D1003021 Decision Authorizing Use of Renewable Energy Credits for Compliance with the California Renewables Portfolio Standard

ALJ/AES/tcg Date of Issuance 3/16/2010

Decision 10-03-021 March 11, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking to Develop Additional Methods to Implement the California Renewables Portfolio Standard Program.

Rulemaking 06-02-012
(Filed February 16, 2006)

(See Appendix E for a list of appearances.)

DECISION AUTHORIZING USE OF RENEWABLE ENERGY
CREDITS FOR COMPLIANCE WITH THE
CALIFORNIA RENEWABLES PORTFOLIO STANDARD

DECISION AUTHORIZING USE OF RENEWABLE ENERGY
CREDITS FOR COMPLIANCE WITH THE CALIFORNIA
RENEWABLES PORTFOLIO STANDARD 1 1

1. Summary 2 2

2. Introduction 5 5

3. Procedural Background 6 6

4. Discussion 14 14

4.1. RPS Regulatory Framework 14 14

4.2. Authorization 16 16

4.3. Sources of TRECs 19 19

4.3.1. Larger-Scale RPS-Eligible Generation 20 20

4.3.2. Distributed Generation 21 21

4.3.2.1. WREGIS Requirements for DG 23 23

4.3.3. Availability of TRECs 24 24

4.4. Guiding Principles 24 24

4.5. REC-Only Transactions 26 26

4.6. Market Structure and Rules 38 38

4.6.1. Staff Straw Proposal 39 39

4.6.2. Participants 39 39

4.6.3. Temporary Limits on Use of TRECs 40 40

4.7. Cost Recovery 50 50

4.7.1. Contract Approval 50 50

4.7.2. Bid Evaluation 53 53

4.7.3. Temporary Limit on Payment for TRECs 54 54

4.7.4. Cost Limitation Provisions 61 61

4.7.5. TREC Revenues for the Benefit of Ratepayers 62 62

4.8. Transactions Subject to §§ 399.16(a)(5) and (6) 62 62

4.9. Compliance and Reporting 65 65

4.9.1. Commitment of RECs for RPS Compliance 66 66

4.9.2. Unbundling of RECs from Future Years of Bundled
Contracts 69 69

4.9.3. Earmarking of TREC Contracts 71 71

4.9.4. Use of TRECs to Make Up Prior Shortfalls 72 72

4.9.5. Reporting 73 73

4.9.5.1. Compliance 73 73

4.9.5.2. Monitoring 74 74

4.10. Standard Terms and Conditions 77 77

4.11. Timing Issues 79 79

4.12. Comparison to March 2009 PD 79 79

4.13. Next Steps 80 80

5. Comments on Proposed Decision 83 83

6. Assignment of Proceeding 88 88

Findings of Fact 88 88

Conclusions of Law 91 91

ORDER 96 96

Appendix A - Section 399.16 - Use of Renewable Credits to Satisfy the Requirements of the Renewables Portfolio Standard

Appendix B - Staff Straw Proposal

Appendix C - New and Revised Standard Terms and Conditions

Appendix D - Summary of TREC Rules Announced in This Decision

Appendix E - List of Appearances

DECISION AUTHORIZING USE OF RENEWABLE ENERGY
CREDITS FOR COMPLIANCE WITH THE
CALIFORNIA RENEWABLES PORTFOLIO STANDARD

1. Summary

This decision authorizes the procurement and use of tradable renewable energy credit (TRECs) for compliance with the California renewables portfolio standard (RPS) program. It also delineates the structure and rules for a TREC market and for the integration of TRECs into the RPS flexible compliance system.

The use of TRECs for RPS compliance will provide more options and flexibility for RPS-obligated load-serving entities to comply with RPS mandates in both the near and longer term. Over time, it will also provide additional flexibility and incentives for the development of RPS-eligible generation by supplying useful revenue options for generation developers.

The market and compliance rules are developed with a view to simplicity, transparency, fairness, and ease of administration. These market and compliance structures are intended to remain the framework for the use of TRECs into the future. Although the TREC market may be modest in the next two or three years, the market rules put in place in this decision will both allow a new market to develop and provide robust rules for a mature TREC market.

The rules create a market in which participation in TREC transactions is not restricted, though participants must meet the requirements set forth by this Commission for TREC trading, as well as any requirements for participation set by the Western Renewable Energy Generation Information System (WREGIS).

The decision distinguishes between bundled (energy plus renewable energy credits (RECs)) transactions and TREC (or REC-only) transactions used for RPS compliance by finding that a bundled transaction must serve California customer load, without needing any intermediary energy transactions that in effect substitute energy that is not RPS-eligible for energy that is. The decision concludes that bundled transactions with renewable energy -- or those which serve California customer load -- are those where:

· the RPS-eligible generator's first point of interconnection with the Western Electricity Coordinating Council (WECC) interconnected transmission system is with a California balancing authority, or

· the RPS-eligible energy from the transaction is dynamically transferred to a California balancing authority.

The decision classifies all other RPS-eligible transactions as REC-only. However, because the Commission seeks to classify as bundled all transactions that can be demonstrated to serve California customer load, the decision authorizes the Director of Energy Division to further explore whether transactions using firm transmission but not dynamic transfer should also be classified as bundled.

To promote market liquidity while preserving the value of TRECs for RPS procurement planning, the decision requires that TRECs must be tracked in WREGIS and retired in WREGIS for RPS compliance within three calendar years of the year the electricity associated with the TRECs was generated. Once committed to RPS compliance, TRECs will be treated in substantially the same way as bundled energy purchases for reporting and compliance purposes. This includes application of most flexible compliance mechanisms, with the principal exception that only some TREC contracts may be earmarked for use to make up RPS procurement shortfalls. In order to promote a robust TREC market, the decision allows TRECs from future years of existing RPS contracts to be unbundled and sold under certain conditions.

To maximize the benefit of RPS-eligible generation to California customers, this decision provides a temporary limit on the use of TRECs to meet RPS procurement obligations. Under this limit, the three large California utilities may use TRECs to meet no more than 25 percent of their annual RPS procurement obligations. To protect ratepayers from excessive payments for TRECs in the early stages of the TREC market, the decision imposes a transitional price cap of $50/REC in REC-only contracts used for RPS compliance by all investor-owned utilities. Both limits will expire December 31, 2011, unless the Commission acts to modify, extend, or terminate the limits prior to that date.

To aid the Commission in evaluating the use of TRECs, this decision directs Energy Division staff to collect information about the TREC market and the use of TRECs for RPS compliance, and to provide a report with recommendations to the Commission within 16 months of the date of this decision. Regarding whether the usage limit and price cap should be retained, adjusted, or allowed to sunset.

In order to facilitate the integration of TRECs into the RPS program, this decision authorizes the consideration of changes to RPS procurement planning and bid evaluation in Rulemaking 08-08-009. It also authorizes Energy Division staff to develop methods to review and evaluate REC-only transactions and to make any necessary revisions to the RPS compliance documents and reporting protocols.

Finally, the decision sets forth two standard terms and conditions (STCs) related to RECs and one additional STC governing Commission approval of utilities' REC-only contracts that must be used in all RPS contracts that have not been approved by the Commission prior to this decision.