BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 1299 Hearing Date: 4/19/2016
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|Author: |Hertzberg |
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|Version: |3/28/2016 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: California Renewables Portfolio Standard Program:
renewable energy credits
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
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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
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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
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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
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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: No Fiscal
Com.: Yes Local: Yes
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.
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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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