There is a real concern, expressed by many parties, that an interim contracting authorization might result in the foreclosure of all opportunities for the procurement of renewable resources this year, in 2003, and perhaps beyond. Such a result would clearly countermand the will of the legislature and the mandate of this Commission, as expressed in Public Utilities Code Section 701.3, and in AB57. In particular, PU Code Section 701.3 states, in relevant part:
The Commission shall direct that a specific portion of future generating capacity needed for California be reserved or set aside for renewable resources.
AB57 states, in relevant part:
The electrical corporation will, in order to fulfill its unmet resource needs and in furtherance of Section 701.3, until a 20 percent renewable resources portfolio is achieved, procure renewable energy resources with the goal of ensuring that at least an additional 1 percent per year of the electricity sold by the electrical corporation is generated from renewable energy resources...
Though AB57 is not yet law, we see no reason to delay movement towards this renewable resource goal. Thus, during the transitional period, we require that each IOU hold a separate competitive solicitation for renewable resources in the amount of at least an additional 1 percent of their annual electricity sold beginning January 1, 2003. Utilities should solicit bids for electricity to be delivered beginning January 1, 2003, and extending for five, ten, and 15 year terms, with no contract shorter than five years. Utilities should enter into contracts with a mixture of term lengths. During the solicitation process, utilities should give a preference to existing renewable resources in the bidding process if their bids are equal to or lower than prices offered by new projects. We also require that any contracts for new renewables projects require that the resources come online and begin delivering electricity before the end of 2003. We intend to make more provisions for new renewable resources in the long-term procurement process.
This requirement for a 1 percent increase in renewable resources is irrespective of the residual net short, though we encourage the utilities to solicit bids from innovative renewables projects that can help meet the utilities' residual net short requirements. We also require that bids to provide renewable power clearly identify any expected funds from the public goods charge (PGC) administered by the CEC that are included in the resource pricing.
Creating this set-aside in the transitional procurement process for renewable resources should obviate the need to require automatic extensions of renewable contracts currently held by DWR, as requested by Ridgewood Olinda LLC in its June 12 motion. Thus, we deny this motion, but encourage Ridgewood, and any other renewable operators holding existing or recently expired DWR or utility contracts, to participate in the solicitation process described above.
In comments on this alternate decision, many parties request that the Commission set at least a provisional "benchmark" price for reasonableness review for renewable procurement. AB57 includes provision for such a benchmark, along with any "above-market" costs beyond the benchmark. As a general proposition, any renewable contract approved through the transitional procurement process outlined in this decision will be deemed reasonable, with its costs fully recoverable by the utilities. Thus, establishment of a benchmark for the transitional period is not strictly required. However, to give guidance to bidders and to the utilities, we will adopt an interim, provisional benchmark of 5.37 cents per kWh, which is consistent with prices previously adopted by the Commission in D.01-06-015, and as recommended by the California Biomass Energy Alliance (CBEA). We will revisit this benchmark in the next phase of this proceeding for the long-term procurement process. During the transitional period, any contract that meets or exceeds the benchmark will be deemed per se reasonable, though other contracts at prices above the benchmark may also be approved by the Commission for cost recovery through the process outlined in this decision.
We also clarify, in response to comments from a number of parties, that this renewable procurement set-aside in the interim period is subject to the same procedural process outlined earlier in this decision, as well as the contract provisions that allow the utilities to partner with DWR.
Finally, we encourage the utilities to work with the CEC and the CPA to take advantage of their knowledge of available existing and new renewable resources. In the next phase of this proceeding, we will make explicit requirements for the coordination of the CEC's PGC fund awards with utility renewable resource procurement, in compliance with AB57.
The success of such an effort in the next phase, however, is largely dependent on legislative authorization of the CEC's financial plan for the future of the Renewable Energy Program. We anticipate that the legislature will have finalized the financial reauthorization of the PGC program when we turn to the full Procurement Plans in the next phase, and we will revisit the issue of establishing a benchmark price at that time.