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W A T E R E N E R G Y L I i E MW& RIVERSIDE PUBLIC UTILITIES Board Memorandum P U 8 L I C U T I L I T I E S BOARD OF PUBLIC UTILITIES DATE: July 20, 2012 ITEM NO: 13 SUBJECT: PARTICIPATION IN CALIFORNIA AIR RESOURCES BOARD CAP-AND-TRADE PROGRAM INCLUDING GREEN HOUSE GAS ALLOWANCE AUCTIONS;POTENTIAL FISCAL IMPACT ISSUE: That the Board of Public Utilities consider approval for Riverside Public Utilities' ("RPU") participation in the California Air Resources Board ("CARB") Cap-and-Trade Program to include quarterly Green House Gas CGHG") Allowance Auctions, Secondary Carbon Allowance Market transactions for GHG allowances, Allowance Compliance Account Management and other Cap-and-Trade activities. RECOMMENDATIONS: That the Board of Public Utilities recommend that the City Council: 1. Direct Riverside Public Utilities to participate in the California Air Resources Board Cap-and-Trade Program to include the quarterly Green House Gas Allowance Auctions and the Secondary Carbon Allowance Market transactions; 2. Authorize and approve the designation of Riverside's Primary and Alternate account representatives and delegate the authority to these Riverside's representatives to designate additional employees to be Alternate Account Representatives and Viewing Agents,conduct transfers,purchases and sales of allowances on behalf of Riverside and effect the associated compliance activities; and 3. Authorize the City Manager, or his designee, to execute the appropriate paperwork to enable Riverside's participation in the Green House Gas Allowance Auctions and Secondary Carbon Allowance Market transactions. BACKGROUND: Assembly Bill (AB) 32, enacted in 2006, mandated that the CARB develop a framework and associated regulations to limit the emissions of GHG in California to 1880 levels by the year 2020. In December 2011, CARB developed its framework,the associated regulations,and the market mechanisms as required by AB 32, which became effective January 1, 2012. Since the enactment of AB 32, RPU has participated in a cooperative effort with the major investor-owned utilities("IOUs")and other publicly-owned utilities ("POUs") in workshops and hearings held by the CARB in order to affect the final rules and regulations with respect to AB 32 implementation. Proposed Cap-and-Trade Program The cornerstone mechanisms of the regulation is the Cap-and-Trade Program ("Program"), which requires that electric utilities, such as RPU, have sufficient "rights" on an annual basis to offset GHG emissions associated with generating electricity. Such "rights" are also called GHG Allowances. Initially, CARB will provide a"free"allocation of GHG Allowances to each electric utility far compliance purposes to mitigate retail