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
Upcoming Webinar: Impact of State RPS's and the Prospect of a Federal RPS on What Utilities are Doing in Terms of Purchasing the Output of Wind Farms - January 27, 2010
With 3/5 of the States having Renewable Portfolio Standard in place and the prospect of a Federal RPS, many utilities are seeking to become first time purchasers of the output from wind projects. And utilities with a history of purchasing wind are seeking additional resources. In 2009, the presenters collectively worked on over 40 wind power purchase agreements for projects located throughout the United States, enabling them to present a comprehensive overview of the impact of these developments. A number of first time purchasers have been using the RFP process as a vehicle for educating themselves about wind, and often experience difficulty in translating PPA terms that are appropriate for base load resources into PPA terms that work for intermittent resources like wind. Through various PPA terms, utilities are increasingly seeking to place the risk of non-compliance with the RPS on the wind project developer. These developments can result in PPA terms that are very problematic for the financing of the project. This webinar will explore these recent developments, including issues related to output and availability guarantees, allocation of curtailment risk for long-distance transmission to load, wind integration charges, delay damages, conditions precedent, termination rights and the measure of damages.
Moderator:
Edward D. Einowski, Partner, STOEL RIVES LLP
Panelists:
Teresa Hill, Partner, STOEL RIVES LLP
William H. Holmes, Partner, STOEL RIVES LLP
Jennifer H. Martin, Partner, STOEL RIVES LLP
Marcus Wood, Partner, STOEL RIVES LLP
To register: http://infocastinc.com/index.php/conference/255
San Diego Gas & Electric Issues RFO for Renewable Resources
Today, San Diego Gas & Electric (SDG&E) issued a Request for Offers seeking eligible renewable resources that the utility will use to meet its California Renewable Portfolio Standard requirements. Respondents may submit one or more of three alternative proposals:
- Power Purchase Agreement (PPA). Respondents are asked to propose a 10, 15, or 20-year PPA for capacity and/or energy, but SDG&E will nevertheless consider proposals with shorter or longer durations. Eligible Resources must be delivered to a point within California and must be begin deliveries sometime between 2010 and 2013.
- PPA with Buyout. Respondents offering PPAs may also submit an option price that SDG&E may exercise to purchase the resource as well as associated environmental attributes, land rights, permits, and other licenses upon conclusion of the PPA term. This alternative is limited to resources located in San Diego County, parts of Orange County within SDG&E's service territory, or Imperial Valley areas. Like respondents offering under the PPA alternative, respondents interested in offering resources under the PPA with Buyout alternative must begin delivering energy and/or capacity between 2010 and 2013.
- Turnkey Facilities. Respondents to the RFO may also propose to develop and construct a new renewable energy generation facility that SDG&E will acquire. SDG&E is proposing the same locational requirements that apply to PPA with Buyout projects.
A limitation that applies to all respondents is that resources located in SDG&E's service territory must be no smaller than 1.5 MW, and resources outside of SDG&E's service territory must be no smaller than 5 MW.
This RFO may be a great opportunity to transact with SDG&E as it endeavors to comply with California's ever-increasing RPS standards. SDG&E will hold two pre-bid conferences: one in San Diego on August 5, 2009, and the other in El Centro on August 12, 2009. Those interested in attending a pre-bid conference should register by July 31.
For more information, click here: SDG&E 2009 RFO Info
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.
Michigan Passes Renewable Portfolio Standard
On September 18, 2008, the Michigan legislature sent the state's first Renewable Portfolio Standard to the Governor's desk for signature. The package mandates "10 percent of the state's energy come from renewable sources by 2015, regulatory reform that protects Michigan ratepayers and allows utility companies to build new electricity generation in Michigan, and a requirement that utilities meet an additional 5.5 percent of Michigan's annual electricity demands through energy efficiency by 2015." AWEA estimates that Michigan is one of the top twenty states in terms of wind energy potential.
The RPS package, however, has its skeptics. The Detroit News published an editorial that criticized the RPS for imposing a high financial burden on customers - for example, all customers must immediately begin paying a monthly surcharge to allow the utility to recover the incremental cost of complying with the utility's renewable energy plan, although utilities aren't required to take any concrete steps until 2012.
Michigan joins Ohio, which passed its RPS last spring, as the latest Midwestern state (and the 28th state nationwide) to pass an RPS.
