Revised Calif. Draft Continues to Exclude RECs for Largest RPS Category, Clarifies Conditions for Resale

A revised California PUC agenda decision would add greater detail regarding rules for reselling RPS-eligible contracts in order to maintain the contract's original classification into one of three statutory RPS categories, but would not provide two major revisions sought by retail suppliers (R. 11-05-005)

The revised proposed decision addresses recently enacted SB 2 (1X) which separates renewable compliance into three categories, and which establishes the percentage of total RPS compliance which must be met with electricity complying with the requirements of each category. These categories are under Pub. Util. Code § 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% (see 10/10).

The original draft, posted in October, proposed that unbundled RECs may not be used to satisfy the § 399.16(b)(1) RPS requirement, which, as noted above, is the compliance category covering the majority of RPS obligations.

The revised agenda decision maintains this conclusion, and further discusses its support to exclude unbundled RECs from complying with the § 399.16(b)(1) carve-out.

While some parties cited certain revisions in the legislative drafting process as supporting the use of unbundled RECs to comply with the § 399.16(b)(1) mandate, provided that the original energy associated with the REC met the § 399.16(b)(1) standards, the revised agenda decision dismisses these arguments, noting that the statute specifically identifies unbundled RECs as belonging in the § 399.16(b)(3) RPS category.

"If the Legislature had intended to reverse completely the place of unbundled RECs in the portfolio content category scheme, it is reasonable to expect that some more direct and obvious method would have been chosen, such as expressly adding unbundled RECs to proposed § 399.16(b)(1)," the revised draft states, noting that no such explicit provisions for the use of unbundled RECs under § 399.16(b)(1) was designed.

The revised draft also maintains the original conclusion that only contracts executed prior to June 1, 2010, shall count in full towards the RPS, regardless of the new RPS categories and the limits on the use of certain categories. Retail suppliers had sought to extend such special "count in full" treatment to contracts signed prior to January 13, 2011, but the revised draft continues to reject this approach.

What the revised agenda decision mainly provides are newly proposed rules clarifying that RPS procurement contracts may be resold under certain circumstances while retaining the portfolio content category of the original contract.

For a contract which originally met the §399.16(b)(1)(A) category, the contract may continue to be used to comply with §399.16(b)(1)(A) despite a resale of the contract provided that:

• The original contract meets the criteria of § 399.16(b)(1)(A); and

• The resale contract transfers only electricity and RECs that have not yet been generated prior to the effective date of the resale contract; and

• The electricity transferred by the resale contract is transferred to the ultimate buyer in real time; and

• For those transactions in which the RPS-eligible energy is scheduled from the eligible renewable energy resource that is not interconnected to a California balancing authority into a California balancing authority without substituting electricity from another source, the original hourly or subhourly schedule is maintained and the three other conditions above are met; and

• For contracts with dynamic transfer (§ 399.16(b)1)(B)), the resale must not be contrary to any condition imposed by any balancing authority participating in the dynamic transfer arrangement.

For a contract which originally met the §399.16(b)(2) category, the contract may continue to be used to comply with §399.16(b)(2) despite a resale of the contract provided that:

• The original contract meets the criteria of § 399.16(b)(2); and

• The resale contract transfers only electricity and RECs that have not yet been generated prior to the effective date of the resale contract; and

• The resale contract transfers the original arrangement for substitute electricity (e.g., source and quantity); and

• The resale contract retains the scheduling of the substitute electricity into a California balancing authority as set out in the original firming and shaping transaction; and

• The transaction continues to provide incremental electricity scheduled into a California balancing authority.