Cal. Code Regs. Tit. 17, § 95913 - Sale of Allowances from the Allowance Price Containment Reserve

(a) The Executive Officer may serve as reserve sale administrator to conduct sales from the Allowance Price Containment Reserve (Reserve) or designate an entity to serve as reserve sale administrator. The financial services administrator designated by the Executive Officer pursuant to section 95912(a) will conduct the financial transactions required to operate sales from the Reserve.

(b) Entities registered in an External GHG ETS to which California has linked pursuant to subarticle 12 are not eligible to purchase from the California Reserve.

(c) Only entities registered into the California GHG Cap-and-Trade Program as provided in sections 95811 or 95813 shall be eligible to purchase allowances from the Reserve. Prior to participating in a Reserve sale, any primary or alternate account representative that will be submitting bids on behalf of entities eligible to participate in Reserve sales must have already submitted any additional information required by the financial services administrator.

(d) Timing of Reserve Sales.

(1) Reserve sales shall be conducted pursuant to the schedule in Appendix C.

(A) Except for the Reserve sale immediately preceding the compliance obligation instrument surrender deadline on November 1, a Reserve sale will only be offered if the Current Auction held in the preceding quarter resulted in a settlement price greater than or equal to 60% of the lowest Reserve tier price. The Executive Officer may revise the timing of reserve sales, including the date an entity must inform the Reserve Sale Administrator of its intent to participate in a reserve sale pursuant to section 95913(f) and the date an entity must submit to the financial services administrator a bid guarantee pursuant to section 95913(g), by up to four business days.

(B) The Reserve sale immediately preceding the compliance obligation instrument surrender on November 1 of each year will always be offered.

(C) A Reserve sale will be conducted only if at least one entity that intends to participate in the Reserve sale informs the Reserve Sale Administrator at least 20 days prior to the scheduled Reserve sale and submits a bid guarantee to the financial services administrator at least 12 days before the scheduled Reserve sale.

(2) For any Reserve sale that will be offered, the Reserve sale administrator shall provide all eligible participants with notice of the number of allowances available for sale and the terms of the sale at least 30 days prior to the sale.

(A) The Reserve sale administrator shall offer all of the allowances in the Reserve for any Reserve sale offered.

(e) Reserve Sale Eligibility.

(1) The Executive Officer must approve an entity's reserve sale eligibility before that entity may participate in a reserve sale.

(f) Reserve Sale Participation Approval.

(1) An entity that intends to participate in a reserve sale must inform the Reserve Sale Administrator at least 20 days prior to a reserve sale of its intent to participate in a reserve sale, otherwise the entity may not participate in that reserve sale. An entity must be declared eligible for reserve sale participation before it can be approved for reserve sale participation.

(g) At least 12 days before the scheduled sale, an entity intending to participate in a Reserve sale must submit to the financial services administrator a bid guarantee, payable to the financial services administrator, in an amount greater than or equal to the sum of the maximum value of the bids to be submitted by the entity.

(1) The maximum value of a set of bids is the quantity bid at each tier times the tier price, summed across the three tiers.

(2) The bid guarantee must be in one or a combination of the following forms:

(A) Cash in the form of a wire transfer; or

(B) An irrevocable letter of credit; or

(C) A bond.

(D) All forms of bid guarantee must be in a form that may be accepted by the financial services administrator consistent with U.S. banking laws and bank practices.

(3) A bid guarantee submitted in any form other than cash must be payable within three business days of payment request.

(4) The bid guarantee will be made payable to the financial services administrator.

(5) The bid guarantee will expire no sooner than 26 days after the Reserve sale.

(6) The financial services administrator will evaluate the bid guarantee and inform the Reserve sale administrator of the value of the bid guarantee once it is found to conform to this section and is accepted by the Executive Officer.

(h) Reserve Tiers.

(1) Creation of the Reserve Tiers.

(A) The Executive Officer shall divide one-third of the allowances allocated to the Reserve from section 95870(a) into three equal-sized Reserve tiers. The remaining two-thirds of the allowances allocated to the Reserve from section 95870(a) will not be made available at Reserve sales until 2021, pursuant to section 95913(h)(1)(D).

(B) In 2021, the Executive Officer will replace the existing three tier Reserve with a new Reserve consisting of two tiers.

(C) In 2021, the Executive Officer shall transfer all of the allowances remaining in the existing Reserve as of December 31, 2020 into the price ceiling account to be made available pursuant to section 95915.

(D) In 2021, the Executive Officer shall place 22,726,000 allowances allocated pursuant to section 95871(a) to the second Reserve tier.

(E) In 2021, the Executive Officer shall divide evenly between the two new Reserve tiers the allowances allocated pursuant to section 95871(a), less the allowances allocated pursuant to section 95913(h)(1)(D), as well as the remaining two-thirds of the allowances allocated pursuant to section 95870(a).

(2) Disposition of Allowances Unsold at Auction for More than 24 Months.

(A) Through December 31, 2020, all allowances transferred to the Reserve pursuant to section 95911(g) shall be transferred evenly to each of the three tiers of the Reserve.

(B) Beginning in 2021, all allowances transferred to the Reserve pursuant to section 95911(g) shall be transferred evenly between the two new Reserve tiers.

(3) In 2013, sales of allowances from the Reserve shall be conducted at the following prices:

(A) Allowances from the first tier shall be offered for $40 per allowance;

(B) Allowances from the second tier shall be offered for $45 per allowance; and

(C) Allowances from the third tier shall be offered for $50 per allowance.

(4) Increase in Reserve Tier Prices in calendar years from 2014 through 2020. Tier prices from the previous calendar year will be increased by five percent plus the rate of inflation as measured by the most recently available twelve month value of the Consumer Price Index for All Urban Consumers.

(5) In 2021, sales of allowances from the Reserve shall be conducted at the following prices:

(A) Allowances from the first tier shall be offered for $41.40 per allowance.

(B) Allowances from the second tier shall be offered for $53.20 per allowance.

(6) Increase in Reserve Tier Prices in calendar years after 2021. Tier prices from the previous calendar year will be increased by five percent plus the rate of inflation as measured by the most recently available twelve month value of the Consumer Price Index for All Urban Consumers.

(i) Purchase Determinations.

(1) The reserve sale administrator will conduct sales from each tier in succession, beginning with the lowest priced tier and proceeding to the highest priced tier. The Reserve sale will continue until either all allowances are sold from the Reserve or all the accepted bids are filled.

(2) The Reserve sales window will open at 10 a.m. Pacific Standard Time (or Pacific Daylight Time, when in effect) on the day of sale, and bids may be submitted until the window closes at 1 p.m. Pacific Standard Time (or Pacific Daylight Time, when in effect).

(A) Each bid will consist of the price, in U.S. dollars, equal to one of the three tiers and a quantity of allowances in multiples of 1,000 allowances.

(B) An entity may submit multiple bids.

(3) The reserve sale administrator will only accept a bid for a bundle of 1,000 allowances:

(A) If acceptance of the bid would not result in violation of the holding limit pursuant to section 95920(b);

(B) If acceptance of the bid would not result in a total value of accepted bids for a covered entity greater than the value of the bid guarantee submitted by the covered entity pursuant to section 95913(g); or

(C) If the bid entered by an entity for a tier is for a quantity less than or equal to the number of allowances available for sale in that tier.

(4) If the sum of bids at the tier price which are accepted by the reserve sale administrator is less than or equal to the number of allowances in the tier, then:

(A) The reserve sale administrator will sell to each covered entity the number of allowances for which the entity submitted bids for that tier which were accepted by the reserve sale administrator; and

(B) If allowances remain in the tier after the sales pursuant to section 95913(i)(4)(A) are completed, the reserve sale administrator will assign a random number to each bundle of 1,000 allowances for which entities submitted a bid for the tier above the current tier being sold. Beginning with the lowest random number assigned and working in increasing order of the random numbers assigned, the reserve sale administrator shall sell a bundle of allowances to the bidder assigned the random number until the remaining allowances in the tier are sold or all accepted bids have been fulfilled. The price for the allowances sold under this procedure will be the price for the tier from which they are sold, not the bid placed.

(5) Filling Accepted Bids. If the sum of bids accepted by the reserve sale administrator for a tier is greater than the number of allowances in the tier, the reserve sale administrator will determine the total amount to be distributed from the tier to each covered entity using the following procedure:

(A) The reserve sale administrator will calculate the share of the tier to be distributed to each bidding entity by dividing the quantity bid by that entity and accepted by the reserve sale administrator by the total quantity of bids which were accepted by the reserve sale administrator; and

(B) The reserve sale administrator will calculate the number of allowances distributed to each bidding entity from the tier by multiplying the bidding entity's share calculated in section 95913(i)(5)(A) by the number of allowances in the tier, rounding the number down to the nearest whole number.

(C) To distribute any remaining allowances, the reserve sale administrator will assign a random number to each entity bidding in the reserve sale tier. Beginning with the lowest random number, the reserve sale administrator will assign one allowance to the last bundle purchased by each entity until the remaining allowances have been assigned.

(6) After completing the sales for each tier the reserve sale administrator will repeat the processes in sections 95913(i)(4) and (i)(5) for the next highest price tier until all bids have been filled or until the Reserve is depleted. At that time the reserve sale administrator will inform the Executive Officer of the sales from the Reserve to each participant.

(j) Resolution of Sales.

(1) After reviewing the conduct of the sale by the Reserve sale administrator, the Executive Officer will certify whether the Reserve sale met the requirements of this article.

(2) After certification of the sale results, the Executive Officer will direct the reserve sale administrator to notify Reserve sale participants of their purchases and total purchase cost.

(3) After certification of the sale results, the Executive Officer will direct the financial services administrator to:

(A) Process cash payments from participants and deposit proceeds into the Greenhouse Gas Reduction Fund created pursuant to Government Code 16428.8 up to seven days after bidders are notified of results;

(B) Use the bid guarantee to cover payment for allowance purchases by any entity that fails to make cash payment within seven days after bidders are notified of results and place the proceeds into the Greenhouse Gas Reduction Fund created pursuant to Government Code 16428.8. If an entity has submitted more than one form of bid guarantee then the financial services administrator will apply the instruments to the unpaid balance in the order the instruments are listed in section 95913(g)(2);

(C) Return any unused cash bid guarantee; and

(D) Return any bid guarantee in a form other than cash after receipt of payment for allowances awarded.

(E) A bid guarantee in a form other than cash may be held by the financial services administrator for multiple auctions or reserve sales upon agreement by the financial services administrator and bidder.

(4) Upon determining that the financial services administrator has deposited the payment for allowances into the Greenhouse Gas Reduction Fund created pursuant to Government Code 16428.8, the Executive Officer shall transfer the allowances purchased from the Allowance Price Containment Reserve sale into each winning bidder's compliance account.

(5) The Executive Officer shall inform each approved external GHG emissions trading system and the associated tracking system of the serial numbers of allowances sold; and

(6) The Executive Officer shall publish the sale results at www.arb.ca.gov.

Notes

Cal. Code Regs. Tit. 17, § 95913

1. New section filed 12-13-2011; operative 1-1-2012 pursuant to Government Code section 11343.4 (Register 2011, No. 50).
2. Amendment filed 8-29-2012; operative 9-1-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 35).
3. New subsections (d)(4) and (i) filed 6-24-2013; operative 10-1-2013 (Register 2013, No. 26).
4. Amendment filed 6-26-2014; operative 7-1-2014 pursuant to Government Code section 11343.4(b)(3) (Register 2014, No. 26).
5. Amendment filed 9-18-2017; operative 10-1-2017 pursuant to Government Code section 11343.4(b)(3) (Register 2017, No. 38).
6. Amendment filed 3-29-2019; operative 3-29-2019 pursuant to Government Code section 11343.4(b)(3) (Register 2019, No. 13).

Note: Authority cited: Sections 38510, 38560, 38562, 38570, 38571, 38580, 39600 and 39601, Health and Safety Code. Reference: Sections 38530, 38560.5, 38564, 38565, 38570 and 39600, Health and Safety Code.

1. New section filed 12-13-2011; operative 1-1-2012 pursuant to Government Code section 11343.4 (Register 2011, No. 50).
2. Amendment filed 8-29-2012; operative 9-1-2012 pursuant to Government Code section 11343.4 (Register 2012, No. 35).
3. New subsections (d)(4) and (i) filed 6-24-2013; operative 10-1-2013 (Register 2013, No. 26).
4. Amendment filed 6-26-2014; operative 7/1/2014 pursuant to Government Code section 11343.4(b)(3) (Register 2014, No. 26).
5. Amendment filed 9-18-2017; operative 10/1/2017 pursuant to Government Code section 11343.4(b)(3) (Register 2017, No. 38).
6. Amendment filed 3-29-2019; operative 3/29/2019 pursuant to Government Code section 11343.4(b)(3) (Register 2019, No. 13).