Comment Log Display

The following comments are not specific to the subject of the
recent Workshop, but are pertinent to the proposed Amendments as a
whole.  For the reasons expressed below, we were not notified in
the August 2 Public Notice of certain proposed Amendments, and only
recently became aware of them.  In any event, we ask that you
accept these comments for the record.

COMMENTS BY CROCKETT COGENERATION, LLC ON PROPOSED AMENDMENTS TO
THE CALIFORNIA CAP ON GREENHOUSE GAS EMISSIONS AND MARKET-BASED
COMPLIANCE MECHANISMS REGULATION

Background: Legacy Contracts and the Proposed Amendments

When the AB 32 Cap and Trade Program was first implemented, the
Board provided allowances to IOUs and various other covered
entities, subject to a declining cap.  It became apparent that some
“legacy contracts” (now defined in 17 CCR Section 95802 (203)) were
not covered by the Board’s original allocation of allowances, and
that there were inequities with regard to legacy contract
treatment.  Legacy contract holders appeared before the Board to
plead their case, and the Board directed staff to consider and act
upon these concerns.  Accordingly, the staff proposed in 2013 and
the Board in 2014 adopted provisions to assist these legacy
contract holders.

Legacy contract holders with IOU or industrial counterparties lent
themselves to a solution in which allowances were transferred from
one party to another.  However, for legacy contracts without an
industrial counterparty—with several diverse and unique examples—it
became necessary to allocate allowances based on previous
emissions.  The Board chose 2012 as that reference year.  The Board
also conditioned allowances on proof that the legacy contract
holders continue to try to get their counterparties to absorb the
cost of allowances.  In some cases this proved possible, in other
cases it proved impossible.

In 2014 the Board decided that for legacy contracts with an
industrial counterparty, transition assistance would be provided
for the life of the contract (17 CCR Section 95870(g)(2)). 
However, for those without an industrial counterparty, the Board
limited transition assistance to the end of the second compliance
period (Id., subdivision (g)(1)).  

At the time of its decision the Board understood that there was
only one such legacy contract without an industrial counterparty
that was covered by the regulation, Crockett Cogeneration, that
extended beyond 2017 (Crockett extends until 2026).  The Board
urged Crockett to continue to negotiate with its counterparty, C&H
Sugar, and to return to the Board later if it could not do so.   No
promises were made to extend the transition assistance period, but
the door remained open for conversation.

On August 2, 2016, the Board issued its NOTICE OF PUBLIC HEARING to
consider proposed amendments to the California Cap on Greenhouse
Gas Emissions and Market-Based Compliance Mechanisms Regulation
(hereinafter “Public Notice”).  The 27 page summary of proposed
amendments mentions legacy contracts only once (page 10), and does
not discuss the Board’s proposal to delete all provisions of the
Regulation that pertain to legacy contracts without an industrial
counterparty.

Although we understand the Board’s position that its deletion of
these provisions did not need to be noticed because the program in
the current regulation sunsets after the second compliance period
(2017), we believe that the Administrative Procedure Act calls for
that type of notice when an entire program is being deleted from
the regulation entirely.  As an example, had the Public Notice set
forth the planned deletion of the program, Crockett Cogeneration
would have been on notice that if it wanted to argue for an
extension of transition assistance into the third compliance
period, it would need to ask also that these provisions be amended
rather than deleted.  (The referenced deletions occur in the
definition section, 95802, section 95870, and section 95894, among
others.)

Crockett Cogeneration

Crockett Cogeneration provides steam (heat) to C&H Sugar.  C&H
Sugar uses the steam provided by Crockett Cogeneration to first
produce all the electrical energy required for operation of the
refinery and secondly to supply all the thermal processes required
to refine sugar and produce its products.  The steam sales contract
does not provide for any pass-through for the type of costs created
by the Cap and Trade Regulation.  C&H, were it to have emissions of
its own, would readily qualify as an energy-intensive trade-exposed
(EITE) industrial entity covered under the Cap & Trade program.  It
is the only cane sugar refiner west of the Mississippi, and
competes nationally and internationally based on price.  As a
result, C&H has been unwilling to shoulder any of the load of GHG
allowance costs, including the cost of joining the system and
reporting.

Crockett Cogeneration is equitably as entitled to transition
assistance as any other legacy contract generator that is provided
that assistance for the life of its contract.  Given Crockett’s
inability to re-negotiate its contract with its nonindustrial
counter-party, we ask the Board’s consideration of the fairness of
extending transition assistance for the life of Crockett’s contract
(2026), subject to all of the same conditions that have been
heretofore required for such assistance.

Thank you for your consideration,
Peter Weiner