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Kern River Shippers Warned of Coming California GHG Fee

Kern River Gas Transmission Co. told shippers that they should brace for the possible collection of greenhouse gas (GHG) emissions fees by the pipeline on behalf of the California Air Resources Board (CARB), which needs the money to fund implementation of the state's Global Warming Solutions Act, or Assembly Bill (AB) 32.

About $54 million of estimated costs of a total $94 million budget for the implementation of AB 32 through 2012 has been targeted to be paid by various sectors of the economy, proportional to their GHG emissions. Natural gas imports have been calculated to be responsible for 30% of the $54 million, or something more than $16 million.

Those identified as on the hook for the fee are all utilities, selected gas users and interstate pipelines and operators. Intrastate pipelines delivering supplies directly to end-users would also have to pay a fee. Others sharing in the overall $54 million in costs will include refineries, cement plants, electricity importers and burners of coal. The only segment of the economy with a bigger portion of the fees than natural gas is the gasoline industry (34%, or $19.2 million).

According to materials from an April 20 workshop -- which are available at www.arb.ca.gov/cc/adminfee/meetings/meetings.htm -- the preliminary 2009-2010 "cost per unit product" pass-through for natural gas would be $0.0007/therm (or seven-tenths of a cent/MMBtu) for natural gas, which includes the AB 32 program cost as well as a loan repayment. The first payments of the fees, based on 2008 GHG emissions, are to be due June 30, 2010.

"CARB intends to collect its program fees directly from emitters of GHG in the manufacturing, refining and electric generation areas. However, in addition, CARB has proposed to reach upstream to entities such as state electric and gas utilities and interstate pipelines, like Kern River, to use those entities as a collection agent for its program fees," the pipeline said in a shipper notice Wednesday. "Under the current proposal, CARB's fees would be collected through Kern River after requiring Kern River to report to CARB the number of therms delivered to end-users -- as defined by CARB -- within the state of California. Pipelines such as Kern River would be required to report the therms delivered, for the previous year, which will establish the basis for the next year's fee. Kern River would recover these fees from the customers implicated."

In September 2006 California Gov. Arnold Schwarzenegger signed AB 32, authorizing CARB to adopt a schedule of fees to be paid by sources of GHG (see Power Market Today, Sept. 28, 2006). Last December CARB approved the blueprint for implementation of AB 32 (see Power Market Today, Dec. 8, 2008).

If CARB's fee implementation proposal were adopted, Kern River said that as a federally regulated pipeline it will seek to collect the fees following appropriate tariff modifications approved by the Federal Energy Regulatory Commission. The pipeline said it opposes the CARB proposal to make it a collection agent and has submitted comments to that effect. A hearing in the fast-track proceeding is scheduled for June 25 and 26. Fee implementation regulations are expected to be in place by July 1.

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