TITLE
Recommendation to authorize City Manager to create a separate line item on gas utility bills for recovery of regulatory costs associated with Assembly Bill 32, the California Global Warming Solutions Act of 2006; and increase appropriations in the Gas Fund (EF 301) in the Long Beach Gas and Oil Department (GO) by $1,500,000. (Citywide)
DISCUSSION
The State of California’s Assembly Bill 32 Cap and Trade Program (Cap and Trade) became effective January 1, 2012. Approximately 85 percent of the Greenhouse Gas (GHG) emissions in California are covered under the program’s cap.
Beginning in 2015, natural gas utilities are included for compliance with the Cap and Trade Program. As such, the Long Beach Gas and Oil Department (LBGO) is required to purchase GHG emission allowances related to its natural gas sales to small- and medium-sized natural gas customers (fewer than the equivalent production of 25,000 tons of carbon dioxide per year or approximately 4.7 million therms of natural gas usage). The costs associated with the purchase of emission allowances are to be passed through to utility customers via gas rates.
As a way to recognize reductions in GHG emissions already achieved through conservation and efficiency efforts by many utilities and their customers, the California Air Resources Board (CARB) will not require gas utilities to purchase the full amount of emission allowances that would be otherwise required for regulatory compliance. Essentially, CARB has created an incentive to meet emission reduction goals by distributing free GHG allocations.
On October 24, 2014, CARB allocated an amount of free allocations to LBGO that will cover approximately 75 percent of LBGO’s compliance obligation. In order to meet the remaining 25 percent of the total obligation, LBGO will need to participate in the CARB emission auction. Based on an average price of $13.65 per allocation posted in the August 2014 auction, LBGO estimates it will cost $1.5 million ...
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