California Public Utilities Commission (CPUC) recently proposed to end a moratorium on the approval of tradable renewable-energy credits (TREC) transactions, and raise the cap for large investor-owned utilities to 40%. RECs are tradable energy commodities that represent 1 MWh of electricity generated from an eligible renewable energy resource.
At its March meeting, the CPUC authorized the use of TRECs for compliance with California’s renewable portfolio standard (RPS), subject to certain limitations. These included a cap limiting the use of TRECs for RPS compliance for the largest investor-owned utilities (Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric) to 25% of their annual RPS compliance obligations. That cap was to remain in place until December 31, 2011, when the CPUC would consider modifying or removing it. The CPUC also imposed a price cap of $50 per TREC, which expires on the same date.
After the March decision, the three large utilities filed a joint petition, seeking modification of the usage and price caps and of the criteria used to determine whether a contract was a TREC transaction subject to the 25% cap. The Independent Energy Producers Association also filed a petition seeking modification of the criteria used to determine whether a contract was a TREC transaction.
In May, the CPUC issued a decision holding implementation of the March decision pending resolution of the petitions. At this time, the CPUC also imposed a moratorium on the approval of any contracts that would be defined as TREC transactions under the March decision.
The most recent proposed decision would lift the hold imposed in May, and end the moratorium on approval of contracts defined as TREC transactions. It would also modify the cap on TREC transactions, allowing the largest investor-owned utilities to meet up to 40% of their annual compliance obligations through TREC transactions. The decision would further modify the cap by exempting future deliveries under contracts approved prior to the effective date of the March decision from counting toward the cap. That decision would have included any future deliveries under existing contracts categorized as TREC transactions towards the 25% cap. The recent decision, however, would not alter the criteria used to determine whether a transaction was a TREC transaction.
The definition of TRECs established in the March Decision (and unchanged by the recent decision) could have a significant effect on the use of generation from renewable resources located outside of California. TRECS are generally traded apart from the energy associated with their creation. This contrasts with bundled transactions in which both renewable-energy credits and the associated power are sold together. The March decision defined bundled transactions as any transaction with a generator that had its first point of interconnection with a California balancing authority, or in which the power associated with the renewable energy credits was dynamically transferred to a California balancing authority. The March decision also recognized that some transactions with firm transmission arrangements might qualify as bundled transactions, but left that for future consideration.
The definition of bundled transactions adopted by the March decision would mean that any transactions with renewable resources that do not have their first point of interconnection with a California balancing authority, or do not transfer power to a California balancing authority, would be deemed a TREC transaction subject to the cap. This would be true even if the renewable resource delivered power to California under a firming and shaping arrangement. The more generous cap proposed by the recent decision would allow California’s largest investor-owned utilities to enter into more contracts with renewable resources located outside the state.
Stoel Rivers LLP
Filed Under: Policy
