in the business
of generating, transmitting, and distributing electricity in eleven
of Arizona’s fifteen counties.  APS serves more than one million
retail electric customers in Arizona and participates in the
wholesale energy market.  APS purchases from and sells energy to
the California Independent System Operator (“CAISO”) at delivery
points outside the state of California.  APS does not own
generation or serve retail or wholesale customers within the state
of California.

Sales to CAISO outside the state of California

The California Air Resource Board (“ARB”) applies its greenhouse
gas cap-and-trade rules to the first deliverers of electricity. 
ARB defines the first deliverer of electricity as the operator of
an electricity generating facility in California or an electricity
importer.  ARB identifies the electricity importer on the NERC
E-tag as the purchasing-selling entity (“PSE”) on the last segment
of the tag’s physical path with the point of receipt located
outside the state of California and the point of delivery located
inside the state of California or as the facility operator or
scheduling coordinator for generation facilities physically located
outside the state of California with the first point of
interconnection to a California balancing authority’s transmission
and distribution system.  APS does not own facilities whose first
point of delivery is a California balancing authority’s
transmission or distribution system. 

APS sells energy to CAISO at delivery points located outside the
state of California.  Pursuant to NAESB tagging rules, APS is not
identified as the PSE for the line segment entering California on
the NERC E-tags.  NAESB Electronic Tagging – Functional
Specifications, Version 1.8.1, Section 6.1.3, identifies the PSE as
the entity responsible for the physical segment.  APS does not own
any transmission delivered into the state of California and cannot
be identified as the PSE on the NERC E-tag for the physical path
entering into California.  

Furthermore, a sale to CAISO does not necessarily result in an
energy import into California.  A variety of market participants
purchase energy from CASIO at delivery points located outside the
state of California for use outside the state of California.  These
purchases are often sourced from day-ahead sales to CAISO and
result in no import of energy to California.  

In the Final Statement of Reasons issued by ARB in October 2011,
ARB clearly indicates its intention that sales to CAISO incur
reporting obligations.  However, as the regulations currently are
written, sales to CAISO, such as those transacted by APS, do not
qualify APS as an electric importer.  ARB should revise its
regulations to clearly include or exclude electricity generated and
sold to CAISO outside the state of California.   

Netting out-of-state CAISO purchase against CAISO sales

To mitigate the potential for Commerce Clause violations, ARB
should allow CAISO purchases outside the state of California to be
netted against CAISO sales outside the state of California.  As
currently drafted, it appears that ARB intends that sales to CAISO
would incur carbon obligations.  Absent the ability to net
out-of-state CAISO purchases against out-of-state CAISO sales, the
ARB rules would resemble an energy tax for purchases from CAISO
conducted outside the state of California; carbon obligations would
be needlessly incurred by out-of-state entities.

There would be no adverse impacts on California nor would the goals
of AB 32 be thwarted by allowing such netting.  In the Final
Statement of Reasons issued by ARB in October 2011, ARB discusses
that it permits simultaneous netting of imports and exports “in
that not all of the electricity being imported is actually used to
serve California load.” Similarly, not all sales to CAISO serve
California load. When considering out-of-state purchases and sales
to CAISO, a single entity’s simultaneous netting of imports and
exports does not accurately reflect the amount of load being served
in California, nor does it accurately capture the annual emissions
related to these net transactions. APS proposes expanding the
ability to net as it relates to out-of-state purchases from CAISO
to allow netting on an annual basis.  Allowing netting on an annual
basis would result in out-of-state entities incurring only the
carbon obligations attributable to their actual imports into
California during the reporting year.  Additionally, netting in the
manner described above would (i) effectively prevent the
extraterritorial reach of the cap-and-trade program’s carbon
obligations into out-of-state markets without frustrating the goals
of AB 32; and (ii) mitigate the extent to which the program might
otherwise unfairly discriminate against out-of-state competitors.

ARB should modify its regulations to allow CAISO purchases outside
the state of California to be netted from CAISO sales, consistent
with the annual ARB reporting periods.  

Resource Shuffling

APS seeks clarification regarding “resource shuffling.”  APS owns
generation in Arizona and New Mexico.  To the extent that APS may
qualify as an importer, APS intends to use the Default Emissions
Factor.  APS received guidance at the May 4, 2012 ARB Public
Workshop confirming that use of the Default Emissions Factor would
be appropriate; however, APS received previous verbal guidance
suggesting that APS should register as an Asset Controlling
Supplier and, thus, use a system-wide emission rate.  APS intends
to source sales to CAISO using unspecified resources, which may
involve purchases from other counterparties, rather than specific
units.  APS believes that the Default Emissions Rate is appropriate
because the sale may not be sourced from its system.  APS seeks
further clarification from ARB to ensure that APS is fully
compliant.

Conclusion

APS respectfully requests ARB to (1) evaluate its identification
threshold for energy importer as identified on the NERC E-tag and
to determine to what extent sales outside the state of California
to CAISO, which do not identify the seller as the PSE, qualify APS
as an energy importer; (2) allow for purchases from CAISO outside
the state of California to be netted against any import obligation
incurred by out-of-state sales to CAISO on an annual basis; and (3)
clarify its intentions related to emission rate requirements from
potential energy importers outside the state of California.

Attachment:

Original File Name:

Date and Time Comment Was Submitted: 2012-05-11 16:19:04



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