STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

March 7, 2005 Agenda ID #4375

TO: PARTIES OF RECORD IN RULEMAKING 04-04-026

This is the draft decision of Administrative Law Judge (ALJ) Peter V. Allen. It will not appear on the Commission's agenda for at least 30 days after the date it is mailed. The Commission may act then, or it may postpone action until later.

When the Commission acts on the draft decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission acts does the decision become binding on the parties.

Parties to the proceeding may file comments on the draft decision as provided in Article 19 of the Commission's "Rules of Practice and Procedure." These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.3 opening comments shall not exceed 15 pages. Finally, comments must be served separately on the ALJ and the assigned Commissioner, and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service.

/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:jva

Attachment

190502

ALJ/PVA/jva DRAFT Agenda ID #4375

Ratesetting

Decision DRAFT DECISION OF ALJ ALLEN (Mailed 3/7/2005)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

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

Rulemaking 04-04-026 (Filed April 22, 2004)

OPINION CLARIFYING PARTICIPATION OF RENEWABLE DISTRIBUTED GENERATION IN THE RENEWABLE PORTFOLIO STANDARDS PROGRAM

Summary

In this decision we address the issue of the participation of renewable distributed generation (DG) in the Renewable Portfolio Standards (RPS) program, and spell out the general principles that will guide that participation.¹ Based on the comments of the parties,² we must answer three questions: (1) who owns the Renewable Energy Credits (RECs) associated with the generation of energy from renewable DG facilities; (2) who gets the RECs associated with the generation of energy from renewable DG facilities; and (3) who can do what with the RECs they own. The short answers to these questions are that the owner of the renewable DG facilities owns the RECs associated with the generation of electricity from those facilities, those RECs may be used to satisfy the utilities' RPS targets, and the RECs stay bundled with the associated electricity.

While we hope that this enunciation of policy will clarify the ground rules for DG participation in the RPS program, we acknowledge that we can improve our policies regarding DG in ways that may have future impacts on RECs from DG facilities. For example, in R.04-03-017 we will be investigating modifications to our Self Generation Incentive Program (SGIP) (such as developing a DG cost-benefit methodology) that will better reflect the role of ratepayer-funded incentives in supporting the installation of DG facilities.³ We do not, however, take any action here that will have any retroactive effect on ownership of RECs. Until we design a method of DG incentives that explicitly connects funding levels to the specific ratepayer benefits these incentives procure, ownership of RECs will remain with the DG owner.⁴

Our decision today does not prejudge any REC issues associated with qualifying facilities currently under litigation at the Federal Energy Regulatory Commission and in the federal Court of Appeals.

² Comments were received from: Green Power Institute, the Commission's Office of Ratepayer Advocates, the Center for Energy Efficiency and Renewable Technologies (CEERT), the Union of Concerned Scientists, Prevalent Power, Inc., Independent Energy Producers Association (IEP), The Utility Reform Network (TURN), the Center for Resource Solutions, Southern California Edison (SCE), PowerLight Corporation, Clean Power Markets, Inc., San Diego Gas & Electric Company (SDG&E), Bonneville Environmental Foundation, the Vote Solar Initiative, the California Solar Energy Industry Association (Cal SEIA), Pacific Gas & Electric (PG&E), RWE Schott Solar, and Central California Power. Reply comments were received from: Green Power Institute (Green Power), R. Thomas Beach, City of San Diego, the CEERT and the Cal SEIA (jointly), the Union of Concerned Scientists, SCE, the Vote Solar Initiative, Prevalent Power, Inc., (Prevalent Power) PG&E, and Central California Power.