July 10, 2024
Oregon Department of Environmental Quality (ODEQ)
ATTN: Nicole Singh at nicole.singh@deq.state.or.us
RE: NWGA Comments on 2024 CPP RAC 3
Dear Ms. Singh:
The Northwest Gas Association (NWGA) represents the natural gas utilities and transmission pipelines serving warmth and comfort to over 800,000 households and 86,000 businesses, institutions, and industries in Oregon.
NWGA appreciates the opportunity to comment on the 2024 Climate Protection Program (CPP) rulemaking following the third and final rulemaking advisory committee (RAC) meeting. We continue to harbor serious reservations about the validity of the program. Whether ODEQ has the authority to promulgate this rule absent legislative authority remains an open question. That said, we offer the following substantive comments on the draft rule.
As mentioned in our public comments during the meeting, the staff deserves kudos for being accessible and for working to strike a balance where there was room for substantive discussion, especially relating to the treatment of energy intensive trade exposed industries (EITEs).
Emissions (Emissions or Energy?) Intensive Trade Exposed Companies: A Step in the Right Direction
As noted above, we appreciate that the draft rule reflects substantive changes in the treatment of EITEs by providing them with a differentiated regime. Entities that provide essential services such as hospitals, government buildings, schools and other educational institutions should receive similar consideration, including a more modest cap decline. In the interest of transparency, ODEQ should provide a list of EITEs and others being treated differently including the load serving entity (i.e. gas utility or federally regulated pipeline).
In addition, companies that do not meet the covered entity threshold and who purchase their own energy supplies (i.e. transport customers) should be afforded a pathway to identify and employ compliance management strategies that best meet their needs, as is done under Washington’s Climate Commitment Act.
Cost Containment is Critical
The draft rule does not include cost controls or reliability assurance guardrails that ensure Oregon residents, businesses and institutions have access to and can afford the energy they need when they need it. The Oregon Public Utility Commission’s (OPUC) representative said as much during the portion of the agenda set aside for Commission staff’s observations regarding the draft rule. There is a precedent in Oregon’s Clean Electricity Act, which includes reasonable cost containment and off-ramp provisions. That the draft rule does not contemplate such protections is a serious flaw.
Community Climate Investments (CCIs) Remain Problematic
Above all, CCIs must demonstrably reduce emissions on a one-for-one basis and the cost of a CCI should be grounded in actual carbon markets. For instance, a CCI could be indexed to the Western Climate Initiative carbon market price.
Constraining the field of eligible CCI entities restricts alternatives, increases the likelihood of delays and risks the ability of ODEQ to have CCIs available when required. Furthermore, covered entities should be allowed to partner with CCI program entities, including a separate CCI program for the natural gas utilities.
Limiting compliance to CCIs alone will drive the cost of compliance up and limits opportunities to actually achieve GHG emissions reductions. At the very least, the CPP should provide offsets and be generous in the number of offsets allowed for compliance.
Finally, there is an implied expectation that a secondary market for trading compliance instruments will organically develop. Whether and how a gas utility might access such a market for compliance purposes is difficult to assess and is made more uncertain by the regulatory risk associated with prudency reviews and determinations made by the Public Utility Commission.
Some covered parties may engage in a secondary market but gas utilities will start their compliance obligation at a deficit to the baseline. Coupled with the steep decline of the cap, the liquidity of the market for compliance instruments will be severely limited, while the compliance obligation of LDCs will continue to grow (due to the declining cap). The result will be serious economic disruptions for liquid fuel and natural gas consumers, an effect that will only be amplified by the exclusion of compliance instrument banking.
Economic Impact Assessment
The economic impact statement fails to capture the true economic impact of the program’s implementation. The state should revisit the analysis to provide a more complete and accurate economy-wide impact assessment. For instance, compliance instruments and pathways should be modeled from best available data with sufficient time allocated for review of ODEQ’s cost-impact analysis. For instance, the three-year compliance figures shared during the RAC meeting differed from the meeting materials provided in advance. A detailed explanation of the discrepancies should be provided prior to final rulemaking.
The small business impact modeling is also insufficient. Does DEQ intend to limit its small business impact analysis solely to regulated fuel suppliers, or do you intend to look at the broader economic impacts of utility pass-through costs on small business that are not regulated entities?
Finally, and something that is of critical importance to those interested in a prosperous Oregon, the proposed rule does not contemplate any economic growth since the original baseline, and does not accommodate any growth going forward. This flaw in the proposed rule is in direct conflict with policies like the CHIPS Act designed specifically to spur economic growth. While it may be difficult to resolve, it is critical to do so.
Thank you for the chance to comment on the draft rule. Please feel free to contact me if you wish to further discuss our comments.
Sincerely,
DAN S. KIRSCHNER
Chief Executive Officer
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