Time-of-Delivery Market Price Referents and Tradable RECs

There are other issues that also need further consideration, but that do not lend themselves to the briefing process. Two major ideas that we wish to explore further in a carefully considered manner are time-of-delivery-based market price referents (TOD MPR) and the possibility of allowing tradable RECs for RPS compliance. We want to utilize the significant experience and developed perspectives of the parties to inform our position on these issues, with an eye to possible implementation. In order to start this process, we are requesting that the parties provide conceptual proposals, outlining how a TOD MPR would be developed and utilized and describing their ideal REC trading system.

Regarding proposals for a TOD MPR, we note the findings in D.04-07-029 expressing the Commission's interest in understanding "how the TOD profile would be constructed, how public it would be, and whether separate TOD profiles for each utility would be appropriate. We will also want to consider the role of ELCC (Effective Load Carrying Capability) in constructing these TOD profiles, and the role of separate capacity payments, if any are appropriate, under the payment methods that will result." (Id., p.25.) That decision also raised concerns regarding the interplay of TOD MPRs with the Energy Commission's administration of Supplemental Energy Payments, and expressed interest in developing a record to demonstrate that a TOD approach is consistent with the RPS statute. Parties submitting proposals for TOD MPRs should provide guidance on all of the issues identified above.

In setting forth REC trading proposals, parties should be guided by the concerns identified in D.03-06-071. As we stated in that decision:

While we will leave open the possibility that a REC trading system may be implemented in the future, we note that creation of such a system raises a number of significant issues that would need to be addressed. Before we consider adoption of a REC trading system, we will need a clear showing that a REC trading system would be consistent with the specific goals of SB 1078,⁴ would not create or exacerbate environmental justice problems, and would not dilute the environmental benefits provided by renewable generation. Our recent experience in California with electricity markets has also sensitized us to issues of market manipulation, and we would want to be sure that a REC trading system could not be gamed to the detriment of the residents of California. (Id., pp. 9-10.)

While we are interested in hearing parties' views of the ideal REC trading system that addresses the above concerns, given the numerous uncertainties regarding the development of a REC trading system, we would also be interested in parties' views about exploring initially limited applications of the concept, such as inter-utility trades.

The comments submitted on these topics should be considered the first word, rather than the last word. Parties will be given further opportunities to provide input to the Commission on both TOD MPR and REC trading. Opening comments are due on February 3, 2005 and reply comments are due on February 10, 2005. Energy Division, in coordination with the collaborative staff of the CEC, will schedule TOD workshops beginning the second week of February, 21 2005.

⁴ For example, if a utility were to meet its RPS requirements by purchasing RECs from generators located in other states, that would not appear to provide California with the economic development, job creation, environmental, and other benefits anticipated by the statute. Further, to the extent that the underlying power is not deliverable into California, public health and environmental benefits anticipated by the RPS statute may also not be realized. (See, § 399.11(a), (b) and (c).) (Footnote in original.)