BILL ANALYSIS                                                                                                                                                                                                    

                             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.

          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.

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

          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  


          SB 1299 (Hertzberg)                                    Page 1 of  
          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  

          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  


          SB 1299 (Hertzberg)                                    Page 2 of  
          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.  


          SB 1299 (Hertzberg)                                    Page 3 of  
           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.

          Comments:  According to the CPUC, the changes would need to be  


          SB 1299 (Hertzberg)                                    Page 4 of  
          implemented in two separate proceedings due to the bill  
          affecting both RPS program rules and the QF standard contract.

           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  


          SB 1299 (Hertzberg)                                    Page 5 of  
          standard contract.

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