HB10-1365: Colorado Clean Air Clean Jobs Act

Although taking a different approach, like New Mexico, Colorado is taking steps to prepare for impending federal mandates for the reduction of greenhouse gases (GHG). Colorado is addressing reduction of GHGs through enactment of legislation to provide incentives for electric utilities to reduce air emissions from coal-fired generation facilities. The Colorado Clean Air Clean Jobs Act (Act) was signed into law by Governor Ritter in 2010. Under the Act, the Colorado legislature found that coordinated planning for emission reductions from coal-fired plants will position Colorado to meet imminent federal legislation requiring emissions reductions. The legislature further found that promotion of the use of natural gas and other "low-emitting resources" will allow Colorado to meet its energy needs and support economic development in the state.

The Act requires public utilities in the state to file with the Colorado Public Utilities Commission (the Commission), an emission reduction plan for their coal fired generation facilities. The plan for emission reductions can include a number of elements defined in the Act, for example: retrofitting units with emission control equipment; retiring coal-fired generation facilities and replacing with natural gas fired generation or other low-emitting generation; conversion of the units to run on natural gas; long term fuel supply agreements; new natural gas pipelines and other supporting gas infrastructure; increased natural gas fired generation; and new transmission lines and transmission infrastructure.

Commission proceedings to facilitate implementation of the Act were opened two days after the Act was signed into law. The Act requires that plans be designed to meet reasonably foreseeable and current emission reduction requirements and it is generally acknowledged that the EPA will require the state of Colorado and other states to comply with increasingly stringent regulatory requirements. Xcel testified before the Commission that the "Act provides a pathway for utilities, the Commission, the Colorado Department of Public Health and Environment, and the Air Quality Control Commission to work through an expedited process to address both regional haze requirements and reasonably foreseeable future air quality regulations." Xcel's testimony further highlights the need for transmission and natural gas infrastructure to support integration of intermittent renewable energy resources and to support additional natural gas fired generation, respectively. The Commission has until December 15, 2010 to approve, deny or modify the plans with plan implementation required by December 31, 2010.

Thus comparatively, Colorado is addressing reduction of GHGs by mandating emissions reductions from coal-fired generation facilities; and New Mexico, through the current rulemaking proceedings before the Environmental Improvement Board, is working towards capping emissions of any source that emits in excess of the designated threshold.

New Mexico Cap and Trade Rulemakings

The complexity of air quality permitting regulations in New Mexico combined with the nature of oil and gas operations provides many opportunities for operators to fail to achieve regulatory compliance or, to fall out of compliance. To add to this regulatory challenge, two parallel rulemakings are currently pending before the New Mexico Environmental Improvement Board (EIB) seeking to cap greenhouse gas (GHG) emissions in New Mexico. As originally proposed, the cap and trade program would apply to sources that report emissions of 25,000 metric tons or more of CO₂ equivalent per year, thereby impacting the regulatory compliance challenge faced by large operators in the state.

The first proceeding is the result of a petition filed with the EIB by the New Energy Economy (NEE) seeking promulgation of rules to implement a New Mexico only cap in GHG emissions. The proposed rules call for a determination by the EIB of 1990 GHG levels and a limitation of 25% below these designated levels by 2020.

The second proceeding is the result of a petition filed with the EIB by the New Mexico Environment Department (NMED) seeking promulgation of rules to adopt GHG cap and trade provisions. The proposed rule calls for a cap threshold of 25,000 metric tons of emissions and a 2% decrease in the cap every year thereafter. According to the proposed rule, facilities will be required to determine their representative baseline emission and production levels using historical data and greater weight will be given to verified data and adjusted as necessary. Operators should note this provision because in some cases, verification data that uses manufacturer defined potential to emit could push operator emissions above the threshold where actual emissions are below the threshold.

The reasons proposed by the NMED for the cap and trade provisions are two-fold: (1) stimulate innovation by promoting economic opportunity for clean energy technologies; and (2) incentivize use of cleaner fuels in the state, like natural gas. It is interesting to note that while New Mexico continues to push for cap and trade regulations, California's Global Warming Solution Act of 2006 (AB32) which requires the California Air Resources Board to adopt cap and trade regulations by January 2011, is currently being challenged by Proposition 23, a ballot initiative to suspend AB32 until unemployment is below 5.5% in the state.

The evidentiary record for the NMED petition was closed September 30, 2010. Post-hearing submittals are due by October 26, 2010 and the EIB plans to deliberate at its public meeting on November 2, 2010.

The evidentiary record for the NEE petition was closed October 5, 2010. Post-hearing submittals are due by November 22, 2010 and the EIB plans to deliberate at its public meeting on December 6, 2010.