Calif. Draft Would Exclude Unbundled RECs from Meeting Largest RPS Carve-Out Category

A draft California PUC decision would determine that unbundled RECs may not be used to satisfy the Pub. Util. Code § 399.16(b)(1) RPS requirement, which under the recent SB 2 (1X) is the largest among three carve-outs in the RPS, starting at 50% of the total RPS requirement for the 2013 compliance year (R. 11-05-005).

Aside from raising the RPS to 33%, SB 2 (1X) separates renewable compliance into three carve-outs which establish the percentage of total compliance which must be met with electricity complying with the requirements of each carve-out. These carve-outs are under § 399.16(b)(1), § 399.16(b)(2), and § 399.16(b)(3).

Retail load serving entities are required to initially meet 50% of their RPS requirements through § 399.16(b)(1) resources, with the carve-out eventually rising to 75%.

Under the draft order's interpretation of the statute, LSEs, including competitive electric service providers, could only meet the RPS requirement under § 399.16(b)(1) by showing that the generation facility from which the electricity is procured is certified as eligible for the California renewable portfolio standard and either:

a. has its first point of interconnection to the Western Electricity Coordinating Council transmission grid within the metered boundaries of a California balancing authority area; or

b. has its first point of interconnection with the electricity distribution system used to serve end users within the metered boundaries of a California balancing authority area; or

c. the generation from that facility is scheduled into a California balancing authority without substituting electricity from any other source, provided that, if another source provides real-time ancillary services required to maintain an hourly or subhourly import schedule into the California balancing authority only the fraction of the schedule actually generated by the generation facility from which the electricity is procured may count toward this portfolio content category; or

d. the generation from that facility is scheduled into a California balancing authority pursuant to an agreement between the balancing authority where the generation facility is located and the California balancing authority into which the generation is scheduled.

LSEs, both utilities and competitive retail suppliers, had argued that unbundled renewable energy credits originally associated with electricity that would meet the criteria of § 399.16(b)(1) should also be allowed to count toward compliance with this carve-out.

However the draft would not authorize the use of RECs in meeting the § 399.16(b)(1) requirement.

"Unbundled RECs, as TURN points out, are identified as belonging in § 399.16(b)(3) and are mentioned only in § 399.16(b)(3). The statutory text itself, therefore, places unbundled RECs in that portfolio content category. Since the categories are separate, that is where unbundled RECs belong. There is no reason, textual or otherwise, to believe that the Legislature specifically identified unbundled RECs as belonging in § 399.16(b)(3), but really intended some of them to belong in § 399.16(b)(1)," the draft finds.

"If the RECs are acquired separately, no matter what the source of their originally associated electricity, the unbundled RECs fall under § 399.16(b)(3)," the proposed order states.

Before turning to compliance requirements under § 399.16(b)(2) and § 399.16(b)(3), another key issue for retail suppliers has been the ability to use current RPS contracts to meet their overall RPS requirement without being subject to the new carve-out limits for certain types of products.

SB 2 (1X) enacts § 399.16(d) which provides that, "Any contract or ownership agreement originally executed prior to June 1, 2010, shall count in full towards the procurement requirements established pursuant to this article, if all of the following conditions are met," and then lists several conditions.

Retail suppliers argued that the reach of this section should be extended, at least for ESPs, to cover contracts signed in the same time period as allowed by D.11-01-026 (i.e., contracts signed prior to January 13, 2011), as retail suppliers relied on that Commission decision in organizing their RPS compliance.

"AReM's position must be rejected. The Legislature has the power, though it does not often exercise it, to enact a civil (not criminal) law that will reach and change the legal effect of actions taken in the past ... The Legislature's direction in SB 2 (1X) is clear that only contracts signed prior to June 1, 2010 may be given such special treatment," the draft finds.

"In § 399.16(c), the Legislature provides that the new portfolio content categories (and thus the accompanying limitations on their use) apply to contracts signed after June 1, 2010. This determination is within the authority of the Legislature, and there is no ambiguity in these directions that would require interpretation or harmonization with D.11-01-026," the draft continues.

"We recognize that there may be complex issues of interpretation with respect to other implications of new § 399.16(d), for example, the limitations on applying excess procurement from one compliance period to a subsequent compliance period (new § 399.13(a)(4)(B)). We leave these questions to subsequent decisions on compliance and procurement more generally," the draft adds.

Furthermore, the proposed order concludes that § 399.16(d)'s term "count in full" shall, "mean that the limitations on the use of procurement in each of the three portfolio content categories do not apply to procurement from contracts signed prior to June 1, 2010, as long as the three qualifying conditions are met," with one notable exception regarding RECs.

"The general exemption from the usage limitations in new § 399.16(c) applies only to RECs retired for RPS compliance from the originally contracted procurement. If any RECs from a contract signed prior to June 1, 2010, are unbundled and sold separately after June 1, 2010, the underlying energy may not be used for RPS compliance; and the unbundled RECs will be counted in accordance with the limitations on § 399.16(b)(3), as set out in § 399.16(c)(2). This follows from the statutory language, which applies only to a 'contract or ownership agreement originally executed prior to June 1, 2010.' ... A contract signed after that date, even if conveys RECs originally part of a contract signed prior to June 1, 2010, is not covered by § 399.16(d)," the draft states.

Turning back to compliance demonstrations for each the remaining carve-outs, the draft would require an LSE seeking credit under § 399.16(b)(2) to demonstrate that the generation facility from which the electricity is procured is certified as eligible for the California RPS and the generation from that facility is firmed and shaped with substitute electricity scheduled into a California balancing authority within the same calendar year as the generation from the facility eligible for the California RPS. Additionally, if the substitute electricity provides incremental electricity, the following conditions must be met:

- the buyer simultaneously purchases energy and associated RECs from the RPS-eligible generation facility;

- the energy purchased from the RPS-eligible generation facility is available to the buyer (i.e., the purchased energy must not in practice be already committed to consumption by another party);

- the buyer acquires the substitute energy at the same time as it acquires the RPS-eligible energy.

Procurements may count towards the § 399.16(b)(3) carve-out if either of the following conditions is met:

- The procurement consists of unbundled renewable energy credits originally associated with generation eligible under the California renewables portfolio standard; or

- The procurement consists of any generation eligible under the California renewables portfolio standard that does not quality to be counted in either of the portfolio content categories described in Pub. Util. Code § 399.16(b)(1) and § 399.16(b)(2)

The draft provides that, in the "unique and limited circumstance[s]" of the contracts signed by the Department of Water Resources, which purchased energy but not RECs from certain RPS-eligible facilities, the utilities will be allowed to purchased the RECs and re-bundle them with the underlying generation, receiving RPS compliance credit as though the energy and RECs had been purchased together.