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Electric utilities waging a power struggle

New rules to contain greenhouse gases could shift cost burden to public agencies and ultimately customers.

April 20, 2008|Margot Roosevelt | Times Staff Writer

Fighting global warming is the feel-good cause of the moment.

But in California, the self-congratulation that followed the 2006 passage of the nation's first comprehensive law to curb emissions of planet-warming greenhouse gases is fast turning to acrimony.

A ferocious behind-the-scenes brawl over how to regulate electricity plants, the biggest source of carbon dioxide after motor vehicles, has pitted Southern California's public power generators against its for-profit utilities.

Why? Because some taxpayer-owned utilities, such as Los Angeles' Department of Water and Power, get close to half their electricity from the nation's dirtiest energy source: coal.

And under the system envisioned by Gov. Arnold Schwarzenegger to implement the greenhouse gas law, utilities would probably be required to buy the right to pollute from the state.

On Monday and Tuesday, the state's utilities and energy commissions will hold public workshops in San Francisco on proposals that could make high-carbon polluters such as the DWP, the nation's biggest municipal utility, pay dearly. Investor-owned companies with cleaner nuclear and hydroelectric power could reap windfalls since they might pay proportionately less. And, overall, the money the state collects could be redistributed based on which utility sells the most electricity -- and investor-owned ones such as Southern California Edison are atop that list.

A decision on how to control greenhouse gases from utilities will be made by the California Air Resources Board at the end of the year. But scenarios under consideration have Los Angeles Mayor Antonio Villaraigosa and DWP chief H. David Nahai on a lobbying streak in Sacramento. Nahai recently accused the utilities and s of promoting "a scheme to line the pockets of large corporations" and "shift billions of dollars away from our communities and our customers and into the pockets of for-profit utilities."

Los Angeles' customers, who thus far have benefited from some of the lowest rates in the state, could shell out $450 million to $700 million a year -- money that the utility was planning to spend building wind and solar plants. Smaller coal-reliant cities, such as Anaheim, Burbank and Pasadena, also could pay high fees. Customers' bills could soar under such a plan, municipal utility directors, including Nahai, warn.

California's battle over the design of this "cap-and-trade" system, which would also allow industries to buy and sell pollution permits among themselves, has erupted as Congress appears likely to adopt a similar market-based system nationwide. Utilities around the country are jockeying for position on the penalty-versus-windfall balance sheet.

Michael Peevey, president of the California Public Utilities Commission, which is charged with recommending global-warming rules for the electricity industry to the air board, dismisses Los Angeles' complaints, saying its officials "are fighting with phantoms. . . . They're doing a preemptive strike to carve themselves out" of a statewide program.

"There's no free lunch," Peevey warns. "We have to reduce CO2 by 174 million tons by 2020. But no one wants to face up to the cost. Everyone wants everyone else to pay."

California's law requires cutting greenhouse gases to 1990 levels by 2020, about 25% below expected levels in that year, and aims to reduce them by 80% by midcentury. A draft plan on how to meet those goals will be released in June by the air board.

Under a cap-and-trade program, the state would impose a ceiling on emissions. Emissions permits would either be given away, auctioned or some combination of the two. Companies whose emissions are below the ceiling, or cap, could sell their pollution permits to industries that pollute above the cap. The system has been launched with mixed success in Europe, where it has been undermined by dubious emissions accounting.

Monitoring smokestacks inside California is the easy part of the regulation. But the power that California imports from states such as Utah and Arizona presents a problem.

Because California has no authority to clamp down on coal plants in other states, the utility and energy commissions are recommending that the air board regulate "first deliverers" who bring the power to the border of the state -- be they utilities or middlemen, such as the former Enron, who market imported electricity.

But Nahai calls that "bad policy, ripe for gaming and manipulation." He adds, "First deliverers can be faceless foreign companies beyond our control, with no assets and no interest in keeping the lights on."

Gary Stern, an economist for Southern California Edison, which supports the first-deliverer rule, acknowledged that out-of-state generators could obscure the source of their emissions from California regulators.

"If I want to buy power from Utah, then the Utah company can arrange a deal to sell coal to the Northwest, and buy hydro from the Northwest and sell it to us. It will look clean, and we won't know that it sold coal."

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