California Public Utilities Commission Adopts Terms of Standard FIT Contract and Revised Tariffs

by Wilson Sonsini Goodrich & Rosati
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On May 23, 2013, the California Public Utilities Commission (CPUC or Commission) approved Decision 13-05-034 (Decision), which adopts the terms of a standard contract and revised tariffs for California's renewable Feed-in Tariff (FIT) program under California Public Utilities Code §399.20. The recent decision also modifies certain FIT program requirements in response to stakeholders' petitions for modification.

Background

Previously, Decision 12-05-035 increased the eligible project size from 1.5 MW to 3 MW and increased the overall statewide size of the FIT program to 750 MW, divided between investor-owned utilities (IOUs) and public-owned utilities. The IOU share of MWs under the FIT program is 493.6 MW, divided among the IOUs in the following quantities: PG&E, 218.8 MW; SCE, 226 MW; and SDG&E, 48.8 MW. The previous decision also adopted a new pricing methodology for the FIT called the "Renewable Market Adjusting Tariff," or "Re-MAT," and distinguishes three product types: baseload, peaking as-available, and non-peaking as-available. For each of these product types, the IOU is to offer generators a standard FIT contract on a first-come, first-served basis. Under the Re-MAT, the price offered starts at $89.23/MWh and is subject to adjustment every two months based on the willingness of eligible generators to sell at a current price. Please see our previous WSGR Alert on Decision 12-05-035 and the Re-MAT.

FIT Program Modifications

New Decision 13-05-034 modifies the IOUs' schedule of offering their allocated program megawatts in response to petitions for modification filed by the Solar Energy Industries Association, the California Solar Energy Industries Association, and the Clean Coalition. Now, PG&E and SCE must offer a maximum of 5 MW for each of the three product types for each bi-monthly program period (until less than 5 MW are available for a product type). Because its total allocation is smaller, SDG&E must offer a maximum of 3 MW per product type in each bi-monthly program period (until less than 3 MW are available for a product type). Megawatts remaining after the end of a program period will be retained within the same product type. All the IOUs must continue to offer remaining megawatts for each product type until all the megawatts for the program are fully subscribed or the program ends 24 months after the capacity for any product type reaches a de minimus amount. Under the new Decision, at the beginning of each bi-monthly program period, each IOU will be required to provide public notice of the number of megawatts offered for each product type during that period, the total number of megawatts remaining for each product type, and the total number of megawatts remaining for that IOU's FIT program.1

The Decision also modifies Re-MAT by capping bi-monthly price adjustments to an increase of $12/MW over the prior period. This change aims to minimize the amount by which the Re-MAT might overshoot the market price and cause an excess price increase. Further, the Decision changes the price trigger threshold—the FIT power purchase agreement (PPA) price now increases if the total capacity that applicants are willing to fulfill is less than 20 percent of the capacity allocation for that period. The price decreases if the total capacity that applicants are willing to fulfill at an applicable Re-MAT price is greater than or equal to the capacity allocation for each product type. The Commission declined to adopt a price floor for the FIT.

In addition, the Decision removes the prior seller concentration limit. Previously, no single seller could account for more than 10 MW under the statewide FIT program. The CPUC established the seller concentration limit in Decision 12-05-035 to encourage diverse participation from developers. In Decision 13-05-034, the Commission recognized that the implementation of the seller concentration limit would be complex given the difficulty in defining a "seller" and that the differentiation of three product types would already encourage participation from various market segments.

Modifications to Standard Joint PPA Terms

The Decision approved (with modifications) the terms of a draft joint PPA submitted for approval by the IOUs on July 18, 2012. The standard joint PPA will apply to all eligible project developers across all three IOUs.2 The IOUs will not be required to obtain Commission approval of individual PPAs that adhere to the standard form after execution.3 The Decision modified the following terms of note in the July 2012 draft:

  • Resource Adequacy. The Decision requires that the draft joint PPA be modified to allow the seller the option to convert to Full Capacity Deliverability Status (PPA Section 4.4.3).
  • Modifications to Facility. A materiality qualifier is to be added to the types of modifications to the facility that require 90 days prior written notice and written consent of the IOU (PPA Section 6.14).
  • Collateral Requirements. The amount of required collateral is modified to be $20/kW capacity regardless of the size of the facility, and the collateral will remain in place for the term of the PPA (PPA Section 13). Previously, projects over 1MW had to post collateral of $50/kW, and projects under 1MW had to post collateral of $20/kW.
  • Forecasting Services. The Decision requires that PPA Section 15 and Appendix D be modified to allow the seller the option to pay the buyer a reasonable fee for forecasting services.
  • Administrative Amendments. Administrative amendments to the PPA are allowed without Commission approval, but all other amendments to the PPA must be approved by the Commission (PPA Section 20.3).
  • QF Status. If no action before FERC is required to confirm Seller's QF status, the IOUs will likewise not require any (PPA Section 4.8).

Next Steps for the California FIT

By June 24, 2013, the IOUs must file advice letters with the Commission for approval of the final form of the joint PPA and revised tariffs incorporating these new terms. Unless the Commission decides to suspend the advice letters or the advice letters are protested, the joint PPA and revised tariffs will become effective on July 22, 2013. At this point, the IOUs will stop accepting contracts under the old AB 1969 FIT program. The IOUs will be required to begin accepting applications for projects in the fall of 2013.

Going forward, the CPUC will continue to work on a methodology to calculate a "locational adder" to the FIT price, as required by California Public Utilities Code Section 399.20(e), that values avoided transmission and distribution costs associated with projects sited near load. Additionally, the CPUC will modify the FIT program in a future decision to conform the program to recent amendments to § 399.20 enacted by SB 1122,4 which requires the Commission to direct utilities to collectively procure an additional 250 MW (in addition to the 750 MW under the existing FIT) from developers of specified categories of bioenergy projects.

1 The Decision also provides clarification regarding the allocation of megawatts from terminated contracts, queue position, and other program details in response to stakeholder petitions.

2 The Commission declined to approve an alternative form PPA suggested by advocates and declined to approve a separate PPA for projects under 1 MW.

3 PPAs that do not conform to the standard joint PPA will be treated as bilateral contracts and will be subject to Commission approval.

4 Rubio, Stats. 2012, ch. 612

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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