CPUC President Proposes a Modified Tradable Renewable Energy Credit Decision

September 09, 2010

California’s Renewable Portfolio Standard (RPS) requires that 20% of large utilities’ energy be from renewable resources by 2010. One tool utilities might use to hit their target is a market for tradable renewable energy credits (TRECs). On August 25, 2010, California Public Utilities Commission President Peevey issued a proposed decision, which, if adopted, would allow utilities more freedom to use TRECs and out-of-state generation to meet renewable energy requirements.

The proposed decision offers modifications to Decision 10-03-021, which the Commission issued on March 15, 2010. This decision established the ground rules for the use of TRECs in California. However, the decision capped TREC use at 25% of the renewable portfolio standard target. It also defined TRECs in such a way that numerous contracts predating the decision, and many subsequent contracts with out-of-state generators, would count against the 25% cap. The March decision proved controversial. The Commission ultimately stayed it pending resolution of various petitions to modify the decision. For further details on the decision, see Bingham’s prior alert on the subject here.

The proposed decision, if adopted by the Commission, would change the March decision in two major ways. First, the proposed decision would raise the March decision’s cap on TREC use from 25% of the RPS target to 40%. Second, the proposed decision “grandfathers” contracts predating Commission adoption of the March decision. Such contracts would be classified as “bundled,” and so would not count against the raised cap, up to the maximum provided for under the contract and for the period provided in the “grandfathered” contract. The combination of these two changes — raising the cap and “grandfathering” — would free up significant space for utilities to purchase renewable energy credits from out-of-state producers going forward.

Otherwise, the proposed decision upholds the March decision’s reliance on narrow definitions of what constitutes a “bundled” transaction, and the March decision’s relatively stringent rules governing the trading of RECs, rejecting the utilities’ suggested changes because such changes would make the regulations “relatively easy to game, undermining the whole approach.”1 The proposed decision leaves in place a $50/REC price cap and retains the 40% cap until reviewed in December 2011. The proposed decision also declines to expand the application of the cap to all RPS obligated producers, citing other ongoing regulatory efforts. Noting that the treatment of firm transmission, earmarks and other areas will be complex to resolve, the proposed decision continues to leave several areas for further study or regulatory action.

The Commission will vote on the proposed decision on or after its September 23, 2010 meeting.

For more information on this alert, please contact the lawyers listed below:

Monica A. Schwebs, Of Counsel, 415.393.2575

1 Proposed decision of Commissioner Peevey, August 25, 2010, at 13.

This article was originally published by Bingham McCutchen LLP.