On May 7, 2020, the California Energy Commission (CEC) issued proposed regulations implementing changes to the renewables portfolio standard (RPS) long-term contracting requirements for publicly owned utilities (POUs) imposed by the Clean Energy and Pollution Reduction Act (SB 350).

SB 350 established a new long-term procurement requirement beginning January 1, 2021, that at least 65 percent of the procurement counted toward RPS procurement come from contracts of 10 years or more. The California Public Utilities Commission (CPUC) previously issued a decision implementing changes to the RPS long-term contracting requirements from SB 350 for retail sellers (while the CPUC oversees RPS compliance and enforcement for retail sellers, the CEC oversees compliance and the enforcement for POUs).

The CEC's proposed regulations notably provide greater flexibility to POUs than the regulations set forth for retail sellers, reasoning that such additional flexibility is justified based on the practical differences between POUs and retail sellers as well as their statutory treatment.

Differences in Long-Term Contracting Requirements Between Retail Sellers and POUs

Under the CPUC's regulations implementing the long-term contracting requirements for retail sellers, contracts are considered to be long-term contracts if they are:

• (1) At least 10 years or more;
• (2) Initially 10 years or more and extended for any period of time; or
• (3) Initially less than 10 years but amended by an extension of a least 10 continuous years (in this case, the contract is considered long-term from the date of amendment through the life of the contract).

The CPUC rules prohibit short-term extensions of short-term contracts from counting as long-term. So, a contract originally for less than 10 years that adds a period of less than 10 years to a contract is not considered a long-term contract.

The CEC's proposed regulations for POUs, however, permit marginal flexibility for short-term extension of short-term contracts to count as long-term as long as there's a continuous 10-year procurement commitment. The CEC reasons that this flexibility is based on the practical challenges POUs face in complying with long-term procurement requirements as well as the increased RPS procurement targets, practical differences between POUs and retail sellers and their different statutory treatment.

Further, the CEC's proposed regulations add language that if a contract is amended or terminated early such that it no longer provides commitment to procure for at least 10 continuous years, only the electricity products procured prior to the amendment or termination notice will be classified as long-term. Other key differences between the CPUC's long-term contracting requirements and the CEC's proposed long-term contracting requirements are noted below.

Relevant Dates

Under the CPUC regulations for retail sellers, long-term contracts that otherwise comply with RPS requirements may be used for compliance regardless of the date they were originally signed. Under the proposed CEC regulations for POUs, the duration of a contract is measured from contract start date until the contract end date except:

• (1) If a long-term contract has been amended to extend the end date of the contract, the electricity products procured under the amendment will be classified as long-term;
• (2) If a short-term contract has been amended to extend the end date of the contract, the duration of the amended contract will be measured from the amendment execution date until the amendment end date;
• (3) If the amended contract provides a commitment to procure electricity products for a duration of at least 10 continuous years, procurement from the amended contract will be classified as long-term as of the month and year of the amendment execution date; or
• (4) If a long-term contract has been amended or terminated early such that the contract no longer provides a commitment to procure electricity products for a duration of at least 10 continuous years, only the electricity products procured prior to the amendment or termination notice may be classified as long-term.

Resales/Repackaged Contracts

Under the CPUC's regulations, a procurement contract of at least 10 years in duration that is created from a contract that is at least 10 years in duration (i.e., repackaged long-term contract) may count as a long-term contract (as long as the retail seller's commitment for the repackaged share has a duration of 10 continuous years).

Under the CEC's proposed regulations, a long-term contract includes a resale agreement whereby a retail seller or POU sells a portion of the electricity products procured under a long-term contract with one or more RPS-certified facilities to a second POU, regardless of the duration of the resale agreement, if the contract executed by the retail seller or first POU otherwise meets the requirements of a long-term contract. This applies as long as the original long-term contracts were executed by another POU or retail seller with an RPS-certified facility and specified a commitment of least 10 continuous years, and the repackaging or resale does not affect the underlying procurement terms of the original contract.

Contracts Between POUs/Retail Sellers and Third Parties

The CPUC's regulations permit the use of repackaged long-term contracts only if the underlying agreements with RPS-certified facilities have durations of at least 10 years.

The CEC's proposed regulations provide that a POU's long-term contract can count as long-term only if the contract between the POU and third party has a duration of at least 10 continuous years and the POU can provide documentation showing that the third party's underlying procurement agreement(s) with the RPS-certified facilities supplying the procured electricity are contracts with durations of at least 10 continuous years, ownership, or ownership agreements .

Renewable Energy Credits

The CPUC's regulations state that retail sellers should be able to count renewable energy credits (RECs) from any contract that meets the requirements for long-term contracts set in this decision toward the LT requirement, regardless of the date the contract was signed. The CPUC's regulations provide that Portfolio Content Category (PCC) 2 RECs that have been carried forward from earlier compliance periods may count for current compliance in the 2021-2024 compliance period but may not be carried forward as excess procurement into any later compliance period.

Under the CEC's proposed regulations, electricity products classified as PCC 2 count toward the long-term procurement requirement if the electricity products are procured under a long-term contract or ownership agreement, even if the matching incremental electricity is not associated with a long-term contract or an ownership agreement.

Excess Procurement

Under the CPUC's regulations, PCC 1 RECs may be counted as excess procurement whether associated with long-term or short-term contracts. The CPUC's regulations provide that no PCC 2 or PCC 3 RECs may count as excess procurement whether from long-term or short-term contracts.

Under the CEC's proposed regulations, excess procurement is classified as long-term without regard to the 10 continuous year duration requirement to classify as a long-term contract.

Historic Carryover

Under the CPUC's regulations, a retail seller may count as RECs from long-term contracts, RECs from contracts that were signed prior to June 1, 2010 (for IOUs) or January 14, 2011 (for ESPs) toward its renewables portfolio standard procurement quantity requirement.

Under the CEC's proposed regulations, electricity products that meet the criteria of section 3202(a)(2) (Qualifying Electricity Products) or historic carryover pursuant to section 3206(a)(5) are classified as long-term without regard to the 10 continuous year duration requirement to classify as a long-term contract. Electricity products that subsequently lose eligibility based on certain contract modifications or amendments will no longer count in full toward the long-term procurement requirement and must be evaluated based on the duration of the contracts through which they were procured.

CEC's Additions Regarding Long-Term Contracts

The CEC's proposed regulations add the following provisions regarding long-term contracting applicable to POUs, comparable provisions of which are not contained in the CPUC's regulations applicable to retail sellers.

Efficiency Improvements

Amendments or modifications that increase the expected quantities or allocation of generation under the original contract resulting from efficiency improvements to the RPS-certified facility generating the procured electricity products are treated as part of the original long-term contract or ownership agreement.

The CEC reasons that this addition is necessary for clarity and to provide guidance to POUs on how procurement from amendments that increase expected quantity or allocation of generation resulting from efficiency improvements will be classified for purposes of the long-term procurement requirement.

Contractual Changes or Addition of New Capacity

Amendments or modifications resulting in an increase in expected quantities or allocation of generation due to contractual changes or to the addition of new capacity are treated as new agreements for the increase in expected quantities or allocation of generation, unless the increase was specified in the original long-term contract.

The CEC reasons that this addition is necessary for clarity and to provide guidance to POUs on how procurement from amendments that increase expected quantity or allocation of generation resulting from efficiency improvements will be classified for purposes of the long-term procurement requirement.

Substitution of Different Renewable Energy Resource or Fuel

Amendments or modifications that substitute a different renewable energy resource or fuel other than as specified in the original contract or ownership agreement shall be treated as new agreements for procurement of generation associated with the substitute resource or fuel.

The CEC reasons that this addition is necessary to provide clarity and guidance to POUs on how procurement from contract amendments or modifications that substitute a renewable energy resource or fuel will be classified for purposes of the long-term procurement requirement.

Jointly Negotiated Long-Term Contract to Reallocate Electricity Products

Amendments, assignments, or modifications of a jointly negotiated contract to reallocate electricity products among the contract parties shall be treated as part of the original long-term contract. For purposes of the subparagraph, "jointly negotiated contracts" includes contracts jointly negotiated by multiple POUs and/or by joint powers authorities on behalf of POUs.

The CEC reasons that this addition is necessary to clarify and provide guidance to POUs on how procurement from jointly negotiated long-term contracts, including contracts negotiated through a JPA on behalf of one or more POUs, that is reallocated between parties for a period of less than 10 years will be classified for purposes of the long-term procurement requirement, and that the addition benefits POUs by providing options for joint contracting that allows the individual members to mitigate against changes in load within the framework of the existing long-term contract.

Assignments

Assignments of long-term contracts, whereby a retail seller or POU assigns the remaining portion of its procurement obligations under a long-term contract to a second POU, shall be treated as part of the original long-term contract, provided the assignment maintains the commitment by the retail seller or first POU to procure the same type and quantity electricity products from the RPS-certified facility for the remaining duration of the original contract.

The CEC reasons that this addition is necessary to clarify and provide guidance to POUs on how procurement from long-term contracts executed by one POU or retail seller and subsequently assigned to a second POU will be classified for purposes of the long-term procurement requirement, and that the addition benefits POUs by providing limited flexibility in compliance with the long-term procurement requirement while preserving the value of long-term contracts with RPS-certified facilities executed by another POU or retail seller.

Joint Powers Agencies

The CEC regulations add that a long-term contract includes a contract executed by a joint powers agency on behalf of the POU with an RPS-certified facility if the contract by the joint powers agency otherwise meets the requirements of a long-term contract.

The CEC reasons that this addition is necessary to clarify and provide guidance on POUs on the use of contracts between POUs and entities other than RPS-certified facilities, other POUs, JPAs, or retail sellers, and that the addition benefits POUs by providing direction on how procurement from this contract arrangement may be used to comply with the long-term procurement requirement.

Procedural Steps

The comment period is open until June 22, 2020, to submit electronic comments on the proposed regulations through the CEC's RPS rulemaking page.

The CEC has scheduled a public workshop/hearing on the proposed regulations that will take place on June 8, 2020, at 10:00 a.m. Another public hearing for consideration and possible adoption of the proposed regulations will take place on August 12, 2020, at 10:00 a.m.

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