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.
                                      -- END --