Cal. Health & Safety Code § 41605

(a) The districts, in cooperation with the state board, shall develop, adopt, and update, as necessary, a procedure to determine the magnitude of the emissions from the existing electric generating system in the air basin which would be displaced if cogeneration technology projects and qualifying facilities were constructed. The procedure shall be used once each year to determine the utility displacement credits which shall be used in reviewing the permit applications for new cogeneration technology projects and qualifying facilities during the following year, and shall ensure that the credits are real, permanent, quantifiable, enforceable, and surplus.
(b) A district may reduce the emission offset requirement for a cogeneration technology project or qualifying facility by the utility displacement credits determined pursuant to subdivision (a). In all cases in which a cogeneration technology project or qualifying facility satisfies subdivision (c), a district shall reduce the offset requirement for the project or facility by the utility displacement credits determined pursuant to subdivision (a). A district shall allocate at least 90 percent of the pounds of emissions available in the form of utility displacement credits to projects and facilities which satisfy the requirements of subdivision (c).
(c) Utility displacement credits shall be granted to cogeneration technology projects and qualifying facilities for those pollutants for which net project or facility emissions, after offsets provided pursuant to paragraphs (3) and (4) of subdivision (a) of Section 42314, are lower, on a pounds of pollutant per unit of energy produced basis, than the emissions which would be generated by the fossil-fuel fired existing electric generating system in the air basin in the absence of the project or facility.
(d) Utility displacement credits shall be credited to a project or facility only to the extent necessary to satisfy district offset requirements, and only after credit has been granted for offsets provided pursuant to paragraphs (3) and (4) of subdivision (a) of Section 42314.
(e) The cogeneration technology project or qualifying facility proponent, and the owner or operator of the purchasing utility, shall provide to the state board or the district, as the case may be, the information not publicly available from state or local agencies which is necessary to make the determinations required by this section. The information shall include, but is not limited to, all of the following:
1. (1) Emission source test data.
2. (2) Chronological fuel use data.
3. (3) Chronological electric load data.
(f) In providing the utility displacement credits required by this section, and for purposes of this section only, the utility, if not an applicant, shall not be required to furnish emission offsets on a case-by-case basis for the project. This section does not permit a district on a case-by-case basis to limit the ability of the utility to operate its existing hydrocarbon combustion facilities in accordance with the requirements of the Public Utilities Commission or the governing body of a public utility owned by a municipality or other political subdivision of the state.