The California Renewables Portfolio Standard Program requires the Public Utilities Commission to establish a rewewables renewables portfolio standard requiring all retail sellers, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources, as defined, at specified percentages of the total kilowatthours sold to their retail end-customers end-use customers during specified compliance periods. The program additionally requires each local publicly owned electric utility, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources to achieve the targets established by the program. The program, consistent with the goals of procuring the least-cost and best-fit eligible renewable energy resources that meet project viability principles, requires that all retail sellers procure a balanced portfolio of electricity products from eligible renewable energy resources, as specified, referred to as the portfolio content requirements. The program requires the commission to authorize the use of renewable energy credits to satisfy the renewables portfolio standard procurement requirements, subject to specified conditions. conditions and limitations for unbundled renewable energy credits. One condition placed on renewable energy credits is that they not be created for electricity generated under any electricity purchase contract executed after January 1, 2005, pursuant to the federal Public Utility Regulatory Policies Act of 1978, also known as PURPA.

This bill would make nonsubstantial revisions to the requirement that the commission authorize the use of renewable energy credits to satisfy the renewables portfolio standard procurement requirements. require that renewable energy credits be created for electricity generated under an electricity purchase contract executed after January 1, 2017, pursuant to PURPA, with those credits being owned by the owner of the eligible renewable energy resource unless otherwise agreed to by the owner. The bill would prohibit the commission from requiring, as a condition of entering into an electricity purchase contract pursuant to PURPA, that the generator sell its renewable energy credits to the electrical corporation pursuant to the contract. The bill would provide that when electricity products and the renewable energy credits associated with those electricity products are sold to the same electrical corporation pursuant to 2 or more separate purchase contracts with identical start and end dates, the credits and electricity products would be treated as bundled.

The California Renewables Portfolio Standard Program requires the Public Utilities Commission to establish a rewewables portfolio standard requiring all retail sellers, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources, as defined, at specified percentages of the total kilowatthours sold to their retail end-customers during specified compliance periods. The program additionally requires each local publicly owned electric utility, as defined, to procure a minimum quantity of electricity products from eligible renewable energy resources to achieve the targets established by the program. The program requires the commission to authorize the use of renewable energy credits to satisfy the renewables portfolio standard procurement requirements, subject to specified conditions.

This bill would make nonsubstantial revisions to the requirement that the commission authorize the use of renewable energy credits to satisfy the renewables portfolio standard procurement requirements.

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1299 (Hertzberg) - California Renewables Portfolio Standard Program: renewable energy credits

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 1299 creates a renewable energy credit (REC) associated with the electricity generated by certain renewable energy resources, known as “qualifying facilities (QFs) and grants ownerships of the REC to the owner of the QF.

Fiscal Impact:

The California Public Utilities Commission (CPUC) anticipates annual implementation costs equal to $470,394 (Public Utilities Commission Utilities Reimbursement Account). (See staff comments).

Background:

Federal law requires purchase of renewable energy. According to the Federal Energy Regulatory Commission (FERC), PURPA was implemented to encourage, among other things, a reduction in the use of oil. PURPA achieves this goal through numerous measures, including energy efficiency and projects that generate energy onsite using combined heat and power or certain renewable resources. Facilities implementing such projects are known as “qualifying facilities” (QFs) for purposes of PURPA. Under PURPA, an IOU must purchase the energy produced by a QF at the IOU's avoided cost, that is, the incremental cost of electric energy or capacity the IOU would have otherwise purchased.

Under the California’ implementation of PURPA, many QFs using renewable resources signed contract several decades in duration. These contracts began to expire in the earlier part of this century.

Renewable attributes of renewable energy stays with the renewable energy. Subsequent to implementation of PURPA, California began its increasingly ambitious program to require the procurement of renewable energy. As the IOUs sought to comply with early RPS requirements, the question arose of how to treat electricity generated by QFs. After a contentious process, numerous parties representing IOUs, ratepayers, and QFs accepted a settlement agreement, memorialized in CPUC Decision 10-12-035. Consistent with the decision, the CPUC developed a standard offer, available to QFs of 20 megawatts or less, that satisfies PURPA’s “must-take” provision. Relative to RECs, the standard offer includes the following language, explicitly stating that a party that purchases energy from a QF retains right to the renewable attributes of that energy:

Green Attributes. Seller hereby provides and conveys all Green Attributes associated with the Related Products as part of the Product being delivered during the Term. Seller represents and warrants that Seller holds the rights to all Green Attributes associated with the Related Products, and Seller agrees to convey and hereby conveys all such Green Attributes to Buyer as included in the delivery of the Product from the Project.

The settlement agreement does not explicitly state the rationale for this treatment of the “green attributes” associated with the energy generated by QFs. However, several parties have stated that the treatment makes sense: PURPA requires IOUs to purchase the energy produced by QFs because the energy is generated from renewable resources; therefore, the “greenness” of the energy, represented by a REC, is inherent to that energy.

According to the California Wind Energy Association (CalWEA), the association, at the time of the settlement agreement, found the standard offer’s treatment of “green attributes” unfair. CalWEA, however, reports it did not voice its objection at the time the settlement agreement was considered and adopted by the CPUC. This is because, according to CalWEA, its members assumed there would be abundant opportunities for QFs to contract with retail sellers of electricity seeking to comply with the RPS. Unfortunately for the QFs, this has not been the case.

Many contracts with QFs expiring; few RPS procurement offers. CalWEA and others representing QFs with expiring PURPA contracts report a dearth of RPS contracts available today. This is because many entities subject to the RPS procurement requirements, such as IOUs, have signed long-term contracts for renewable energy. Despite the recent, considerable increase in the RPS, the IOUs and others, generally, do not need to sign new contracts to procure renewable energy today.

This puts QFs in a difficult position. The QF PURPA contracts are expiring – CalWEA reports contracts representing 443 megawatts of QF wind expiring by 2023. Without new contracts, these QFs may lack the ability to remain in operation until covered entities again begin to procure renewable energy in earnest. The QFs may enter into new PURPA contracts with the IOUs – remember, PURPA requires to the IOUs to purchase the electricity produced by QFs. However, the price paid by the IOUs to QFs under these contracts is very low. Absent some stopgap measure, the operators of QFs say the facilities will no longer operate.

This bill does two things. First, it requires the creation of RECs for electricity generated by an RPS renewable energy resource pursuant to a PURPA contract on or after January 1, 2017. Second, it gives ownership of any such RECs to the owner of the renewable energy resource. As mentioned above, CalWEA concludes such treatment of the ownership right to RECs is fair. PURPA requires IOUs to purchase QF energy at a price equal to the avoided cost of purchasing energy from conventional resources; in other words, the price of fossil-fuel-fired electricity generation. Or, as proponents put it, green-power value at a brown-power price.

Fair or not, such treatment is, in some ways, consistent with treatment of ownership rights of RECs generated by non-PURPA renewable energy resources: statute requires the standard terms and conditions for the purchase of electricity generated by a renewable energy resource eligible for RPS credit to include the RECs associated with all electricity generation specified under the contract. This does not mean, however, as some have contended, that law grants the owner or an RPS-eligible renewable energy facility ownership of the RECs associated with electricity generated by that facility. Rather, statute requires the standard terms and conditions of a contract for such electricity to address the ownership of the REC. In other words, statute governing the RPS treats ownership of RECS as negotiable. So too does this bill, in regards to RECs generated by a QF: if the purchaser of electricity generated by a QF wants the REC, the purchaser would need to negotiate that with the QF. Of course, law obligates no one to purchase the electricity generated by QFs.

Proposed Law:

This bill:

1. Requires the creation of RECs for electricity generated by an RPS renewable energy resource pursuant to a PURPA contract on or after January 1, 2017.
2. Gives ownership of any such RECs to the owner of the renewable energy resource.

Staff Comments:

According to the CPUC, the changes would need to be implemented in two separate proceedings due to the bill affecting both RPS program rules and the QF standard contract.

RPS

A decision will be needed to implement the changes to the RPS PCC rules.  Additionally, staff work will be necessary to consult with parties to make changes to the RPS compliance spreadsheet.  Staff work will also be necessary to approve any of the Renewable Energy Credits (REC)-only contracts that may occur as a result of SB 1299.  The additional Administrative Law Judge (ALJ) and staff work could be absorbed be staff at its current levels.  Thus, no new positions or funds are needed to address the proposed RPS rules modification resulting in a fiscal impact of zero.

Qualifying Facilities

A decision will be needed to implement changes to the standard QF contract.  The QF contract was adopted by the CPUC as the result of a long (18 months) and highly contentious settlement process that required the balancing of numerous interests and risks.  As a result, it is anticipated that any changes to the contract that affect the product being purchased will require a reassessment.  The reassessment could require reconsideration of numerous terms and conditions of the contract as well as the avoided cost calculation (short-run avoided cost).  The work involved would require significant Energy Division staff time to analyze and respond to party comments, organize and convene staff workshops, and draft recommendations.  Currently, there are no Energy Division staff assigned to work on QFs, thus the implementation of SB 1299 will require additional staff, specifically one Public Utilities Regulatory Analyst (PURA) III and one PURA V, not only to work on the reassessment, but also so that one PURA can be involved in the settlement and the other play an advisory role in case of settlement breakdown (as happened in the past).

Additionally, an ALJ will be needed to run the proceeding and write the decision, as well as an ALJ to administer an alternative dispute resolution process for modifying the QF standard contract.

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SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2015 - 2016 Regular

Bill No: Hearing Date: 4/19/2016

SUBJECT:

DIGEST: This bill creates a renewable energy credit (REC) associated with the electricity generated by certain renewable energy resources, known as “qualifying facilities (QFs) and grants ownerships of the REC to the owner of the QF.

ANALYSIS:

Existing law:

1. Subject to regulation by the California Public Utilities Commission (CPUC), requires each electric utility to purchase the output and capacity of certain electricity producers, known as “qualifying facilities,” which include renewable sources of energy, at a price equal to the avoided cost of purchasing energy from conventional resources. (Public Utility Regulatory Policies Act of 1978 (PURPA), 16 United States Code §796, et seq.)
2. Requires retail sellers of electricity – investor-owned utilities (IOU), community choice aggregators (CCAs), and energy service providers (ESPs) – and publicly owned utilities (POU) to increase purchases of renewable energy, such that at least 50 percent of retail sales are procured from renewable energy resources by December 31, 2030. This is known as the Renewable Portfolio Standard (RPS). (Public Utilities Code §399.11 et seq.)
3. Requires the CPUC to adopt standard terms and conditions to be used by all IOUs in contracting for eligible renewable energy resources, which shall include the REC associated with all electricity generation specified under the contract. (Public Utilities Code §399.13(a)(4)(C))
4. Prohibits the creation of RECs for electricity generated under a PURPA contract executed after January 1, 2005, and requires electricity purchased under such a contract to count toward the RPS requirements of the purchasing retail seller. (Public Utilities Code §399.21(a)(5))

This bill requires creation of a REC for electricity generated by a renewable energy resource under a PURPA contract and gives ownership of the REC to the owner of the renewable energy resource.

Background

Federal law requires purchase of renewable energy. According to the Federal Energy Regulatory Commission (FERC), PURPA was implemented to encourage, among other things, a reduction in the use of oil. PURPA achieves this goal through numerous measures, including energy efficiency and projects that generate energy onsite using combined heat and power or certain renewable resources. Facilities implementing such projects are known as “qualifying facilities” (QFs) for purposes of PURPA. Under PURPA, an IOU must purchase the energy produced by a QF at the IOU's avoided cost, that is, the incremental cost of electric energy or capacity the IOU would have otherwise purchased.

Under the California’ implementation of PURPA, many QFs using renewable resources signed contract several decades in duration. These contracts began to expire in the earlier part of this century.

Renewable attributes of renewable energy stays with the renewable energy. Subsequent to implementation of PURPA, California began its increasingly ambitious program to require the procurement of renewable energy. As the IOUs sought to comply with early RPS requirements, the question arose of how to treat electricity generated by QFs. After a contentious process, numerous parties representing IOUs, ratepayers, and QFs accepted a settlement agreement, memorialized in CPUC Decision 10-12-035. Consistent with the decision, the CPUC developed a standard offer, available to QFs of 20 megawatts or less, that satisfies PURPA’s “must-take” provision. Relative to RECs, the standard offer includes the following language, explicitly stating that a party that purchases energy from a QF retains right to the renewable attributes of that energy:

Green Attributes. Seller hereby provides and conveys all Green Attributes associated with the Related Products as part of the Product being delivered during the Term. Seller represents and warrants that Seller holds the rights to all Green Attributes associated with the Related Products, and Seller agrees to convey and hereby conveys all such Green Attributes to Buyer as included in the delivery of the Product from the Project.

The settlement agreement does not explicitly state the rationale for this treatment of the “green attributes” associated with the energy generated by QFs. However, several parties have stated that the treatment makes sense: PURPA requires IOUs to purchase the energy produced by QFs because the energy is generated from renewable resources; therefore, the “greenness” of the energy, represented by a REC, is inherent to that energy.

According to the California Wind Energy Association (CalWEA), the association, at the time of the settlement agreement, found the standard offer’s treatment of “green attributes” unfair. CalWEA, however, reports it did not voice its objection at the time the settlement agreement was considered and adopted by the CPUC. This is because, according to CalWEA, its members assumed there would be abundant opportunities for QFs to contract with retail sellers of electricity seeking to comply with the RPS. Unfortunately for the QFs, this has not been the case.

Many contracts with QFs expiring; few RPS procurement offers. CalWEA and others representing QFs with expiring PURPA contracts report a dearth of RPS contracts available today. This is because many entities subject to the RPS procurement requirements, such as IOUs, have signed long-term contracts for renewable energy. Despite the recent, considerable increase in the RPS, the IOUs and others, generally, do not need to sign new contracts to procure renewable energy today.

This puts QFs in a difficult position. The QF PURPA contracts are expiring – CalWEA reports contracts representing 443 megawatts of QF wind expiring by 2023. Without new contracts, these QFs may lack the ability to remain in operation until covered entities again begin to procure renewable energy in earnest. The QFs may enter into new PURPA contracts with the IOUs – remember, PURPA requires to the IOUs to purchase the electricity produced by QFs. However, the price paid by the IOUs to QFs under these contracts is very low. Absent some stopgap measure, the operators of QFs say the facilities will no longer operate.

RECs to the rescue? This bill does two things. First, it requires the creation of RECs for electricity generated by an RPS renewable energy resource pursuant to a PURPA contract on or after January 1, 2017. Second, it gives ownership of any such RECs to the owner of the renewable energy resource. As mentioned above, CalWEA concludes such treatment of the ownership right to RECs is fair. PURPA requires IOUs to purchase QF energy at a price equal to the avoided cost of purchasing energy from conventional resources; in other words, the price of fossil-fuel-fired electricity generation. Or, as proponents put it, green-power value at a brown-power price.

Fair or not, such treatment is, in some ways, consistent with treatment of ownership rights of RECs generated by non-PURPA renewable energy resources: statute requires the standard terms and conditions for the purchase of electricity generated by a renewable energy resource eligible for RPS credit to include the RECs associated with all electricity generation specified under the contract. This does not mean, however, as some have contended, that law grants the owner or an RPS-eligible renewable energy facility ownership of the RECs associated with electricity generated by that facility. Rather, statute requires the standard terms and conditions of a contract for such electricity to address the ownership of the REC. In other words, statute governing the RPS treats ownership of RECS as negotiable. So too does this bill, in regards to RECs generated by a QF: if the purchaser of electricity generated by a QF wants the REC, the purchaser would need to negotiate that with the QF. Of course, law obligates no one to purchase the electricity generated by QFs.

Questions of fairness aside, proponents’ purpose is a practical one. The author contends it is in the public interest to maintain QFs in operation for the next several years so that they will be available to meet a portion of the coming demand resulting from the state’s expanded RPS requirements. Granting the owners of QFs ownership of the RECs associated with the electricity they produce provides them something of potential value. The hope is that QF owners could use this value as a financial bridge allowing their survival to a time when there is greater demand for RPS-eligible electricity. QF owners could monetize this value by negotiating with the IOUs with which they contract to receive a price in exchange for conveyance of the REC with the electricity they generate. Or, QF owners could unbundle the RECs from the underlying electricity and sell them to other entities seeking to comply with the RPS.

It is unclear, however, how much value RECs will garner owners of QFs. The IOUs have over complied with the current requirements of the RPS and, therefore, might not have much need for RECs bundled with electricity generated by the QFs. The dollar value of orphaned “bucket 3” RECs is also questionable. Thus far, the market demand for “bucket 3” RECs has been sluggish.

The author describes the QF RECs as a bridge. But they might be a bridge to nowhere.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

California Wind Energy Association (Source)

Alton Energy

Bakersfield Electric Motor Repair, Inc.

Blade Service Rotor Technic USA, LLC

Brookfield Renewable Energy Group

CalWind Resources, Inc.

Kern County

Klüber Lubrication NA LP

Large-scale Solar Association

Midpoint Bearing

NuWind

Ogin Energy

RST Cranes, Inc.

RW Lane Electrical Contractors

Ramos/Strong, Inc.

San Gorgonio Farms, Inc.

Wind Stream Properties

Wintec Energy, LTD.

OPPOSITION:

Pacific Gas and Electric Company

PacifiCorp

San Diego Gas & Electric

Southern California Edison

ARGUMENTS IN SUPPORT: The author contends it important to keep renewable QFs operational and in good repair until there is more demand for new RPS contracts. The author characterizes the changes made by this bill as a way to provide a sufficient and fair price to QFs to ensure they continue to generate renewable energy and other benefits until they are again needed to help meet RPS goals.

ARGUMENTS IN OPPOSITION: Opponents, mainly IOUs, object to this bill, noting that it negates a term in a negotiated settlement agreed to by several parties, including the owners of the QFs. The IOUs also contend this bill will result in their purchasing the same power they would have otherwise bought for the same price, but without receiving the green attributes of that power they would have otherwise received, all to the detriment of their ratepayers.

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