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