Are All RPS Compliance and RECs Created Equal?

(Many thanks to Meghan O’Brien for her research, analysis and writing for this post).

EPIC has written a series of blogs on the role of renewable energy credits (“RECs”) in various policy mechanisms to reduce greenhouse gas emissions (“GHG”), such as climate action plans. But not all RECs are created equal, and the manner in which different load serving entities use compliance mechanisms to meet their Renewable Portfolio Standard (“RPS”) obligations are different and may have significant impacts on GHG reductions and policy goals. This post will aim to bring those impacts to light through discussion of the following topics:

  • RPS Portfolio Balancing Requirements, Portfolio Content Categories, and RECs.
  • Portfolio Content Category 0 and its implications on GHG reduction and other California policy goals.
  • RPS compliance obligations for different entities (Investor owned utilities (IOUs), publicly owned utilities (POUs), Electric Service Providers (ESPs), Community Choice Aggregators (CCAs))

For those interested in substantiating claims of the level of “greenness” of electricity supply, in particular with respect to the unbundled RECs in a supplier’s portfolio, the supplier’s existing supply contracts from pre-2010, when the current RPS compliance requirements came into effect, must also be assessed.

What is the relationship between portfolio content categories, portfolio balancing requirements, and RECs?

Senate Bill 2 (1X) (Simitian, 2011) made significant changes to the then existing RPS procurement rules (SB 1078 2002, SB 107 2006) by mandating new requirements for multi-year compliance periods and minimum and maximum limits on certain types of procurement that can be used for compliance with the RPS program. The California Public Utility Commission (CPUC) decision D. 11-12-052 applies to RPS procurement for contracts and ownership agreement executed after June 1, 2010 and the California Public Utility Code Code §399.16 governs the procurement content categories for RPS compliance, laying out three general categories of eligible renewable energy resource products. The CPUC interpreted this legislative mandate to establish three different “buckets” formally known as portfolio content categories (“PCCs”).

The Legislature also provided portfolio balancing requirements (“PBRs”) for these buckets, by outlining a maximum or minimum amount of each bucket that can be used for compliance purposes.[1] For PCC 1 bundled RECs, the statute sets minimum percentage procurement  requirements: 50% for compliance period 1 (2011-2013); 65% for compliance period 2 (2014-2016); and 75% for each period thereafter.[2] For PCC 3 unbundled RECs, there are maximum requirements: 25% for compliance period 1, 15% for compliance period  2, and 10% for each compliance period thereafter.[3] There are no procurement quantity requirements for category 2 firmed and shaped RECs.

The portfolio balancing requirements show a clear legislative preference for bundled in-state renewable energy generation by increasing the minimum amount required for RPS compliance to 75%. In the converse, the phasing out of PCC 3 unbundled RECs to 10% shows an aversion to this type of compliance mechanism. The PBRs have the general effect of increasing the amount of in state renewable energy generation and decreasing the use of unbundled RECs in RPS compliance.

What is Portfolio Content Category 0?

While many are familiar with the three “buckets” of bundled, firmed and shaped, and unbundled RECs, there is much less discussion of portfolio content category 0 (“PCC  0”). Any contract or ownership agreement originally executed prior to June 1, 2010 will count in full toward the RPS procurement requirements, if all of the following conditions are met: (1) the renewable energy resource was eligible under the rules in place at the time the contract was executed; (2) for an electrical corporation, the contract has been approved by the CPUC, even if that approval occurs after June 1, 2010; and (3) any contract amendments or modifications occurring after June 1, 2010, do not increase the nameplate capacity or expected quantities of annual generation, or substitute a different renewable energy resource. Furthermore, the duration of the contract may be extended if the original contract specified a procurement commitment of 15 or more years.[4] The RECs associated with these contracts are also known as “count in full RECs” or PCC 0.[5] PCC 0 is not truly a RPS “bucket” or portfolio content category. Rather, PCC 0 is a separate grouping of contracts or ownership agreements that are governed by special rules. Another way to describe those contracts is that they are “grandfathered” in to the RPS program.

The special rules for PCC 0 contracts are significant because compliance with the California RPS program is determined based on the current three PCC categories and the balancing requirements discussed above. The PCC categories contain requirements regarding the location of RPS eligible resources, scheduling of the electricity associated with the resource, and the RECs associated with these transactions.

PCC 0 contracts are exempt from these rules and fall outside the general requirements and policies of the RPS program. For instance, as long as a retail seller met the 50% PCC 1 procurement requirement for compliance period 1, the remaining 50% of its RPS obligation could be fulfilled through PCC 0 contracts. Thus, half of the compliance obligation could potentially fall outside of the general RPS requirements for the 2011 -2013 period. The CPUC procurement requirements for the current period (after 2016) mandate that at least 75% of compliance comes from PCC 1. This still leaves 25% of procurement for compliance purposes that may be met through PCC 0 or any other bucket subject to the PBRs. This has a noteworthy impact on the effectiveness of the RPS program in meeting the state’s climate change goals and increasing in-state renewable energy generation.

The extent of this impact is largely dependent on the renewable energy eligibility and RPS requirements in place at the time the contract was executed because these are the rules that govern those transactions. PCC 0 contracts count towards compliance as long as they met the eligible renewable energy resource rules in place the date the contract was executed. The RPS program was not established until 2001, and there may be many contracts that pre-existed this program. Furthermore, the renewable energy requirements have changed significantly. Thus, these contracts continue to fulfill significant RPS compliance without meeting the goals and policies currently in place.

Furthermore, not all PCC 0 contracts need to meet the current renewable energy requirements because these contracts are grandfathered in through their approval by the CPUC prior to 2010. For example, a power purchase agreement settlement approved by the CPUC prior to 2010 can be grandfathered avoiding the renewable energy requirements that other contracts must meet for RPS eligibility.

The amount and type of PCC 0 RECs a load serving entity uses to fulfill its RPS compliance has impacts the quality and contribution of their RPS procurement for state climate change efforts. Different load serving entities are permitted to meet their compliance obligation through different means and amounts of these compliance mechanisms.

What are the compliance obligations for IOUs, ESPs, CCAs, MJUs and POUs?

There are certain aspects of the RPS program that apply to all entities subject to the RPS regardless of their characteristics (IOUs, MJUs, CCAs, ESPs): (1) meeting the RPS requirement of percentage of retail sales from renewables, (2) meeting annual procurement targets, and (3) reporting of renewable sales and progress towards meeting these requirements. Thus, the CPUC exercises its authority over all entities in five basic areas: 1) the 50% renewable energy goal; 2) procurement plans; 3) reporting; 4) compliance mechanisms; and 5) penalties.[6] The RPS Compliance requirements for 2016 procurement plans are as follows:

  • IOUs: must meet all CPUC RPS compliance obligations including portfolio content categories and balancing requirements. The CPUC has rate setting authority over IOUs.
  • ESPs and CCAs: As a power provider, a CCA must abide by the rules and regulations placed on it by the state and its regulating agencies, such as maintaining demonstrably reliable supplies and fully cooperating with the State’s power grid operator. However, the CPUC has no rate-setting authority over CCAs; these entities set their own electricity generation rate while the utility continues to set the transmission and distribution rate component of a customer’s bill.
    • The CCA may set generation rates that are just and reasonable as they see fit so as to best serve its customers and not subject to CPUC control.[7] In 2005, the CPUC determined that the Legislature intended ESPs and CCAs to be subject to the RPS program goals, but that the manner in which these entities meet the goals is left to the discretion of the CPUC.[8]
    • CCAs are required to submit RPS procurement plans, but the CPUC “approves” procurement plans for IOUs and only “accepts” RPS plans for CCAs.[9]
    • CCAs do not need CPUC approval for solicitations and procurement contracts.[10] While CCAs and ESPs are not required to make upfront showings of the potential PCCs of planned procurement, they must maintain documentation so that the CPUC can make its compliance determinations. Specifically, the procurement plans are proposed, reviewed and adopted by the CPUC.[11]
    • The rules governing today’s portfolio balancing requirements and content categories are not applicable to CCAs and ESPs. All buckets can be used for RPS compliance; however, only PCC 1 RECs may count toward calculating excess procurement.
  • SMJUs: Small utilities and Multi-jurisdictional utilities (“MJUs”) serve customers outside of California or are located outside of the California Independent System Operator (“CAISO”) balancing authority, and have less than 60,000 customers in California.
    • MJUs do not have to meet portfolio content category limitations for RPS compliance.[12] Any electricity generated from a CEC eligible renewable energy resource may be used for compliance as it is not used to fulfill renewable energy requirements in other states and is verified by the CEC.
    • Small utilities serve less than 30,000 customers in California or have less than 1,000 customers in California and are not connected to CAISO. These small utilities face the same compliance obligations as MJUs, but should tailor their procurement plans toward their customer base.[13]

 How do they stack up?

IOUs have the most compliance obligations under the RPS program; however, the compliance mechanisms have great flexibility. IOUs must meet 75% of RPS compliance through bundled PCC 1 RECs, the remaining 25% of compliance can be met through unbundled RECs (10% maximum in the current compliance period), PCC 0 grandfathered contracts, firmed and shaped RECs or any combination of the three. However, IOUs may meet a significant amount of compliance through PCC 0 RECs, which may or may not be unbundled.

When IOUs were initially subject to the new PCC content requirements in 2010, a large portion of their energy was obtained through PCC0 under long term contracts. There was no question that existing contracts had to be grandfathered in, since anything else would have meant breach of contract. For example, PG&E met 90% of its procured RECs through PCC0 in the compliance period 2011-2013 (see Annex) while SDG&E had 52%. The only CCA in existence before 2010 was MCE, and it reported 30% from PCC0. Whether the PCC0 contracts were using unbundled RECs has not mattered for compliance purposes and has not worked against the IOUs to date. Detailed information regarding these specific contracts is not readily available. Thus, it is unclear how much REC generation for IOUs still comes from pre-2010 unbundled RECs.

On the other hand, ESPs, CCAs, and MJUs may meet any amount of their compliance through any types of RECs, including unbundled RECs. The concern is that though unbundled RECs can help nascent electricity providers to provide clean energy while they develop more local supplies, thus levelling the playing field in a similar way as the use of PCC0 for the existing IOUs, the use of unbundled RECs may be abused. However, in 2016, Sonoma Clean power announced that no unbundled RECs were part of its portfolio, whereas RECS were part of Sonoma’s RPS  portfolio in 2013. PG&E has reported that 0.13% of its total electricity purchase in 2013 came from unbundled RECs, which does not tell us what % of its RPS eligible renewables this comprises. Therefore, those concerned about substantiating claims of the actual amount of unbundled RECs in a supplier’s portfolio must also assess existing supply contracts from pre-2010, when the current RPS compliance requirements came into effect.

Annex: Excerpts from 2011-2013 RPS Compliance Reports

PG&E

SDG&E

SCE

Noble Americas Energy Solutions LLC

Marin Clean Energy

[1] Note that these PBRs only apply to CPUC jurisdictional entities, which includes investor-owned utilities (IOUs), electric service providers (ESPs), and community choice aggregators (CCAs). The California Energy Commission (“CEC”) is responsible for adopting regulations for the enforcement of RPS procurement requirements of Publicly Owned Utilities (POUs).

[2] PUC §399.16(c)(1)

[3] PUC §399.16(c)(3)

[4] California Public Utilities Code §399.16(d)

[5] CPUC Decision Implementing Portfolio Content Categories for the Renewables Portfolio Standard Program, R-11-05-005, December 15, 2011, available at:  http://docs.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/156060.PDF

[6] See, CPUC D. 16-12-044 Accepting Draft 2016 Renewables Portfolio Standard Procurements Plans (December 22, 2016) available at: http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M171/K552/171552899.PDF See also. CPUC D. 16-12-040 Implementing Compliance Periods and Procurement Quantity Requirements for Compliance with the Revised Requirements of the California Renewables Portfolio Standard Mandated by Senate Bill 350 (December 15, 2016) available at: http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M171/K457/171457580.PDF; See also, CPUC D.05-11-025 Implementing RPS for CCAs, ESPs and small MJUs (November 18, 2005) available at: http://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/51414.htm

[7] CPUC D.05-11-025 at page 13: “ESPs and CCAs each are subject to separate and distinct legal and regulatory requirements. Although they are each subject to certain requirements of this Commission as assigned by the Legislature, neither is regulated as a “public utility” as defined by the Public Utilities Code, nor are they subject to Commission regulatory authority as a matter of course. Instead, the Commission is granted specific regulatory authority over these entities for particular issues, in this case, RPS. Because of this, each of these entities in existence or planned operates under a business model that is different from a regulated public utility.”

[8] CPUC D.05-11-025 at 8.

[9] See, CPUC D. 16-12-044 Accepting Draft 2016 Renewables Portfolio Standard Procurements Plans (December 22, 2016) available at: http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M171/K552/171552899.PDF

[10] CPUC Community Choice Aggregation En Banc Background Paper (2017) available at: http://www.cpuc.ca.gov/general.aspx?id=2567

[11] “Although ESPs and CCAs are not required to make upfront showings of the potential portfolio content category of their planned procurement, all retail sellers must maintain documentation from the inception of a procurement contract to its conclusion. In making its compliance determinations, Commission staff should be able to review the entire course of an RPS procurement transaction.” CPUC D. 16-12-044 at page 12.

[12] Pub. Util. Code § 399.18(b)

[13] Pub. Util. Code § 399.13(a)(5); See also, CPUC D. 16-12-044 at 8.

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About Dr. Nilmini Silva-Send

Dr. Nilmini Silva-Send is EPIC’s Assistant Director, Adjunct Professor, and the C. Hugh Friedman Fellow in Energy Law and Policy. She leads the regional and local climate change projects and has extensive policy and technical knowledge about energy and GHG mitigation methods and measures. She has participated in several international energy policy dialogues, including in Mexico and Saudi Arabia. Dr. Silva-Send is also a co-Principal Investigator in a multidisciplinary National Science Foundation funded climate education project in which she works with climate scientists, social psychologists and communication specialists to develop more effective methods to communicate links between climate science, energy use and society. During her career Dr. Silva-Send has conducted legal and technical analysis of environmental laws in Europe and the U.S., and carried out environmental due diligence assessments in Europe. She has also taught upper level and graduate level international law courses in Germany and since 2004 at the University of San Diego School of Law, where from 2009 she developed and teaches an annual contemporary course in International Energy Law. Dr. Silva-Send has a B.S. in Chemistry and a PhD in International Law and Policy. She is a member of the International Bar Association.
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