California Regulatory Update

	Click here to listen to the California Regulatory Update with Andrea Morrison, Director of Regulatory Affairs for the state of California

Renewable Portfolio Standards Update
After many versions of legislation were introduced in the 2009 legislative session, which were intended to reform the Renewable Portfolio Standards (RPS) requirements, the year closes much the same way it started. The requirement to procure 20 percent of all energy load from renewable sources by 2010 is still in place and an Executive Order was issued from the Governor to increase this requirement to 33 percent of all energy load from renewable energy sources by 2020.

The resources for procuring renewable energy are still limited so we still await some critical decisions from the California Public Utility Commission (CPUC) that will assist in the development of the renewable market, including a ruling on the specifics of how Renewable Energy Credits (RECs) can count toward RPS requirements. To date, Direct Energy Business, together with other suppliers, has been successful in advocating for the CPUC to change the procurement obligation for RPS to be based on current year sales, as opposed to prior year sales. This helps to ensure that more accurate load data is used to calculate the RPS requirements for customers being served by their respective suppliers.

The impact of the aggressive RPS requirements, regardless of the outstanding decisions, still amounts to increases in costs to consumers, with utilities and retail suppliers alike struggling to fulfill the RPS requirements in an underdeveloped and undersupplied renewable energy market. Direct Energy Business will continue to work with other stakeholders to advocate for the most prudent and efficient rules that mitigate some of the expected costs associated with the state’s RPS.

Update on SB 695: Direct Access Reopening
On Oct. 11, 2009, Governor Schwarzenegger signed Senate Bill (SB 695) into law. This bill puts into place a number of changes related to electricity rates for residential customers and also allows a limited reopening of retail choice (aka direct access) to all non-residential customers.

The law calls for the California market to open competition for non-residential customers no later than six months after the passage of the bill (i.e. by April 11, 2010) at which time customers will have the option to switch from their local utility to an energy service provider (ESP). The amount of direct access load that will be available and the rules for how customers can enroll with a competitive supplier will be finalized before the April market opening date.

While the CPUC is still working out the details of this limited direct access reopening with the help of ESPs, utilities and customer groups, this Senate Bill marks the first time since direct access was suspended in 2001 that some consumers will have a choice in who supplies their power. Direct Energy Business will continue advocating for the most appropriate and transparent rules with regard to this legislation and its implementation.

Utilities File Direct Access Available Load for Reopening Under Cap
As directed by the CPUC, the utilities filed their numbers confirming what their capped amount of load will be for customer switching, which are subject to review and approval. Direct Energy Business will report on the final numbers once they are confirmed.

(All values in GWh per year)

   
Update on Resource Adequacy Requirements
Since 2006, California has imposed a “Resource Adequacy” (RA) obligation on all load serving entities (LSEs) and consumers have paid for this requirement, which helps to ensure that electricity generators have sufficient capacity to meet the maximum energy requirements of the California energy market at all times.

Under this program, LSEs are responsible in the year-ahead to demonstrate that they have procured 90 percent of their total RA obligations (total load plus reserves). As a subset of the total RA obligation, LSEs are assigned specific capacity obligations in each of the state’s load pockets. On a year-ahead basis, LSEs must demonstrate they have procured 100 percent of the needed resources in each local area.

During the compliance year, on a month-ahead basis, LSEs must demonstrate that they have contracted for the full 115 percent RA obligation (to cover load plus a minimum of 15% reserves). The month-ahead obligation is trued up from the year-ahead forecast to account for any load migration.

On an ongoing basis, the RA program is refined via annual CPUC proceedings, with additional requirements being layered in and forecasting and compliance requirements becoming increasingly granular. Most recently, the CPUC took a big step in proposing capacity programs that would impose multi-year-ahead requirements on LSEs. These proposed program changes are currently being debated against more of a centralized capacity market program, like those found in other jurisdictions across the country (Northeast, Midwest, New England).

If the CPUC moves toward imposing a multi-year RA requirement, the cost and risk impact to LSEs and suppliers could be significant if a centralized capacity market is not developed in conjunction with this requirement. Direct Energy Business is active in this debate and is advocating for a market structure that will complement retail choice. If it is inevitable that a multi-year program will be adopted, we will support and advocate for a mechanism—such as a centralized capacity market—that will support such a requirement.

Click here to read more about this proceeding.

California Energy Commission Releases Final 2009 Integrated Energy Policy Report (IEPR)
The California Energy Commission (CEC) released the final 2009 Integrated Energy Policy Report (IEPR), which promises a supplemental analysis in early 2010 that disaggregates the 2009 IEPR planning area demand forecasts into bundled and direct access segments. Since many more of California’s customers will have this option to choose a supplier after the implementation of Senate Bill 695 in 2010, the Energy Commission will incorporate direct access in future IEPR forecasts.

In addition, during the draft IEPR process, the IEPR Committee solicited comments from parties on how the state should address the current hybrid electric procurement market and improve the investor-owned utility procurement process for electric generation. The IEPR Committee believes these issues deserve a fuller vetting, including an assessment of alternative market models that would better serve the goal of reduced cost to customers. The Energy Commission will invite the CPUC to participate in a more complete evaluation of the existing hybrid market structure as part of the 2010 Integrated Energy Policy Report Update to identify possible market enhancements and changes to utility procurement practices that would facilitate the reemergence of merchant investment.

AB 32 Greenhouse Gas Emissions (GHG) Update
California's major initiatives for reducing climate change or greenhouse gas (GHG) emissions are outlined in Assembly Bill 32 (AB 32) and the 2005 Executive Order S-3-05. These efforts are aimed at reducing GHG emissions to 1990 levels by 2020 (a reduction of about 25 percent) and then an 80 percent reduction below 1990 levels by 2050.

The AB 32 Scoping Plan, put forth by the California Air Resources Board (CARB), contains the main strategies that California will use to reduce the greenhouse gases (GHG) that cause climate change. When it is completed, the Scoping Plan—which was adopted in 2008—will have a range of GHG reduction actions that can include direct regulations, alternative compliance mechanisms, monetary and non-monetary incentives, voluntary actions, and market-based mechanisms such as a cap-and-trade system. CARB recently released a preliminary draft version of the GHG cap-and-trade regulation. This draft covers the full range of elements for the cap-and-trade program outlined in the Scoping Plan.

The process for finalizing the plan is moving extremely slow but Direct Energy Business is following this to monitor the impact on our customers, as well as the economy in California.

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