CPUC Plan Extends California Renewable Energy Mandates

In 2002, California enacted Senate Bill (SB) 1078, establishing the California Renewables Portfolio Standard (RPS) program. Among the most aggressive such programs in the United States, SB 1078 requires 20 percent of utility retail sales to be procured from eligible renewable sources no later than 2017.

In 2003, the CPUC and California Energy Commission adopted the state's first Energy Action Plan that accelerated the deadline to 2010 for investor-owned utilities (IOUs). The first phase of RPS implementation has addressed implementation by the IOUs. A CPUC proceeding is under way to determine how to apply the RPS to non-IOU retail sellers of electricity in California.

On Thursday, September 22, 2005, CPUC President Michael Peevey issued a long-awaited draft decision on implementation of the RPS for non-IOU retail sellers, specifically Energy Service Providers (ESPs), Community Choice Aggregators (CCAs), and small and multi-jurisdictional utilities. The draft decision clarified that ESPs, CCAs, and small and multi-jurisdictional utilities should be subject to the following requirements under the same terms and conditions as IOUs:

-- 20 percent of retail sales must come from renewable sources by 2010, as required by the Energy Action Plan.
-- All entities must increase their renewable retail electricity sales by at least 1 percent per year.
-- Progress toward meeting RPS program requirements must be reported to the CPUC.
-- Flexible compliance mechanisms may be used.
-- All entities are subject to the same penalties and penalty processes.

This decision represents a significant milestone in applying the fundamental requirements of the RPS to all entities covered by the 2002 law.

However, the draft decision also found that it was not reasonable to subject these entities to the elaborate RPS process required of the IOUs. Instead, the assigned administrative law judge will establish a process and schedule to further explore the manner in which ESPs, CCAs, and small and multi-jurisdictional utilities should meet the fundamental aspects of the RPS program. The CPUC is expected to streamline the renewable energy procurement process for these entities.

President Peevey also used the draft decision to assert the CPUC's authority and intention to allow unbundled renewable energy credits (RECs), or green tags, to be applied to the RPS compliance obligations of all retail sellers of electricity. (Unbundled RECs are the attributes of renewable energy generation that have been separated from the underlying energy.)

Despite a vigorous challenge by several stakeholders, the CPUC ruled that it has authority to authorize unbundled RECs as a compliance mechanism. The CPUC announced that it intends to eventually allow unbundled RECs to count toward RPS compliance by all retail sellers, and that the timing and approach for doing so will be the subject of further CPUC proceedings. The CPUC took care to distinguish unbundling of RECs for RPS compliance from secondary trading. It signaled a reluctance to approve the latter until the Western Renewable Energy Generation Information System becomes operational (probably sometime in 2007). Implementation of this policy decision would place California back in the forefront of state RPS programs that permit REC trading for compliance purposes. The CPUC cautioned, however, that much remains to be settled before REC trading becomes a reality in California.

The CPUC will accept comments on the draft decision through Thursday, September 29th, with an opportunity for reply comments by Monday, October 3rd.