On April 12, 2010, Governor Jerry Brown signed into law Special Senate Bill 2, raising California's Renewable Portfolio Standard (RPS) from 20% to 33% by 2020. The new law sets the highest target in the nation for renewable energy and should boost renewable generation both in California and from neighboring states as well as parts of Canada and Mexico. Out-of-state generation, however, is subject to certain requirements and conditions. The law amends California’s existing 20% RPS program, originally enacted in 2002 and accelerated in 2006. It also effectively replaces executive orders signed in 2008 and 2009, which raised the standard to 33%, as well as regulations recently adopted by the California Air Resources Board (CARB) to implement the orders.Portfolio Requirements

Under the new law, retail sellers of electricity must procure 20% of their electricity from eligible renewable resources by December 31, 2013. The percentage increases to 25% by December 31, 2016 and to 33% by December 31, 2020. All retail sellers must procure a balanced portfolio of electricity products from eligible renewable resources.

Coverage

Unlike the existing RPS program, the new law covers all retail sellers, including local publicly owned utilities. Eligible power includes photovoltaic solar, solar thermal, wind and some hydroelectric (the new law limits the use of some hydroelectric generation and municipal solid waste combustion).

Implementation

As with the existing program, the new law will be implemented by several California agencies which oversee various aspects of electricity generation in the State, including the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), CARB and the California Independent System Operator (CAISO). As with prior law, the development of implementing regulations and policies by these various agencies may cause some uncertainty. Notably, in his signing statement, Governor Brown expressed some concern over "implementation difficulties" that the various agencies might encounter with the new legislation.

Compliance

Retail sellers can meet their compliance obligations by submitting Renewable Energy Credit certificates (RECs) that may be packaged with the associated generation or unbundled as tradable RECs (TRECs), with some limitations (see Use of TRECs). RECs must be issued from eligible renewable energy resources and include all renewable and environmental attributes associated with the production of electricity from the eligible resource, except for emission reduction credits or credits associated with the reduction of solid waste and treatment benefits created by use of biomass or biogas fuels. A REC cannot be used for compliance with regulatory requirements of any other state or to satisfy any other retail product claims. RECs must also be registered in the Western Renewable Energy Generator Information System (WREGIS) (see Use of TRECs).

Imported Generation

The new law allows out-of-state generation to be used by California retail sellers to satisfy RPS requirements, subject to important limitations and conditions. Generally, an out-of-state facility can be eligible for purposes of the California RPS if it is connected to the Western Energy Coordinating Council (WECC) transmission system, compliant with certain "delivery" and environmental standards and requirements, and the facility's generation is tracked through the WREGIS1. Indeed, if a facility is physically located outside of California but has its first point of interconnection to the WECC system within California, it is not considered an out-of-state facility with regard to delivery requirements.

Delivery and Conditions

An out-of-state generating facility must be certified with the CEC before its generation can be counted toward any retail seller's RPS obligations, and it must meet certain delivery and environmental requirements.

Delivery Options

As to delivery, out-of-state facilities must deliver their generated electricity to a location in California or a California energy hub; the energy is deemed "delivered" if it is scheduled for consumption by California end-use retail customers.2 The new law clarifies the two ways to deliver out-of-state renewable energy into California for RPS compliance. The first, direct transmission, occurs when electricity is scheduled from an eligible facility directly to a California grid balancing authority area such as that served by CAISO, without substituting electricity from another source. Direct transmission can be delivered in real time or may be firmed and shaped within the calendar year (subject to limitations in use for compliance). The second method of delivery is through dynamic transfer, where electricity from a renewable facility can be delivered to a balancing authority outside of California and then dynamically transferred to a California balancing authority.

Environmental Requirements

An out-of-state facility must demonstrate that it will not cause or contribute to a violation of California environmental quality standards or requirements. Among other things, a facility must provide a list of all California environmental quality laws, ordinances, regulations and standards (LORS) that may be violated by a facility's operation and an assessment of whether such operations will in fact cause or contribute to a violation of any of these LORS. In addition, for facilities operated outside the United States, it must be shown that the facility is developed and operated in a manner that is as protective of the environment as a similar facility located in California.

Use of TRECs

Under existing law, unbundled TRECs could be used for compliance if so authorized by the CPUC, but that agency only made such a determination in January 2011. The new law expressly allows retail settlers to satisfy their RPS requirements through "unbundled renewable energy credits," although these TRECs must still be "eligible renewable energy resource electricity products" and registered in the WREGIS. Significantly, TRECs are also subject to a percentage limitation on use for compliance that declines over time: up to 25% through 2013, up to 15% through 2016, and up to 10% thereafter.

In conclusion, the new California RPS is expected to, and indeed intended to, bolster the use of renewable power in California. A significant amount of that power is expected to come from out-of-state sources. Facilities seeking to enter the compliance market with generated electricity or with unbundled TRECs will need to carefully consider the eligibility requirements, delivery options and environmental conditions.

As companies seek to enter the California compliance market, SNR Denton stands ready to provide counsel on all aspects of this new law, including regulatory, financial and REC trading matters among others. With offices in Los Angeles and San Francisco as well as across the United States and abroad, our attorneys and policy professionals have the expertise to meet our clients' needs.