Troutman Sanders LLP: California Public Utilities Commission Adopts Renewable Auction Mechanism

Troutman Sanders LLP: California Public Utilities Commission Adopts Renewable Auction Mechanism

On August 18, 2011, the California Public Utilities Commission (the "CPUC") approved a new procurement process called the Renewable Auction Mechanism, or RAM ("RAM").  According to the CPUC, "the RAM is a simplified and market-based procurement mechanism for large investor-owned utilities . . . [expected] 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."  CPUC has authorized the investor-owned utilities, which consists of Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison (collectively, the "IOUs") to procure at least 1,000 MWs through RAM over the next two years.

            Projects solicited through RAM are limited to 20 MW or less and must be located within the investor-owned utilities' service territories. Each IOU will hold two RAM auctions per a year simultaneously with the other IOUs in order to maximize competition.  The IOUs will select the projects based on price, starting with the least expensive until the capacity limit in each solicitation is reached.  The IOUs will employ an independent evaluator that will assess the competitiveness and integrity of each RAM auction.  Additionally, CPUC has clarified that FERC certification as a qualifying facility is not required for a project to be eligible for RAM, although a project may elect to certify as a qualifying facility.

Additional eligibility requirements for RAM projects are as follows:

  • Site Control: The bidder must demonstrate 100% site control through (1) direct ownership, (2) lease or (3) an option to lease or purchase that is exercisable upon award of a RAM contract.
  • Development Experience: The bidder must demonstrate that the company and/or development team has completed at least one project of similar technology and capacity or begun construction of at least one other similar project.
  • Commercialized Technology: The project must utilize commercialized technology, which is defined as one currently in use at a minimum of two operating facilities of similar capacity.
  • Interconnection: Bidders must demonstrate that they have filed their interconnection application by the time they bid into the RAM program.

            Each IOU will develop its own standard contract that must include certain provisions set forth by CPUC.  The contract will be non-negotiable and standard for all winning bidders in a specific RAM auction.  Each IOU's standard contract must contain the following provisions: (1) the project must achieve commercial operation within 18 months of contract execution, with one six month extension permitted; (2) a requirement for development deposit in the amount of $20/kW for projects smaller than five MW, $60/kW for projects between five and twenty MW utilizing intermittent resources, and $90/kW for projects between five and twenty MW utilizing baseload resources; (3) a requirement for performance deposit in the amount of the development deposit for projects smaller than five MW and five percent of expected total project revenues for projects larger than five MW; and (4) a delivery requirement of 140% of expected annual net energy production based on two years of rolling production.

Capacity allocations among the IOUs are as follows:

IOU

Program Total (MW)

Per Auction (MW)

SCE

498.4

 124.6

PG&E

420.9

 105.2

SDG&E

80.7

  20.2

TOTAL

1,000.0

250.0

              
           For more information or questions regarding the RAM program, please contact John Leonti at John.Leonti@troutmansanders.com or Roger Mok at Roger.Mok@troutmansanders.com.

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