Oregon legislators pass historic renewable energy bill, with 50% RPS and coal-fired electricity phaseout

by Stoel Rives LLP

Oregon legislators passed Senate Bill (SB) 1547 into law yesterday, creating aggressive timetables for eliminating coal-fired electricity from the State and setting a 50% Renewable Portfolio Standard (RPS) by 2040. A diverse group of utilities, consumer advocacy organizations, and renewable energy advocates support the bill.  Next stop for SB 1547 is Oregon Governor Katherine Brown’s desk, where she is expected to sign the bill into law.

Key provisions and significance of SB 1547 include:

50% RPS by 2040

Oregon’s two largest utilities – PacifiCorp and PGE – will have a 50% RPS standard by 2040, meaning 50% of their electricity supply must be derived from renewable energy sources. The two largest utilities serve approximately 70% of Oregon customers’ electricity needs. There was no change to the existing requirements on consumer-owned utilities.

  • This is one of the most aggressive RPS standards in the nation, matched only by California and New York, which have a 50% target by 2030, Vermont, which has a 75% target by 2032, and Hawaii, which has a 100% target by 2045.
  • The existing ratepayer protections relating to RPS compliance were retained, capping the incremental costs of compliance at 4% of the utilities annual revenue requirement for a compliance year. A new provision was added to permit the Oregon PUC to temporarily suspend RPS compliance if the utility determines that grid reliability is seriously compromised.
  • The Oregon PUC will implement competitive bidding rules governing electric companies’ RPS implementation plans to ensure that electric companies acquire electricity from diverse renewable energy generators.

RPS and Renewable Energy Credits

REC “banking” – i.e., holding RECs generated in a compliance year for use in later compliance years – was a hotly debated issue during the negotiations.  The pre-existing state RPS allowed investor-owned utilities (IOUs) to bank and carry forward RECs indefinitely.  SB 1547 will end that practice.  While consumer-owned utilities will be able to bank RECs indefinitely, the state’s IOUs will have different rules. Here’s how RECs would work under the new law:

  • The state’s treatment of renewable energy credits (RECs) – including what types of facilities can generate them and how long they can be “banked”- will change substantially.  On the generation side, SB 1547 lifts the existing ban on using RECs generated by biomass and municipal solid waste facilities that became operational before 1995.  Before now, RECs generated by such facilities could not be used for compliance prior to 2026.

First, RECs (1) from a renewable energy source that becomes operational on or before the effective date of SB 1547 or (2) from a renewable energy source that becomes operational between the effective date and the end of 2022 pursuant to a contract of less than 20 years, may be banked for five years.

Second, RECs (1) from a renewable energy source that becomes operational between the effective date and the end of 2022, or (2) from a renewable energy source that becomes operational between the effective date and the end of 2022 pursuant to a contract of 20 years or more, may be banked indefinitely if the RECs are issued in the first five years after the facility comes online.  However, any RECs issued more than five years after the facility comes online may only be banked for five years.

Third, RECs issued for qualifying electricity from a renewable energy source that becomes operational after the end of 2022 may only be banked for five years.

  • The distinction between contracts of less-than and more-than 20 years will have an unfortunate side-effect: RECs from qualifying facilities in the state that come online between now and the end of 2022 will be less valuable to the IOUs purchasing the energy.  The reason is this: qualifying facility contracts are limited to an initial term of 15 years.  Thus, RECs issued for electricity from those facilities during the first five years of their operation can only be banked for five years while RECs issued for electricity procured under contracts of 20 years or more may be banked indefinitely during those first five years.
  • Notwithstanding this side effect, there is also an upside for developers: unlimited banking for RECs issued in the first five years of new 20+ year contracts should incentivize IOUs to enter into those long-term contracts. This could provide a particular short-term spur to the market for larger projects that will not pursue QF contracts.

Community Solar

SB 1547 also establishes a community solar program in Oregon, which allows residential and small commercial customers to credit electricity received from off-site solar projects to their utility bills.  In contrast to other states with community solar programs, SB 1547 requires that community solar projects be located within the state, which is another opportunity for increased solar development in the state of Oregon.

Elimination of coal by 2030

Under the bill, electricity allocated to PacifiCorp and PGE customers would not include any coal-fired generation by January 1, 2030 (except for a small amount associated with PGE’s minority ownership of Colstrip, which will be excluded no later than 2035).

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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