The below is written by Claire Broome who represented 350 Bay Area so well at the workshop, with numerous strongly stated comments during the various panels of that day.
350 Bay Area strongly endorses the importance and urgency of the Phase 3 objective to “Align the cost-effectiveness framework with California’s environmental goals”. The staff proposal is a welcome contribution to CPUC leadership to achieve an accurate accounting of the costs and benefits to the California public of distributed energy resources (DER). The importance of Phase 3 of this proceedings to California is difficult to overstate—the proposal to incorporate societal costs is central, not peripheral to planning California’s energy future.
The current failure to incorporate direct, current, and measurable economic benefits of renewable energy sources (distributed and otherwise) into policy relevant cost effectiveness analyses seriously undermines the commission’s ability to meet its mission to balance least cost, reliability, and attention to the state’s climate policy goals; analyses that do not include these benefits are intrinsically biased against renewable resources. Excluding the well documented costs directly attributable to criteria and toxic air pollutants resulting from fossil fuel combustion such as hospitalizations, medical care, and premature death from asthma, chronic obstructive pulmonary disease and cardiovascular disease results in economic analysis biased against renewable energy compared to fossil fuel generation.
Since 1990 there has been a legislative mandate to include air quality health impacts and greenhouse gas effects in calculating the cost-effectiveness of energy resources. As noted on p 14 of the staff proposal Assembly Bill 3995 (Sher, Ch.1475, Stat. 1990) Section 701.1 C states “In calculating… the Commission shall include, in addition to other ratepayer protection objectives, a value for any costs and benefits to the environment, including air quality.” (emphasis added)
There is also a clear scientific basis for including these costs. It is well recognized that many of the direct costs of fossil fuel combustion are not reflected in the market price of fossil fuels i.e. are externalized. The IOU’s are able to externalize these costs and health impacts onto the citizens and ratepayers of California, but addressing that is outside the scope and authority of the CPUC. However, there is ample justification for the CPUC to include such direct costs into decisions based on cost-effectiveness analysis done from the perspective of ratepayers and society (which should be the primary perspective of the CPUC). The US National Academy of Sciences (National Academy of Sciences Hidden Costs of Energy 2010) summarizes the compelling and substantial scientific evidence that these are real and direct costs.
It is particularly appropriate to include these direct damage costs because when the current system externalizes costs such as health impact of criteria pollutants, these costs are paid by the California residents who get asthma and lung disease as well as by other members of the public who pay for unrecovered costs in the health care system—many of these residents are also ratepayers. At the same time, IOU shareholders (who may reside in other states or countries) do not pay for these health impacts and in effect profit from the artefactually low cost of fossil fuels. So accounting correctly for direct costs of fossil fuel combustion is only fair to ratepayers, as well as to California society.
Inappropriately valuing renewable and preferred resources such as energy efficiency may also lead to stranded fossil fuel generating assets and excess capacity, so the cost impact to ratepayers of this bias against preferred resources is complex; correcting this bias may in some instances produce cost savings. Similarly, the current costs of climate change due to fossil fuel combustion are externalized and therefore paid by the public/ratepayers while shareholder profits are not subject to these costs.
The agenda for the August 8th workshop provided an opportunity to clarify and try to resolve some of the issues raised in party comments on the staff Societal Cost Test proposal (see background above).
- The presentations mostly reiterated positions presented in the party proposals. For example the utilities continue to insist that their cost of capital is the appropriate discount rate, despite the seemingly self-evident conclusion that a societal discount rate is the appropriate discount rate for a societal cost test.
- Most parties agreed with the use of EPA values for toxic and criteria pollutant health impacts (COBRA and Benmap); there was also general agreement that locational data were important, but there were varying conceptions of what that meant with some of the utilities suggesting detailed and impossible to achieve information on linking specific health impacts to specific sources of pollution. One of the EPA tools does have zip code level data .
- The discussion of how damages from greenhouse gas should be incorporated into any of the standard practice manual tests did produce information different from party comments. The utilities repeatedly stated that with passage of AB 398, the marginal abatement price had now been established as the Allowance Reserve Containment Price (APCR). 350 Bay Area continues to argue for the damage cost approach using the Social Cost of Carbon as established by the EPA.
- Staff from the Energy Division encouraged participants to focus on the task of defining the components of the Societal Cost Test, rather than speculating about how the test could or should be used in commission proceedings. The utilities, Office of Ratepayer Advocates and TURN stated repeatedly that consideration of societal costs would be “ fundamental injustice” to electric ratepayers.
- Next steps for implementation of the Societal Cost Test were contested. The utilities urged an ongoing working group to resolve the “many uncertainties”. Most of the other participants felt that since a work group had been unable to resolve these issues previously, there was little reason to think another workgroup would be a productive exercise and would stress NGO staff resources . 350 Bay Area, the Sierra Club, EDF urged Administrative Law Judge Hymes who attended the entire session to issue a proposed decision for Commission action on the areas where resolution was possible, such as the Societal Discount Rate, the approach to be used for the greenhouse gas adder, and the inclusion of EPA air quality health impact measures, using a consultant knowledgeable in air quality health impact and/or a focused work group to incorporate locational specificity.
The CPUC can also provide leadership by aligning their approach to cost-effectiveness analyses with other California state agencies so that there can be an effective and systemwide analysis of feasible and cost-effective paths to implement California state policy to reduce GHG emissions.