The California Public Utilities Commission issued a final decision in a proceeding modifying the procurement rules for renewable energy in California December 17th in Decision 10-12-048 approving a new procurement process called the Renewable Auction Mechanism, or RAM.
RAM is designed to be a simplified and market-based procurement for the state’s jurisdictional utilities subject to the renewable portfolio standards rules of the CPUC.
The CPUC is clearly worried about two issues:
- It does not want to get into a conflict with FERC over jurisdiction and set this RAM procedure to be market based to avoid conflicts over wholesale rate making at FERC when using the existing feed-in-tariff which is subject to FERC’s exclusive jurisdiction over wholesale rates.
- The second worry is that the cumulative cost of above market procurement is driving up utility bills and the CPUC simply does not want to fight battles now over rates.
By adopting this new RAM procedure for utility renewable procurement the CPUC hopes to facilitate a twice yearly auction that will be attractive to a wide range of suppliers of renewable energy using the competition of the auction process to get the lowest costs for ratepayers, encourage projects that use utilize existing transmission and distribution infrastructure, and meet the 33% RPS goals.
“We expect RAM to complement the RPS Program by reducing transaction costs and providing a procurement opportunity for smaller RPS-eligible projects, which have not been able to effectively participate in the annual RPS solicitations to date,” the CPUC summary of the Decision said on its website.
How will RAM work?
The big three investor owned utilities (PG&E, SCE, SDG&E) will be required to use this RAM procedure to procure at least 1000MW in aggregate over the next two years allocated between them. The projects must be 20MW or less and be located inside the service territory.
- Utilities in their procurement requests must specify the type of power product they need such as baseload, peaking as available, non-peaking as available, etc.). Those product requirements must fit the need of the utility portfolio to be prudent.
- Utilities are expected to make choices based primarily on the lowest price offered that meets the product specification. The CPUC is laying out a streamlined bid evaluation process to assure transparency. While the utility has specified procurement goals to meet bids can be rejected if the utility finds them non-competitive or there is reason to believe market manipulation has occurred.
- Once projects are selected by the utility the CPUC has authorized approval using a “simplified Tier 2 advice letter” process to secure pre-approval in order to reduce transaction costs, allow regulatory market monitoring and maintain progress toward meeting the RPS goals.
California’s feed-in-tariff has been in place for many years but it was limited to projects 1.5 MW or smaller. Renewable energy developers have clamored to increase the size of projects eligible but both utilities and TURN representing customers in ratemaking proceedings opposed expansion fearing the same problems with a more aggressive FiT as were experienced in Spain and Germany.
The debate raised valid issues along with the parochial interests. Developers said the CPUC’s annual procurement program benefited large projects because utilities favored them to help meet their RPS goals. The result was many small projects were passed over or could not compete because the cost of the procurement process and the time required made them uneconomic. Advocates for distributed energy resources or distributed generation argued the CPUC rules were designed to protect the utilities not encourage an alternative DG market to develop.
Opponents including ratepayers’ advocates and the utilities feared using FiT to cram down their throats many small, costly and difficult to integrate projects. Advocates argued the small projects inside the utility service territory made more beneficial use of existing T&D facilities, improved energy security and reliability and has fewer environmental issues than some of the larger projects.
In this decision the CPUC split the baby adopting the RAM procedure to facilitate many small projects less than 20 MW up from the 1.5 MW FiT limit but it imposed the twice yearly auction process based upon price to force project developers to be price competitive, set a target of at least 1000MW to assure the utilities didn’t blow off the RAM requirement and market monitoring in the pre-approval process to avoid the unintended FiT consequences if prices are volatile.