CALIFORNIA PUBLIC UTILITIES COMMISSION APPROVES RENEWABLE AUCTION MECHANISM

Source:   Stoel Rives Publication and Email

Seth Hilton , Morten Lund and Brian Nese of Stoel Rives   12/21/2010

(Updated and revised to include deadlines for filing comments)

On Friday, December 16, 2010, the California Public Utilities Commission unanimously approved a decision ("Final Decision") ordering a new tariff for a procurement protocol called the Renewable Auction Mechanism, or RAM. RAM applies to California's three largest investor-owned utilities ("IOUs"). All renewable energy projects up to 20 MW that are located in the service territory of one of the IOUs are eligible for RAM. The program authorizes the IOUs, on an interim basis, to acquire up to 1,000 MW of renewable generation, with each IOU allocated a portion of the 1,000 MW cap.

RAM will consist of two auctions per year. Twenty-five percent of the total program allocation will be offered in each auction; unsubscribed capacity and drop-out capacity is added to the next auction. Auctions for all three IOUs will be conducted simultaneously, and a project may bid into all three auctions. If a project is selected in more than one auction, however, it must notify all affected IOUs which one shortlist it will accept within 10 days of its notice that it was selected in multiple auctions.

Project Selection. Each IOU may solicit product-specific megawatts in a quantity that reflects an IOU's portfolio need. In each IOU's RAM implementation advice letter, the IOU will choose what portion of their allocated RAM capacity they will solicit from each product (baseload, peaking as-available, and non-peaking as available). Bidders can elect full buy/sell or excess sales. Bids will be selected based on price. Also, RAM bid prices must be adjusted by an IOU's time of delivery (TOD) factors before the bids are ranked and selected, so that the project's value relative to the IOU's portfolio is considered. Each IOU may propose other selection criteria in its implementation advice letter filing. The IOUs have discretion to reject bids from an auction if there is evidence of market manipulation, or the prices are not competitive. An IOU may reject an entire auction's results based on such an assessment or reject individual bids even before their allocated capacity cap has been reached.

Project Viability. Bidders must demonstrate project viability by demonstrating site control (IOUs to determine the required showing), development experience (at least one member of the development team must have either begun or completed construction of at least one project similar to the one proposed in the RAM program), that the project is based on commercialized technology, and that the project has begun the interconnection application process.

Standard Contract. Winning projects will enter a standard, non-negotiable contract with the IOU. Each IOU will develop its own standard contract and file a Tier 3 advice letter within sixty days of the Final Decision. Such advice letters will include the procurement protocols, a RAM standard contract, the date of the auction, the amount of capacity and the products to be procured, any additional selection criteria, and the preferred locations for projects. Parties may file comments or protests within twenty days of the date the IOUs' implementation advice letters are filed.

In the Final Decision, however, the CPUC identified several mandatory standard offer contract terms, including the following:

Commercial Operation. Projects must be completed within 18 months of contract execution, with one potential six-month extensions for unforeseen regulatory delays.

Development Deposit. RAM requires a development deposit of $20 per kW for projects 5 MW and smaller, and a deposit of $60/$90 per kW for intermittent and baseload resources, respectively, for projects greater than 5 MW and up to 20 MW in size.

Performance Deposits. RAM requires a performance deposit equal to the development deposit for projects less than 5 MW. Projects that are 5 MW and larger require a deposit of 5% of expected total project revenues.

Performance Obligations. RAM includes performance obligations. Performance must be consistent with good utility practices, the projects must carry liability insurance against utility losses, and the projects are liable for the IOU's actual, direct losses. Further, a project must guarantee 140% of expected annual net energy production based on two years of rolling production.

Scheduling Coordinator. The IOU will act as the scheduling coordinator for each project using RAM.

Additional Standard Contract Terms. RAM standard contract terms will also include an exclusion for consequential damages, a definition of force majeure, default provisions, and insurance requirements (in amounts and on terms to be determined by the IOUs and approved by the CPUC).

RAM Contract Review. After an auction, each IOU will batch and submit all standardized RAM contracts in one Tier 2 advice letter for review and approval by the CPUC.

Jurisdiction. The Final Decision also concludes that the CPUC has authority to order the RAM without violating FERC's exclusive jurisdiction over wholesale rates because the RAM is a market-based pricing mechanism wherein price is set by competitive solicitation, not by the CPUC.