California Legislature Fails to Pass 33% Renewable Portfolio Standard
An alert written by Stoel Rives partner Seth Hilton:
Last night, the California legislature failed to pass Senate Bill 722—the 33% Renewable Portfolio Standard (RPS) legislation—by the close of the legislative session. The bill would have increased California’s RPS to 33% for both investor-owned and publicly owned utilities. It would also have placed limits on the use of renewable resources located out-of-state to meet California’s RPS—utilities would have been required to meet a certain percentage of their RPS obligations through resources whose first point of interconnection was a California balancing authority, or whose power is transmitted to California through a dynamic transfer arrangement or scheduled hourly or inter-hourly into California. The proposed legislation also would have authorized the use of renewable energy credits (RECs)—the environmental attributes of renewable power separated from the power itself—for RPS compliance, but would have imposed limits on the amount of RECs that could be used to meet the utilities’ RPS obligation.
Last year, California also failed to enact a 33% RPS bill, similar to SB 722, although the process proceeded farther than this year. Last year, the legislature passed the bill, but it was vetoed by Governor Schwarzenegger due to concerns about the limits placed on the use of out-of-state generation. Like SB 722, last year’s bill would have limited the extent to which California could rely on out-of-state renewable resources to meet California’s RPS. Part of the failure of SB 722 to pass this year can be attributed to disagreements between the legislature and the Governor regarding what limits would be appropriate for out-of-state generation.
Despite his concern about limits on out-of-state generation, Governor Schwarzenegger supports increasing California’s RPS to 33%. Following his veto of the legislation last year, he issued an executive order directing the California Air Resources Board (ARB) to develop regulations to implement a 33% RPS under authority the ARB had under AB 32, California’s Global Warming Solutions Act. Pursuant to the executive order, the ARB was to enact those regulations by July 2010. Shortly before the ARB considered those regulations, the Governor requested via letter to the ARB that it postpone consideration of those regulations while the legislature attempted to pass a 33% RPS bill. ARB therefore moved the hearing on those regulations to September 22, 2010. With the failure of SB 722, ARB may now move forward with those regulations, although there are questions regarding the extent to which those regulations would be implemented by the new Governor.
In March, the California Public Utilities Commission (CPUC), which is responsible for administering portions of California’s current 20% RPS for investor-owned utilities, adopted a decision that would have authorized the use of RECs to meet the 20% RPS, subject to certain caps. In May, the CPUC stayed that decision. If SB 722 were enacted, it would have preempted the CPUC’s efforts to set standards for the use of RECs. Just last week, the CPUC issued a proposed decision that, if adopted, will lift the stay. The proposed decision was seen by many as an effort to encourage the legislature to act on SB 722 and adopt standards for the use of RECs. Now that the legislation has failed, the CPUC is free to move forward with its proposed decision allowing the use of RECs, and to lift the stay of the March decision.
If you have any questions about the issues of this update, please contact:
Steven Hall at (503) 294-9434 or schall@stoel.com
Seth Hilton at (916) 319-4749 or sdhilton@stoel.com
Jennifer Martin at (503) 294-9852 or jhmartin@stoel.com
Marcus Wood at (503) 294-9434 or mwood@stoel.com
Energy Law Alert: CPUC Proposes to End Moratorium on TREC Transactions; Increase Cap to 40%
On August 25, the California Public Utilities Commission (“CPUC”) issued a proposed decision (“PD”) that would end the CPUC’s moratorium on approval of tradable renewable energy credit (“TREC”) transactions and increase the cap on such transactions for large investor-owned utilities to 40%.
Previously at its March 11, 2010 meeting, the CPUC authorized the use of TRECs for compliance with California’s Renewable Portfolio Standard (RPS), subject to certain limitations. CPUC Dec. 10-03-021 (Mar. 15, 2010)(“March Decision”). Among the limitations that the March Decision imposed was a cap limiting the use of TRECs for RPS compliance for the largest investor-owned utilities (Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric) to 25% of their annual RPS compliance obligations. That cap was to remain in place until December 31, 2011, when the CPUC would consider modifying or removing that limitation. The March Decision also imposed a price cap of $50 per TREC. The price cap also expires on December 31, 2011.
After issuance of the March Decision, Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric filed a joint petition for modification of the decision, seeking, among other things, modification of the usage and price caps, and modification of the criteria used to determine whether a contract was a TREC transaction subject to the 25% cap. The Independent Energy Producers Association also filed a petition for modification seeking modification of the criteria used to determine whether a contract was a TREC transaction.
On May 6, 2010, the CPUC issued a decision staying implementation of the March Decision pending resolution of the petitions for modification. CPUC Dec. 10-05-018 (May 12, 2010)(“May Decision”). The May Decision also imposed a moratorium on approval of any contracts that would be defined as TREC transactions under the March Decision.
The PD issued yesterday would lift the stay imposed by the May Decision, and end the moratorium on approval of contracts defined as TREC transactions. The PD would also modify the cap on TREC transactions, allowing the largest investor-owned utilities to meet up to 40% of their annual compliance obligations through TREC transactions. The PD would further modify the cap by exempting future deliveries under contracts approved prior to the effective date of the March Decision from counting toward the cap. The March Decision would have included any future deliveries under existing contracts categorized as TREC transactions towards the 25% cap. The PD, however, would not alter the criteria used to determine whether a transaction was a TREC transaction.
The definition of TRECs established in the March Decision (and unchanged by the PD) could have a significant effect on the use of generation from renewable resources located outside of California. TRECS are generally defined as renewable energy credits that can be traded separate and apart from the energy associated with their creation, in contrast to bundled transactions in which both the renewable energy credits and the associated power are sold together. The March Decision defined as bundled transactions any transactions with a generator that had its first point of interconnection with a California balancing authority, or in which the power associated with the renewable energy credits was dynamically transferred to a California balancing authority. The March Decision also recognized that some transactions with firm transmission arrangements might qualify as bundled transactions, but left that for future consideration.
The definition of bundled transactions adopted by the March Decision would mean that any transactions with renewable resources that do not have their first point of interconnection with a California balancing authority, or do not dynamically transfer power to a California balancing authority, would be deemed a TREC transaction subject to the cap. This would be true even if the renewable resource delivered power to California under a firming and shaping arrangement. The more generous cap proposed by the PD would allow California’s largest investor-owned utilities to enter into more contracts with renewable resources located outside the state.
The PD will not be on the Commission’s voting meeting agenda for at least thirty days from the date the PD was issued. Comments may be submitted on the PD by September 14, and reply comments are due by September 20.
Also looming on the horizon is the California legislature’s consideration of Senate Bill 722. Senate Bill 722, as currently drafted, would adopt statutory limits on the use of TRECs, as well as defining what would qualify as a TREC transaction. The legislature has until August 31, 2010, to approve SB 722. However, Governor Schwarzenegger has stated that he will veto the bill (as he did with similar legislation last year), unless the legislature increases the cap on TREC transactions. If SB 722 passes, however, in a form that Governor Schwarzenegger is willing to sign, it would preempt the standards established in the PD.
If you have any questions about the issues of this update, please contact:
Steven Hall at (503) 294-9434 or schall@stoel.com
Seth Hilton at (916) 319-4749 or sdhilton@stoel.com
Marcus Wood at (503) 294-9434 or mwood@stoel.com
CPUC Lifts Hold On CSI Applications
From our colleague Morten Lund:
On July 29, the California Public Utilities Commission (“CPUC”) issued a ruling lifting a prior temporary hold on certain applications under the California Solar Initiative (“CSI”). The CPUC had on July 9 placed a hold on new CSI applications for PBI projects and government/non-profit projects pending comments on certain proposed program changes. Generally, the CPUC and the State of California are concerned over the costs of the program going forward, despite the fact that the program provides ever decreasing incentives as more capacity is installed. But the condition that California finances are in has state regulators in all agencies looking closely at programs that dispense funds to try and find ways to cut such expenditures.
In the July 29 ruling, Commissioner Peevey declared that the temporary hold created an “unacceptable level of market disruption,” and that the temporary hold was therefore lifted. All applications submitted during the hold will be processed, and new applications accepted.
The July 29 ruling can be found on the CPUC’s website here: http://docs.cpuc.ca.gov/efile/RULINGS/121304.pdf
The July 9 ruling can be found on the CPUC’s website here: http://docs.cpuc.ca.gov/efile/RULINGS/120427.pdf
CPUC Approves 500 MW PG&E Program
The California Public Utilities Commission ("CPUC") has given the green light to a five-year solar photovoltaic program to develop up to 500 MW of solar PV facilities in Pacific Gas and Electric Co.'s ("PG&E") service area.
The program is designed to allow PG&E and third parties to develop PV facilities:
- Under the utility-owned part of the program, PG&E may install up to 250 MW of PV facilities over 5 years, at a rate of 50 MW per year. Each facility will have between 1 and 20 MW of capcity and will be located in PG&E's service area. The CPUC has allocated up to $1.454 billion for capital costs which will be adjusted if PG&E develops less than 250 MW over the five-year duration of the PV program. PG&E will solict competitive bids for the construction of the facilities, which it will own and operate.
- Under the third-party-owned part of the program, PG&E can solicit energy from up to 250 MW of PV facilities which located in PG&E's service area and which are owned by third parties - same size and annual installation restrictions apply. Pricing for this portion will be based on competitive bids, with the successful bidders entering into a 20-year power purchase agreement with PG&E.
In an effort to secure good rates, CPUC is requiring PG&E to use an independent evaluator to review the bids on both parts of the program.
PG&E built a 2 MW pilot project in Vacaville, CA to demonstrate the viability of this program. The CPUC decision allows PG&E to recover the costs of construction the pilot project.
CPUC Proposed Decision on TRECs--Comments Due January 19
The California Public Utilities Commission ("CPUC") issued a proposed decision on December 23, 2009 that would, if adopted, allow California investor-owned utilities, energy service providers, and community choice aggregators to purchase renewable energy credits alone, without the associated energy (sometimes referred to as "unbundled renewable energy credits ("RECs)" or "tradable RECs"), to satisfy their obligations under California's RPS. California's largest investor-owned utilities—Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric—would be limited to meeting no more than 40% of their annual procurement targets under the RPS with tradable RECs, and a price cap of $50 would be imposed. The CPUC will revisit both the percentage cap and the cost cap and whether those caps should be revised within 24 months of the decision.
Out-of-state renewable energy projects could be adversely impacted if the proposed order were adopted. The proposed decision would define all renewable generation purchased from out-of-state facilities1 as the purchase of unbundled or tradable RECs, making any out-of-state renewable energy sale subject to the cap that bars the large investor-owned utilities from using such sales to meet more than 40% of their overall RPS obligation. Although the proposed decision states that this classification would apply only to contracts signed on or after the effective date of the decision, contracts signed prior to the effective date would be considered REC-only contracts from the effective date forward, and would be "subject to the limits and rules applying to REC-only contracts" according to the proposed decision. Furthermore, although the purchase of tradable RECs from out-of-state facilities would be permitted, the delivery requirement in the RPS legislation would still have to be met, so a comparable amount of power would have to be imported into the state, along with the RECs. The jurisdiction to determine whether and how this delivery requirement is met, however, still remains with the California Energy Commission.
Comments on the proposed decision are due on January 19, 2010, and reply comments are due January 25, 2010.
For additional information about the history and effect of the proposed decision, see our Stoel Rives alert on the topic.
SCE Solicits Feedback on Solar PV Program; CPUC to Host Feed-in Tariff Panel
SCE Solar PV Program:
Back in June, the California Public Utilities Commission (“CPUC”) issued a decision authorizing Southern California Edison (“SCE”) to execute contracts for up to 250 MW of generation from solar PV facilities owned and operated by independent power producers through a competitive solicitation process. The CPUC decision required SCE to file an advice letter outlining the criteria for selection of bids and containing a draft standard power purchase agreement (“PPA”).
SCE recently filed the requisite advice letter requesting approval of its proposed competitive solicitation process and criteria and a draft standard PPA. Anyone may file protests or responses to SCE’s advice letter. Protests are due on August 10, 2009. For more information, as well as a link to SCE’s draft standard PPA, go to the CPUC website.
CPUC Panel on Feed-in Tariffs:
The CPUC announced that it will host an interactive panel discussion on feed-in tariffs for renewable energy on August 27, 2009. The panel will feature international experts from Germany, Spain, the United States, and elsewhere with experience in the global solar power market. The panelists will offer their insights on the global solar market, the role of feed-in tariffs and other mechanisms for advancing renewable energy development, and California’s role in facilitating wholesale renewable distributed generation.
The panel will be held from 1-2:30 PM at the CPUC Auditorium, 505 Van Ness Ave., San Francisco, CA.
California PUC Proposes Criteria to Evaluate the Viability of Proposed RPS Projects
Under California’s Renewable Portfolio Standard, investor-owned utilities only have until 2010 to procure 20% of their power from renewable sources (although certain flexible compliance measures do apply). There are concerns that the rapidly-approaching deadline is leading utilities to sign power purchase agreements with projects that are not viable and may never achieve commercial operation. To help prevent this going forward, the California Public Utilities Commission Energy Division has proposed project viability criteria to evaluate each project bidding into California’s RPS program. Utilities would be required to score potential RPS projects based on developer experience in project financing, RFOs, and facility ownership and operation; technical viability; and project-specific viability criteria such as equipment procurement, project development lead time, transmission lead time and cost of transmission interconnection, site control, permitting, and pricing structure. The project viability score could be taken into account in PPA approval by the CPUC and in gaging whether to excuse utilities that fail to meet RPS goals. Scoring projects based on viability criteria has the potential to affect who successfully participates in the RPS solicitation process and the types of technologies that are selected as RPS projects. Comments on the CPUC proposal are due on February 27, 2009. Read more about the proposal in my colleagues’ recent Renewable Energy Law Alert.
