2. Background
Pub. Util. Code §§ 399.11-399.22, the California Renewables Portfolio Standard Program (RPS), 2 enacted in 2002 by Senate Bill (SB) 1078 (Sher) and amended in 2006 by SB 107 (Simitian), requires retail electricity sellers regulated by the Commission to procure an additional 1% of retail sales per year from eligible renewable sources until 20% is reached, no later than 2010. In 2011, SB 2 1X3 of the 2011-2012 First Extraordinary Session (Simitian) amended §§ 399.11-399.22 to increase the renewable target to 33% by 2020 and also require publicly-owned utilities to achieve the 33% renewables goal.
In 2006, the Legislature added § 399.20, Assembly Bill 1969 (Yee), which directs investor-owned utilities (IOUs) to establish standard tariffs to purchase renewable energy from water and wastewater customers. The Commission implemented § 399.20 in Decision (D.) 07-07-027 and directed the IOUs to offer standard tariffs and contracts to water and wastewater customers for the purchase of renewable energy from projects up to 1.5 megawatts (MW). The decision also directed SCE and Pacific Gas and Electric Company (PG&E) to offer standard tariffs and contracts to all customers in their service territories selling renewable energy from projects up to 1.5 MW.
In addition to the legislative mandates, the Governor of the State of California has announced his intention to encourage the development of 12,000 MW of small scale distributed generation projects located on the existing electric grid by 2020. To achieve this goal, the Governor has called upon the Commission and other state agencies to assist with the development of small scale distributed generation. Efforts to encourage such development have been ongoing. These efforts have, in part, consisted of implementing the legislative directives set forth in §§ 399.11-399.22 and formal proceedings, such as this proceeding and Rulemaking (R.) 08-08-009. Efforts have also included encouraging informal processes, such as the process SCE and stakeholders initiated last year to reform SCE's California Renewable Energy Small Tariff (CREST) Power Purchase Agreement (PPA).4
In late 2010, stakeholders asked the Commission staff and SCE to establish a process to address hurdles experienced by developers and producers in obtaining the financing needed to develop small scale renewable generation for interconnection to SCE's distribution system. In May 2011, SCE initiated this informal process, with the Commission staff encouraging all stakeholders, including SCE, to collaborate in resolving these critical issues. Stakeholders and SCE worked together to complete reforms to the CREST PPA with the target date of September 2011 to implement contract reforms.
The goal of this process, as described by Clean Coalition's motion, continued to be, at least in part, to modify the PPA so that producers and developers could provide lenders and investors with a higher level of certainty on the timely progress of generation projects toward successful interconnection with SCE and the execution of a PPA. For example, stakeholders sought a more expedited interconnection process, increased opportunities to execute PPAs, the ability to execute PPAs earlier in the interconnection evaluation process, more control over the circumstances resulting in termination of the contract, and increased standardization of contract terms and conditions to include, for example, Force Majeure and Indemnification provisions.
Clean Coalition's motion explains that, while this informal process was ongoing, producers and developers continued to work on project development in SCE's service territory and invested significant resources toward this end. In developing these generation projects, developers and producers recognized the deadlines for the federal cash grants under § 1603 of the American Recovery and Reinvestment Tax Act. Generally, the § 1603 program, which is administered by the U.S. Department of Treasury in conjunction with the U.S. Department of Energy, offers renewable energy project developers cash payments in lieu of the investment tax credits. The value of the awards is equivalent to 30% of the project's total eligible cost basis in most cases.
Importantly, under § 1603, producers and developers must meet certain development milestones by the end of 2011 to preserve their eligibility for federal cash grants. For example, cash grant eligibility may be preserved by completing work of a significant nature on the project or investing 5% of each project's tax basis in equipment destined for that project by the end of 2011.
Lenders and investors, however, often require producers and developers to execute a PPA with the utility, such as SCE, before they consider the project sufficiently credit worthy for financing purposes. The SCE process contained many barriers to obtaining an acceptable PPA. Among others, the SCE process required a producer or developer to participate in an extended interconnection study process and have an executed interconnection agreement before obtaining a PPA. Further, and as discussed in more detail below, SCE's CREST PPA includes several terms and conditions which are not consistent with the terms and conditions in PPAs more recently approved by the Commission and which significantly limit the ability of developers and producers to obtain financing for CREST projects. Besides San Diego Gas & Electric's (SDG&E) § 399.20 Feed-in Tariff contract, which was modeled after SCE's CREST PPA, these CREST PPA terms and conditions are not included in other utilities' programs that are similar to the CREST program. Consequently, the informal discussions focused on timely progress toward successful interconnection and modification of problematic SCE CREST PPA provisions.
Progress toward reform of SCE's CREST PPA ended on July 21, 2011. On this date, SCE suspended the stakeholder process, just one day prior to SCE's target date for stakeholder distribution of its revised CREST PPA. In SCE's July 21, 2011 notice suspending the stakeholder process, SCE explained that this suspension was due to the Commission's renewed efforts in this proceeding to address pending matters related to the interconnection of small scale generation to the distribution system. SCE's notice stated as follows:
Notice to all interested parties: On May 19, 2011, Southern California Edison Company ("SCE") launched a stakeholder process to reform SCE's pro forma CREST PPA ("CREST PPA"). SCE received and has been reviewing stakeholder feedback on SCE's proposed new pro forma CREST PPA. Originally, SCE had targeted July 22, 2011 for the distribution of the revised CREST PPA. However, in light of the California Public Utilities Commission's ("CPUC") current implementation of SB 32, which would replace the existing CREST program with a new Feed-in Tariff, SCE is suspending the stakeholder process until further notice. SCE will consider comments it has received in this stakeholder process in the implementation of SB 32.5
Upon the termination of the stakeholder process, Clean Coalition filed the motion we consider in today's decision. Clean Coalition's August 15, 2011 motion seeks Commission consideration of some of the reforms previously under consideration in the stakeholder process.
On August 30, 2011, SCE filed a response in opposition to the motion. SCE's motion primarily objected to Clean Coalition's request on procedural grounds. No other responses to this motion were filed. We address the merits of the motion and SCE's opposition below.
On September 12, 2011, the assigned Commissioner issued a ruling finding the motion sufficiently important to bring the issue before the full Commission as soon as possible. The ruling also urged parties to engage in efforts to resolve this matter through negotiation and for SCE to submit a revised tariff and contract through the advice letter process.
Since parties were unable to resolve this matter informally, we address the contract reforms presented in the motion and SCE's opposition in today's decision.
2 All statutory references are to the Public Utilities Code unless otherwise indicated.
3 SB 2 (1X) (Simitian), Stats. 2011, ch. 1, enacted in the 2011-2012 First Extraordinary Session of the Legislature, will "go into effect on the 91st day after adjournment of the special session at which the bill was passed." (Gov't. Code § 9600(a).) The 2011-2012 First Extraordinary Session adjourned on September 10, 2011, making SB 2 (1X) effective on December 10, 2011.
4 D.07-07-027 directed the IOUs to file standard contracts and tariffs under § 399.20. ̕SCE filed the CREST PPA to comply with the decision.
5 Clean Coalition's Motion at Section I (Background).
