1. Overview of CPUC/CEC Proposed Decision: Recommendations for the Electricity Industry September 2008 Nancy Ryan Chief of Staff, Office of Commissioner Peevey California Public Utilities Commission

2. 2 Outline Overview of proposed decision Recommendations in key areas: –Allowance allocation –Market design and flexible compliance What’s next?

3. 3 Overview of Proposed Decision: Mandates Pursue all cost-effective energy efficiency Expand renewable energy use to 33 percent Require comparable investment in renewable energy and energy efficiency from all retail providers of electricity Consistent with Draft Scoping Plan

4. 4 Overview of Proposed Decision: Cap and Trade Program  Endorses creation of a multi-sector, regional cap-and-trade market Recognize that WCI is the principal forum Focus on specific electric sector issues Recommendations in 4 key areas –Contribution of electric sector to meeting AB32 target –Allowance allocation –Market design and flexible compliance –Treatment of CHP

5. 5 The Electric Sector Accounts for 20-25% of California’s GHG Emissions

6. 6 Nearly 40% of reductions from mandates are from electric sector programs 20% 80% 37% 45% 18% Cap and trade to yield additional reductions

7. 7 Retailers start from different places Emissions Intensity (Tons CO2e/GWh)

8. 8 Recommended Approach to Allowance Allocation for Electric Sector Declining Cap

9. 9 Market Design and Flexible Compliance: Key Principles  Must assure environmental integrity  Flexibility important due to electricity sector characteristics – annual variations in weather, hydro conditions, fuel prices  Allow open and transparent trading with many participants  Flexible compliance options can reduce costs

10. 10 Market Design and Flexible Compliance: Key Recommendations  Multi-sector, regional cap-and-trade market  Link to other equally stringent cap-and-trade programs  No restrictions on market participation  Three-year compliance periods  Unlimited banking of allowances and offsets  No geographic limits on offsets  No safety valves or price triggers

11. 11 Next Steps  Proposed Final Opinion released on September 12  Stakeholder/party comments due on October 2  Reply comments due on October 7  Public Utilities Commission vote on October 16  Energy Commission vote on October 16  Final Opinion delivered to Air Resources Board on October 17

12. 12 Thank You