BACKGROUND
The California Renewables Portfolio Standard (RPS) Program was established by Senate Bill 10781 and codified by California Pub. Util. Code Section 399.11, et seq. The statute required that a retail seller of electricity such as PG&E purchase a certain percentage of electricity generated by Eligible Renewable Energy Resources (ERR). Originally, each utility was required to increase its total procurement of ERRs by at least 1 percent of annual retail sales per year until 20 percent is reached, subject to the Commission's rules on flexible compliance, no later than 2017.
The State's Energy Action Plan (EAP) called for acceleration of this RPS goal to reach 20 percent by 2010.2 This was reiterated again in the Order Instituting Rulemaking (R.04-04-026) issued on April 28, 2004,3 which encouraged the utilities to procure cost-effective renewable generation in excess of their RPS annual procurement targets (APTs)4, in order to make progress towards the goal expressed in the EAP. On September 26, 2006, Governor Schwarzenegger signed Senate Bill (SB) 107,5 which officially accelerates the State's RPS targets to 20 percent by 2010, subject to the Commission's rules on flexible compliance.6
CPUC has established procurement guidelines for the RPS Program
The Commission has issued a series of decisions that establish the regulatory and transactional parameters of the utility renewables procurement program. On June 19, 2003, the Commission issued its "Order Initiating Implementation of the Senate Bill 1078 Renewable Portfolio Standard Program," D.03-06-071.7 On June 9, 2004, the Commission adopted its Market Price Referent (MPR) methodology8 for determining the Utility's share of the RPS seller's bid price, as defined in Pub. Util. Code Sections 399.14(a)(2)(A) and 399.15(c). On the same day the Commission adopted standard terms and conditions for RPS power purchase agreements in D.04-06-014 as required by Pub. Util. Code Section 399.14(a)(2)(D). Instructions for evaluating the value of each offer to sell products requested in a RPS solicitation were provided in D.04-07-029.9
On December 15, 2005, the Commission adopted D.05-12-042 which refined the MPR methodology for the 2005 RPS Solicitation.10 Subsequent resolutions adopted MPR values for the 2005, 2006 and 2007 RPS Solicitations.11
In addition, D.06-10-050, as modified by D.07-03-046 and D.08-05-029,12further refined the RPS reporting and compliance methodologies.13 In this decision, the Commission established methodologies to calculate an LSE's initial baseline procurement amount, annual procurement target (APT) and incremental procurement amount (IPT).14
CPUC requires standard terms and conditions for RPS contracts
The Commission set forth standard terms and conditions (STCs) to be incorporated into RPS agreements, including bilateral contracts, in D.04-06-014 (as modified by several subsequent decisions).15, 16 The Commission originally identified several STCs in confidential Appendix B of D.04-06-014 as "may not be modified". On November 16, 2007, the Commission adopted D.07-11-025, which reduced the number of non-modifiable terms from nine to four and refined the language of some of these terms in response to an amended petition for modification of D.04-06-014.17 The remaining non-modifiable STCs include "CPUC Approval", "Definition of RECs and Green Attributes", "Eligibility" and "Applicable law". On April 10, 2008 the Commission adopted D.08-04-009, which compiled RPS STCs into one decision.18 Most recently, on August 21, 2008 the Commission adopted D.08-08-028, which modified STC #2 the "Definition of RECs and Green Attributes."19
Pursuant to SB 1036, the process for above-market cost recovery has been modified
Pursuant to SB 1078 and SB 107, the California Energy Commission (CEC) was authorized to "allocate and award supplemental energy payments" to cover above-market costs20 of long-term RPS-eligible contracts executed through a competitive solicitation.21 The CEC required that developers seeking above-market costs to apply to the CEC for supplemental energy payments (SEPs).
This above-market cost recovery mechanism was reformed on October 14, 2007 with the passage of SB 1036,22 which authorizes the CPUC to provide cost recovery through rates for the total costs of above-MPR contracts, when the contracts are deemed reasonable. Above-MPR cost recovery has a `cost limitation' equal to the amount of funds accrued in the CEC's New Renewable Resources Account, which had been established to collect SEP funds, plus the portion of funds which would have been collected through January 1, 2012. SB 1036 also sets forth a number of eligibility criteria that the CPUC must apply when awarding above-MPR cost recovery.23 The CEC and CPUC are working collaboratively to implement SB 1036, which became effective January 1, 2008.24
California Energy Commission (CEC) certifies out-of-state facilities for RPS compliance
The CEC is responsible for certifying the RPS-eligibility of renewable facilities located out-of-state which have their first point of interconnection to the WECC transmission system. The guidelines for certifying out-of-state facilities can be found in the CEC's Renewables Portfolio Standard Eligibility Guidebook.25
Interim Greenhouse Gas Emissions Performance Standard (EPS) established emission rate limitations for long-term electricity procurement
A greenhouse gas emissions performance standard (EPS) was established by Senate Bill 1368,26 which requires that the Commission consider emissions costs associated with new long-term (five years or greater) power contracts procured on behalf of California ratepayers.
On January 25, 2007, the Commission approved D.07-01-039 which adopted an interim EPS that establishes an emission rate quota for obligated facilities to levels no greater than the GHG emissions of a combined-cycle gas turbine (CCGT) powerplant.27 The EPS applies to all long-term energy contracts for baseload generation.28 Renewable energy contracts are deemed EPS compliant with the EPS except in cases where intermittent renewable energy is shaped and firmed with generation from non-renewable resources.29 If the renewable energy contract is shaped and firmed with a specified energy source that is considered baseload generation, then the energy source must individually meet the EPS. If, however, the intermittent energy is firmed and shaped with an unspecified energy source (e.g. system power), then D.07-01-039 specifically defines the following eligibility condition:30
For specified contracts with intermittent renewable resources (defined as solar, wind and run-of-river hydroelectricity), the amount of substitute energy purchases from unspecified resources is limited such that total purchases under the contract (whether from the intermittent renewable resource or from substitute unspecified sources) do not exceed the total expected output of the specified renewable powerplant over the term of the contract.
PG&E requests approval of renewable energy contract
On July 1, 2008 PG&E filed AL 3292-E requesting Commission approval of a renewable procurement contract. The PPA results from PG&E's 2006 RPS Solicitation. On August 8, 2008, PG&E filed Supplemental AL 3292-E-A, to provide the Independent Evaluator report for PG&E's 2006 RPS Solicitation. If approved, PG&E is authorized to accept future deliveries of incremental supplies of renewable resources and contribute towards the 20 percent renewables procurement goal required by California's RPS statute.31
PG&E requests final "CPUC Approval" of PPA
PG&E requests that Commission approve a resolution which:
1. Approves the PPA in its entirety, including payments to be made by PG&E pursuant to the PPA, subject to the Commission's review of PG&E's administration of the PPA.
2. Finds that any procurement pursuant to the PPA is procurement from an eligible renewable energy resource for purposes of determining PG&E's compliance with any obligation that it may have to procure eligible renewable energy resources pursuant to the California Renewables Portfolio Standard (Public Utilities Code Section 399.11 et seq.) ("RPS"), Decision ("D.") 03-06-071 and D.06-10-050, or other applicable law.
3. Finds that all procurement and administrative costs, as provided by Public Utilities Code section 399.14(g), associated with the PPA shall be recovered in rates.
4. Adopts the following finding of fact and conclusion of law in support of PPA cost recovery:
a. The PPA is consistent with PG&E's approved 2006 RPS procurement plan.
b. The terms of the PPA, including the price of delivered energy, are reasonable.
5. Adopts the following finding of fact and conclusion of law in support of PPA cost recovery for the PPA:
a. The utility's cost of procurement under the PPA shall be recovered through PG&E's Energy Resource Recovery Account.
b. Any stranded costs that may arise from the PPA are subject to the provisions of D.04-12-048 that authorize recovery of stranded renewables procurement costs over the life of the contract. The implementation of the D.04-12-048 stranded cost recovery mechanism is being addressed in Rulemaking ("R.") 06-02-013.
6. Adopts the following findings with respect to resource compliance with the Emissions Performance Standard ("EPS") adopted in R.06-04-009:
a. The PPA is not a covered procurement subject to the EPS because the generating facility has a forecast annualized capacity factor of less than 60 percent and therefore is not baseload generation under paragraphs 1(a)(ii) and 3(2)(a) of the Adopted Interim EPS Rules.
b. Arlington's renewable generating facility is an intermittent renewable energy resource, for purposes of compliance with the EPS adopted in R.06-04-009.
c. The use of system energy to deliver electricity under the terms of the PPA is consistent with the Commission's adopted greenhouse gas emission performance standards.
In D.02-08-071, the Commission required each utility to establish a Procurement Review Group (PRG).
The members of a PRG, subject to an appropriate non-disclosure agreement, have the right to consult with the utilities and review the details of each utility's:
1. Overall transitional procurement needs and strategy;
2. Proposed procurement processes including, but not limited to, the requests for offers (RFOs); and
3. Proposed procurement contracts before any of the contracts are submitted to the Commission for expedited review and approval.
The PRG for PG&E consists of: California Department of Water Resources (DWR), the Commission's Energy Division, Natural Resources Defense Council (NRDC), Union of Concerned Scientists (UCS), Division of Ratepayer Advocates (DRA), Coalition of California Utility Employees (CUE) and The Utility Reform Network (TURN).
PG&E informed the PRG of the proposed transaction on July 11, 2007 and March 14, 2008. The PRG did not object to PG&E's decision to enter into this contract or PG&E's decision to submit it for CPUC approval by advice letter.
Although Energy Division is a member of the PRG, it reserved judgment on the contracts until the advice letter was filed. Energy Division reviewed the transaction independently of the PRG, and allowed for a full protest period before concluding its analysis.
Commission has adopted minimum quotas for long-term RPS contracting
Pub. Util. Code 399.14(b)(2) states that before the Commission can approve an RPS contract of less than ten years' duration, the Commission must establish "for each retail seller, minimum quantities of eligible renewable energy resources to be procured either through contracts of at least 10 years' duration or from new facilities commencing commercial operations on or after January 1, 2005." On May 3, 2007, the Commission approved D.07-05-02832 which established a minimum percentage of the prior year's retail sales that must be contracted with contracts of at least 10 years' duration or from new facilities commencing commercial operations on or after January 1, 2005. As a new, long-term contract, deliveries from Arlington will contribute to PG&E's minimum quota requirement.
1 Chapter 516, statutes of 2002, effective January 1, 2003 (SB 1078)
2 The Energy Action Plan was jointly adopted by the Commission, the California Energy Resources Conservation and Development Commission (CEC) and the California Power Authority (CPA). The Commission adopted the EAP on May 8, 2003.
3 http://www.cpuc.ca.gov/Published/Final_decision/36206.htm
4 APT - An LSE's APT for a given year is the amount of renewable generation an LSE must procure in order to meet the statutory requirement that it increase its total eligible renewable procurement by at least 1% of retail sales per year.
5 Chapter 464, Statutes of 2006 (SB 107)
6 Pub. Util. Code Section 399.14(a)(2)(C)
7 http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/27360.PDF
8 D.04-06-015; http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/37383.pdf
9 http://docs.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/38287.PDF
10 http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/52178.pdf
11 Respectively, Resolution E-3980: http://www.cpuc.ca.gov/WORD_PDF/FINAL_RESOLUTION/55465.DOC, Resolution E-4049: http://www.cpuc.ca.gov/word_pdf/FINAL_RESOLUTION/63132.doc, Resolution E-4118: http://www.cpuc.ca.gov/word_pdf/FINAL_RESOLUTION/73594.pdf
12 D.08-05-029 adopted RPS rules specific for small and multi-jurisdictional utilities. http://docs.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/83534.PDF
13 D.06-10-050, Attachment A, http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/61025.PDF as modified by D.07-03-046 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/65833.PDF.
14 The IPT represents the amount of RPS-eligible procurement that the LSE must purchase, in a given year, over and above the total amount the LSE was required to procure in the prior year. An LSE's IPT equals at least 1% of the previous year's total retail electrical sales, including power sold to a utility's customers from its DWR contracts.
15 D.07-02-011 (as modified by D.07-05-057) http://www.cpuc.ca.gov/word_pdf/FINAL_DECISION/68383.pdf
16 D.07-11-025, Attachment A http://docs.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/75354.PDF
17 On February 1, 2007, PG&E and SCE jointly filed a petition for modification of D.04-06-014. On May 22, 2007, a PD was filed and served. Prior to the PD being voted on by the Commission, PG&E and SCE filed an amended petition for modification of D.04-06-014.
18 http://docs.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/81269.PDF
19 http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/86954.pdf
20 Note: "above-market costs" refers to the portion of the contract price that is greater than the appropriate market price referent.
21 Former Pub. Util. Code 399.15(d) pursuant to SB 107 (2006)
22 Chapter 685, Statutes of 2007 (SB 1036)
23 Pub. Util. Code § 399.15(d)(2)
24 CPUC implemented the rate-making aspects of SB 1036 in Resolution E-4160 (April 10, 2008). The CPUC held a workshop on the remaining implementation issues surrounding the above-MPR funds on May 29, 2008. Website: http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/SB1036implementation.htm
25 http://www.energy.ca.gov/2007publications/CEC-300-2007-006/CEC-300-2007-006-ED3-CMF.PDF
26 Chapter 598, Statutes of 2006 (SB 1368)
27 D.07-01-039, which implements SB 1368, adopted an emission rate of 1,100 pounds of carbon dioxide per megawatt-hour for the proxy CCGT (section 1.2, page 8) http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/64072.PDF
28 "Baseload generation" is electricity generation at a power plant "designed and intended to provide electricity at an annualized plant capacity factor of at least 60%." § 8340 (a)
29 Terms "shaping" and "firming" are defined in the CPUC Report, "RENEWABLE ENERGY CERTIFICATES AND THE CALIFORNIA RENEWABLES PORTFOLIO STANDARD PROGRAM," refer to page 20 and A-1, respectively. "Shaping" refers to contractual arrangements whereby renewable energy, like the output of a wind generator, is delivered to some third party, displacing the output from some flexible resource, typically a hydro facility. This, in effect, stores the renewable energy which is then redelivered to the purchasing LSE at some later time. "Firming" refers to the process by which a backup resource is used to supplement the output of an intermittent resource to ensure that the total energy provided is sufficient to meet customer load.
30 D.07-01-039, Conclusion of Law 40. Note: These compliance rules specifically apply to IOUs, additional compliance rules may apply to other RPS-obligated load serving entities.
31 California Public Utilities Code section 399.11 et seq., as interpreted by D.03-07-061, the "Order Initiating Implementation of the Senate Bill 1078 Renewables Portfolio Standard Program", and subsequent CPUC decisions in R.04-04-026; R.06-02-012; R.06-05-027 and R.08-08-009.
32 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/67490.PDF
