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United States

Mandate details for a regulated market

The details of SB 532 -- the revised legislation for a Renewables Portfolio mandate to double California's renewable energy by 2013 -- are as follows.

Targets and Timetables: Each of the state's three investor owned utilities will have annual renewable energy portfolio targets that will together add the equivalent of 300 MW of renewable generation capacity at 100% capacity factor each year for at least a decade, while making up any losses in the existing base of renewables. The utilities will have to increase the percentage of renewables in each of their portfolios by at least 1% a year (net) beginning in 2003 until renewable energy comprises 20% of their portfolio, and then maintain that amount. Since the San Diego utility currently has no renewable energy in its portfolio, it may face a higher annual requirement.

"Least-Cost/Best Fit" Procurement: The California Public Utilities Commission (CPUC) determines, on an annual or multi-year basis, the mix of generation characteristics that best fit the delivery needs of each utility portfolio -- peaking, dispatchable, baseload, firm, and as-available delivery. The CPUC also issues standard terms and conditions for the 10-20 year contracts to be offered. The CPUC then publishes a renewables only bid solicitation for each utility, setting forth the need for generation of each deliverability characteristic and the required on-line dates. The utility identifies, subject to participant comment and CPUC review, the expected costs of transmission upgrades for each bid. Bidders are then selected by the CPUC in consideration of least total cost (bid price plus transmission costs), best fit with the assessment of resource need, and best fit with the annual renewables targets.

Price Benchmark: The CPUC will establish a "benchmark price" representing the cost of 10-20 year contracts with renewables developers that the utilities may enter into with the assurance that those costs will be recoverable from utility customers. The CPUC must base the benchmark on the long term cost of new generating capacity (presumably fossil fuel), including: capital costs and fixed-price sources of fuel for terms corresponding to the lengths of contracts to be offered; the cost of any required environmental offsets; and generator grid interconnection costs. The benchmark must also reflect the full potential economic value of renewable energy projects, including indirect economic benefits that will result from the reduction in demand for natural gas.

Funding Cap: The benchmark is not the price cap on the policy. Selected bidders whose prices (not including transmission costs) are above the benchmark will receive an additional payment from the Public Goods Charge fund, administered by the California Energy Commission (CEC), to bridge the gap, subject to the availability of PGC funds.

Accounting: The CEC is charged with establishing and administering a renewable energy accounting system to track the achievement of the renewable energy targets, and to prevent double counting within the market of the western US.

Transmission Cost Allocation: The utilities are directed to request before the Federal Energy Regulatory Commission that transmission system upgrade costs be included in transmission tariffs, rather than assigned to generators, when those costs result in system benefits.

Penalties: The CPUC is required to penalise utilities that fail to make "best efforts" to meet multi-year renewable procurement targets. The theory here is that while explicit monetary penalties that exceed compliance costs are necessary to give unregulated suppliers a self-interest in full compliance, regulated utilities generally comply with CPUC directives, especially when they are assured of recovering any costs associated with those directives, as is clear under this bill. Nothing prevents the CPUC from establishing explicit non-compliance penalties, however.

Compliance by Direct Access Pro-

viders: Though retail competition has been indefinitely suspended, some 15% of the utilities' load (mostly large industrial customers) remains with "direct access" pro-viders. These providers will have the option of fulfilling the mandates themselves, in which case non-compliance will be subject to a $0.03/kWh penalty for any shortfalls. Alternatively, they may opt to have the utility comply for them and pay associated costs.

Fixed Prices for Existing Generators: To stabilise the existing base of renewable energy generation -- and to provide price-stability benefits to consumers -- the utilities are required to offer Qualifying Facilities (power plant that qualify as renewable) a second five year agreement for fixed energy prices. Instead of riding with gas-based variable prices, the CPUC will determine a fixed five year rate. (The first agreement provides existing renewable Qualifying Facilities with fixed energy payments of $0.0537/kWh, in addition to their capacity payments.)

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