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Industry News

California PUC Authorizes the Use of Unbundled RECs to Meet RPS Requirements

LCG, March 12, 2010--The California Public Utilities Commission (CPUC) yesterday approved the use of tradable renewable energy credits purchased from renewable energy generators, including those located outside California, for use in the California Renewables Portfolio Standard (RPS) program. Without the new rule, utilities in California appeared unlikely to meet the RPS requirements this year.

California's RPS program requires investor-owned utilities (IOUs), energy service providers, and community choice aggregators to purchase 20 percent of their retail sales from renewable energy sources this year. Previously, utilities were required to procure electricity bundled with renewable energy credits (RECs) from electric generating facilities, like wind farms. With yesterday's decision by the CPUC, utilities can now purchase tradable renewable energy credits (TRECs) separately, i.e., without the energy, from electric generating facilities, including those located outside of California. By accessing this additional market, utilities will be better able to meet the RPS requirement of 20 percent renewables.

The CPUC President stated, "The essential elements of this framework are intended to support this market well into the future....Although the tradable REC market may be modest in the next two or three years, the market rules put in place in this decision will both allow this new market to develop and provide robust rules as the tradable REC market matures."

The new rules initially limit an IOU to using TRECs for not more than 25 percent of its annual procurement obligation. The limit will expire December 31, 2011, unless the CPUC acts to modify, extend, or terminate the limits prior to that date. The CPUC stated that this cap is intended to allow the CPUC and the market to better understand the implications of REC trading before opening the market to unfettered use of unbundled RECs.

Furthermore, the CPUC stated that, because tradable REC transactions do not require the procuring utility to also purchase the associated energy, they do not clearly lend themselves to the form of reasonableness review that has been used to evaluate bundled transactions. Therefore, in order to protect consumers from potentially excessive payments for tradable RECs in the early stages of the REC market, the framework includes an interim price cap of $50 on RECs used for RPS compliance by investor-owned utilities. Like the usage cap, the price cap will sunset at the end of 2011 unless the CPUC acts to retain or modify it.
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