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Nearing the end of rule marking in California

Industry opinion is divided on whether the slow pace of implementing the California Renewables Portfolio Standard is a good or a bad thing, but so far just the knowledge of rules on the way is spurring the purchase of wind power

Nearing the end of rule making in California

The world's most ambitious minimum standard for the renewable energy content of a power supply portfolio was signed into law in California in September 2002. Nearly two years later, the rules governing how the state's utilities are to implement the law are still being debated.

The initial flurry of activity over the California renewables portfolio standard (RPS) at the California Public Utilities Commission (CPUC) -- the outfit responsible for getting the rules right -- died away as commissioners became mired in utility rate cases, the Pacific Gas & Electric (PG&E) bankruptcy, and other issues. All that is about to change, however.

The CPUC is now gearing up to decide the remaining RPS issues. The process is complex, it says, but it intends to get the rules right. "It's a very important initiative for us and is a very involved process because we must consider the RPS and how it fits in with the utilities' long term procurement plans and resource adequacy," says CPUC's Terrie Prosper.

Supporting that notion is Nancy Rader of the California Wind Energy Association (CalWEA). She says it is more important to get the RPS implementation rules right than it is to rush the process just to get utility solicitations for renewables out the door quickly. "We believe that spending a few more months to thoughtfully establish the rules -- rules which will govern the market for many years -- is more important. Equally important to getting the rules right will be to hold the utilities accountable in following those rules," Rader says.

John White of the California-based Center for Energy Efficiency and Renewable Technology (CEERT), a consortium of large wind developers, would like to see things move more quickly. CEERT represents entities such as FPL Energy, PPM Energy, and Seawest. His view is supported by the American Wind Energy Association, the Union of Concerned Scientists and the Natural Resources Defense Council.

"We're about half way done," White says. "Some things are still outstanding and we have a sense of urgency about this. We're especially fearful the law's complexity will make implementation expensive and provide opportunities for litigation," which could extend RPS rulemaking even further. White is hopeful the CPUC can finalise the rules and get to at least one CPUC-sanctioned solicitation by the end of 2004.

Despite the slowdown, there has been progress. The CPUC unilaterally accelerated to 2010 the original RPS requirement for California's three investor-owned utilities to supply 20% of their retail sales with renewables by 2017. The RPS will add up to 3700 MW to the state's renewables supply and the truncated time period could push up to 600 MW of new renewable generation sources annually in the state, says the CPUC. In addition, California's new governor, Arnold Schwarzeneger, proposed in his recent campaign platform to further extend the RPS to 33% of electricity sales by 2020. That plan would require legislative action.

Towards the goal

While the implementation rules for solicitations, standard contract terms, market price benchmarks, penalty mechanisms, transmission and integration costs and bid ranking criteria are still waiting CPUC action, that is not stopping utilities from making progress towards the goal.

Southern California Edison has already scored the 20% renewables goal, while PG&E is at 13% and San Diego Gas & Electric (SDG&E), which had no renewables when the law was enacted, is near 4% penetration. It could bring that to 7% by the end of this year having signed contracts in late 2002 for 326 MW of renewable generation, including 156 MW of wind (Windpower Monthly, December 2002). Construction this year depends on congressional action to extend wind's federal production tax credit (PTC).

"We've seen some activity, but we would still like it to be a little more aggressive," says Matt Friedman of The Utility Reform Network's (TURN). TURN, CalWEA and the Union of Concerned Scientists were largely responsible for getting the state's legislature to enact the strict RPS standard in the first place. "A lot of developers are ready to go," although he concedes that even if the RPS rules were ready to go last fall, activity would still be stalled without a PTC in place.

Motivated already

Friedman, who predicts the RPS rules will be set by summer or early fall, believes the proposed $0.05/kWh penalty for non-compliance is motivating utilities to go ahead with renewables development. "Since the RPS law was signed, there has been a lot of procurement. It's just not according to the rules, which are yet to be set," he says.

One rule awaiting a decision is the market benchmark price. Senate Bill 1078 set the RPS, but a companion bill, SB 1038, approved the use of the state's 3% public goods charge to help offset the cost of new renewables that are above market prices (Windpower Monthly, September 2002). While utilities are required to buy the renewable energy, if bids come in above a set market price, funds from the public goods charge will pay the difference in cost. Until those rules are set, utilities will not be eligible for that supplemental amount.

Last month CPUC released a draft ruling on standard contract terms for comment. CalWEA says they still need work. The draft ruling says nothing about the solicitation process and a number of terms important to CalWEA, such as performance requirements, non-performance penalties, credit requirements and scheduling requirements need to be defined to ensure that contract terms are fair and reasonable and that the cost of compliance is not unnecessarily high, says Rader.

Applying the rules

One issue that has been completely ignored to this point, but is an RPS requirement, is the extent to which competitive service suppliers in the state are obligated to provide their direct access customers with the same ratio of renewable energy required of the utilities. Some commercial and industrial customers left the utilities in 2001 in search of cheaper prices. They account for as much as 15% of the load the three utilities had in early 2001.

Energy service providers have pointed out that they are unable by law to sign the long term contracts necessary to procure renewables and should not be subject to RPS penalties. Friedman says they need to be allowed to sign long term obligations if the RPS is to be fully successful, but he also favours ending the California experiment in electricity market restructuring that allowed those customers to leave the utility system in the first place.

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