COMMENTS OF PORTLAND GENERAL ELECTRIC
TO THE WESTERN CLIMATE INITIATIVE ON
THE DRAFT DESIGN RECOMMENDATIONS
DATED MAY 16, 2008
Dear Western Climate Initiative partners:
Thank you for the opportunity to submit comments on the draft design
recommendations. Portland General Electric (“PGE”) has participated in all of the fora available
to Oregon stakeholders, including conference calls, stakeholder meetings, regional meetings
and written comment opportunities. We have expressed serious concerns at those times
regarding the Western Climate Initiative partners’ (“partners”) proposals for a regional cap and
trade system. Unfortunately, the Draft Design Recommendations released May 16, 2008,
resolve few, if any, of the concerns we have raised. Rather, the partners seem to be headed
down a policy path that is likely to penalize Oregon and impose significant costs on PGE
customers. After looking at the recent release of design recommendations we wish to highlight
the following issues:
CREATING A LEVEL PLAYING FIELD
Each WCI partner state must have the same reduction target under the cap and trade
program. The partners have created an aggregate regional goal from individual state
goals that were not adopted with a larger, regional context in mind. Requiring Oregon to
achieve an emissions reduction target under the cap and trade that is more than double
the target required of all but one other partner imposes an unfair and unreasonable
burden on Oregon citizens and businesses – both in terms of per capita costs and as a
percentage of state gross domestic product.
We strongly oppose the recommendation to allow individual state partners to set
fundamental market rules on a state-by-state basis. We believe the partners must set
common rules for allowance allocation, percentage of allowances to be auctioned, cost-
containment and key program design features. Creating a state-by state hodge-podge of
market rules will impose unequal carbon costs on utilities and other regulated entities
solely on the basis of the entities’ location within the WCI region. Perhaps more
importantly, the actions of any one state could create market distortions that will affect
carbon and power markets throughout the west. We need only look to the western power
crisis to see the profound effects that one state’s energy policy decisions can have on
western power markets, utilities and their customers throughout the WECC.
MINIMUM AUCTION AMOUNT IS TOO HIGH
While we note that the partners have suggested lowering the auction amount in the early
years of the program, we are opposed to requiring a minimum of 25% of allowances in
the auction. A small auction, 3 to 5% in the early years, but perhaps increasing over
time, would be more appropriate. Allowances should be allocated at no cost to rate
regulated utilities on the basis of their historic emissions. Requiring rate regulated
utilities to purchase allowances at auction needlessly increases the costs of program
compliance for utility customers.
SHARING THE BURDEN
We view it as a positive development that the partners have called for including
residential and commercial fuels in the cap and trade. Every sector that contributes to
the problem must pull its weight so that we can achieve the reductions that scientists say
are necessary. The bottom line is that we’re all in this together. However, residential and
commercial fuels, as well as transportation fuels, should be included within the cap from
the very beginning, not phased in over time.
PLANNING FOR THE FUTURE
The partners have not provided for transition to federal regulation of greenhouse gases.
A federal compliance system is only a few years away and will, by virtue of its national
scope, provide a more efficient regulatory framework for addressing this global problem.
The regional system must be designed to integrate smoothly into the federal system,
once it is in place.
We are sympathetic to the difficult job that the partners face. Developing a new market is
no easy task, but the partners must do the hard work and make these decisions at the regional
level so that we minimize the risks of market dysfunction and soaring carbon and power prices.
Proper market design, one that has adequate protections against the unknown, including
flexible compliance tools and systems to prevent market manipulation, is crucial. We still believe
that a pre-established cost containment mechanism like a safety valve is essential.
Thank you for the opportunity to comment, and we look forward to the next step in the