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Rulemaking will break or make mandate -- Battle won for California RPS but war not over yet

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California signed into law America's toughest mandate for renewable energy last month, but industry members are already concerned about whether the legislation will achieve the expected 3700 MW of new green power capacity. The rulemaking process, such as developing standard contract terms, will be key to the success of the legislation contained in two companion bills signed by Governor Gray Davis on September 12.

Both bills are needed to ensure that California's new renewables portfolio standard (RPS) will actually result in new installed capacity. The RPS sets a minimum standard for renewables to make up 20% of the electricity portfolios of the state's three largest electric utilities by 2017. Senate Bill 1078 establishes the nation's thirteenth RPS, essentially requiring a 1% net increase in renewables each year until the 20% goal is met, while Senate Bill 1038 approves the use of the state's 3% public goods charge (PGC) to help offset the cost of new renewables that are above market prices (Windpower Monthly, September 2002).

The key to the success of both bills lies in the details of their implementation, however. Renewables advocates agree there is a lot of work to do before the legislation can result in new renewables development. Steven Kelly of the California Independent Energy Producers, a trade association representing developers, says the bill is overly complicated and predicts it will get stuck in endless regulatory proceedings when it goes to the state's Public Utility Commission (CPUC) and Energy Commission (CEC) for rulemaking.

Better before

Kelly says renewables would have gone into the ground faster with AB 57, an existing California Assembly bill that contained a one-line RPS provision, coupled with a ruling by the CPUC, known as the Peevey decision, which requires utilities to begin buying renewables now. In fact, he fears SB 1078 may cause the CPUC to drop the Peevey decision.

A decision to drop Peevey, combined with a provision in SB 1078 prohibiting utilities that are not creditworthy from procuring renewable resources, could stall renewables development, says Kelly. Two utilities, Southern California Edison and Pacific Gas & Electric, which account for almost 90% of California investor-owned utility load, lost their creditworthy status during the state's 2000-2001 energy crisis. The California Department of Water Resources can underwrite those purchases now, but that authority expires at the end of this year. The new law does not prohibit utilities from buying non-renewable resources.

The process for developing the rules under which the RPS will operate could lead to further delays. The rules are to be finalised by June 30, 2003, but Kelly believes it will take longer. "The PUC has to go into rulemaking to again set the market price and, once that's done, the CEC has to determine, I presume, how to allocate the PGC dollars," he says of the public goods charge revenues. "We can't make the June date if the PUC adheres to its procedures. As it is, we may see a situation next year where we can't buy renewables."

Still happy

Nancy Rader of the California Wind Energy Association, a strong supporter of the bill, does not share Kelly's concerns. She sees the groundwork set by the Peevey decision as a reason the new RPS bill will work, and believes the requirements it places on utilities will continue until the rules governing SB 1078 are in place. By then, she hopes, the utilities will have reached creditworthy status.

In Peevey, the CPUC set a benchmark price for energy at $0.0537/kWh, but it will have to reset that price using SB 1078 criteria. When buying renewable energy, utilities will have to pay up to the benchmark price, but would be reimbursed costs higher than that out of the PGC fund. "That gives us some comfort that the benchmark will be as high as it should be," Rader says. "At a price around five cents, we may not need any additional PGC money."

One positive feature of SB 1078 is its treatment of existing renewables. "Now it is effectively a 1% net increase requirement, which means that the utilities have to make up for any declines in their baseline and add 1%," Rader says. "Existing renewables can compete for the net increase slot. Absent our involvement, this bill would have been a 1% new requirement, leaving existing renewables without a market as they come out of their QF [qualifying facilities] contracts."

Ensuring that the rules for new contracts are fair is an important part of the work ahead, says Rader. "We will advocate that the terms be reasonable so as to promote least-cost renewables and so as not to discourage smaller developers," she says. The rulemaking will also set guidelines for the selection of "least-cost/best-fit" bids, she says.

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