Subsidies

As pointed out by a number of parties, however, renewable DG facilities have received significant ratepayer subsidies, and the existence of those subsidies must be taken into consideration. The parties have tended to take all-or-nothing positions on this issue, resulting in a sharp disagreement as to how the subsidies should be considered.

In general, the utilities assert that if a DG facility receives a ratepayer subsidy, the utility should be able to use all of the RECs associated with the energy generated by the facility towards its RPS compliance. (See, e.g. SDG&E Comments, p. 2.) In essence, the utilities argue that if renewable attributes are created in association with the power generated by renewable DG facilities, the economic value of those attributes should be dedicated to the economic benefit of utility ratepayers, who subsidized the facilities (SCE Comments, p. 3), and accordingly ratepayers should not have to expend even more money than they already have in order to receive credit for the output of the renewable DG facilities. (PG&E Comments, p. 8.) In short, the utilities believe that all RECs associated with renewable DG that has received any form of ratepayer subsidy are to be automatically counted toward the utilities' RPS targets.

In contrast, most other parties assert that RECs are the property of the owner of the generation facility. (See, e.g., IEP Comments, p. 1, Cal SEIA Comments, p. 1, CEERT Comments, p. 4.) Some parties take another step, and argue that the owners of renewable DG facilities are free to sell the RECs separately from the associated electricity generated by the DG facilities. (See, e.g. Center for Resource Solutions Comments, p. 4, Cal SEIA Comments, pp. 1-2.)

While both sides raise valid points, both also take their arguments too far. While the utilities are correct that ratepayers have in fact subsidized renewable DG, and should not have to "pay twice" for the same benefits, it does not necessarily follow that all RECs from all DG that received any subsidy automatically become the property of the utility or its ratepayers. SGIP subsidies do not fund the entirety of a DG facility. Likewise, even though the various renewables advocates are correct that any RECs associated with renewable DG are (at least initially) the property of the generation owner, it does not follow that generation owners interconnected to the utility grid have complete free rein to do as they please with those RECs.⁵

It appears that the central question we have posed - what portions of a REC, if any, do public subsidies purchase - is difficult if not impossible to answer, as most of the comments dodge the question in favor of more categorical (and self-serving) assertions of exclusive possession.

We believe a more nuanced approach more accurately reflects the reality of the situation. While the subsidies paid for DG installation do overlap the goals of (and subsidies paid for) the RPS program, there is not a precise match. In other words, some of the money paid by ratepayers to subsidize DG installation may have paid for the same benefits as those sought by the RPS program, but not all of it did. (See, e.g., Reply Comments of R. Thomas Beach, pp. 3-5; Comments of Prevalent Power, p. 2.) In fact, it is not even clear exactly which benefits the DG subsidies are paying for, "[W]ithout quantifying how each benefit contributes to the total value of DG energy production." (Comments of Prevalent Power, p. 3.) No such quantification has occurred, and the problem is exacerbated by the fact that the DG subsidies tend to pay for the equipment and capital costs of a renewable DG system, while the RPS program pays for generation. Trying to make comparisons is difficult when one program is basically buying capacity, while the other is buying energy.

Given this mismatch, it does not appear readily possible to determine what portion of a REC from a given DG facility was actually supported by ratepayer subsidies. For example, an expensive photovoltaic installation installed in a very foggy area may have received a substantial ratepayer subsidy, but would generate relatively few RECs, while a cheaper photovoltaic system in a much sunnier area would have received less ratepayer subsidy, but would likely generate more RECs. If RECs are considered to be compensation for the subsidies paid by ratepayers, the first system would result in ratepayers overpaying in comparison to the number of RECs they get in return, while the second system could result in ratepayers being overcompensated in RECs relative to their payment.

While it is not possible to fairly and accurately account for this mismatch under the past and current structure of the subsidies for DG and RPS, there are ways that the mismatch can be resolved on a going-forward basis. One possible approach would be to spell out precisely what the DG subsidies are paying for, identifying each component of the anticipated benefits that are being subsidized, and quantifying the costs and benefits accordingly. Prospective DG installers would then face a choice: receive the full value of the subsidy and surrender their RECs on behalf of ratepayers, or receive a smaller subsidy - reflecting all the non-environmental benefits associated with DG - and dispose of their RECs as they see fit. The California Energy Commission (CEC) has initiated another possible approach, which would move away from capacity-based subsidies for DG, and toward generation-based subsidies, which would be much more readily comparable to RPS payments.⁶

While these two approaches would clarify exactly what ratepayers are paying for when they pay for DG and RPS programs, and would ameliorate concerns about ratepayers paying twice for the same benefits, making such a fundamental change in the structure of the existing DG program is beyond the scope of this proceeding. The Commission may, however, consider in our ongoing DG R.04-03-017 whether these or other approaches are feasible, and how we could better link DG benefits with ratepayer-funded DG incentives.