BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1299 (Hertzberg) - California Renewables Portfolio Standard
Program: renewable energy credits
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|Version: March 28, 2016 |Policy Vote: E., U., & C. 8 - 3 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 16, 2016 |Consultant: Narisha Bonakdar |
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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
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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
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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.
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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
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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
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standard contract.
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