April 29, 2008 – CALIFORNIA PUBLIC UTILITY COMMISSION’S DRAFT INTERIM OPINION AUTHORIZING EMERGING RENEWABLE RESOURCE PROGRAMS
Excerpts of CPUC Decisions RE PG&E Wave Energy Conversion Project Funding
Summary — Today’s decision authorizes Emerging Renewable Resource Programs (ERRP) for Pacific Gas and Electric Company (PG&E) and San Diego Gas & Electric Company (SDG&E) (Joint Applicants). The adopted ERRP allows PG&E and SDG&E to expend up to $30 million and $15 million, respectively, on external costs for a period of two years. ERRP expenses will be recorded in each utility’s Energy Resource Recovery Account (ERRA).
The adopted ERRP includes project approval and oversight through the Commission’s Energy Division (ED) assisted by consultants using our adopted Technical Review Process (TRP). In addition, an independent evaluator (IE) will review ERRP project solicitations.
Although this decision authorizes Joint Applicants’ ERRP funding request, it provides that ratepayers will only fund up to 80% of the estimated costs for an ERRP project. Thus, ratepayers do not bear all of the risk of ERRP projects but rather share these risks with those providing the 20% in matching funds. The decision does not adopt intellectual property (IP) policies for IP produced from ERRP projects. Instead, IP will be addressed on a project-by-project basis until it is addressed through the workshop process. PG&E’s request for $2 million for the University of California Merced Solar Center (Solar Center) and $3.2 million for SDG&E’s request for a Wastewater Biomethane Demonstration (WBD) project are authorized. However, only $2 million of PG&E’s requested $6 million for its wave energy project is authorized at this time pending further review by the TRP consultants and approval by ED.
Because ERRP is a new utility program addressing the development of new renewable energy technologies, we will closely monitor and evaluate the program results during the next two years, and then decide whether the program should be continued, modified, or cancelled. This proceeding is closed.
RPS Background — The California Renewables Portfolio Standard (RPS) Program was established by Senate Bill (SB) 10782 and codified by California Public Utilities Code Section 399.11, et seq. The statute required that a retail seller of electricity such as PG&E purchase a certain percentage of electricity generated by Eligible Renewable Energy Resources (ERR). Originally, each utility was required to increase its total procurement of ERRs by at least 1% of annual retail sales per year until 20% is reached, subject to the Commission’s rules on flexible compliance, no later than 2017.
The State’s Energy Action Plan I (EAP I) called for acceleration of this RPS goal to reach 20 percent by 2010. This was reiterated again in the Order 2 Chapter 516, statutes of 2002, effective January 1, 2003 (SB 1078). The Energy Action Plan I was jointly adopted by the Commission, the California Energy Resources Conservation and Development Commission (CEC) and the California Power Authority. The Commission adopted the EAP I on May 8, 2003. Instituting Rulemaking (R.04-04-026) issued on April 28, 2004, which encouraged the utilities to procure cost-effective renewable generation in excess of their RPS annual procurement targets (APT), in order to make progress towards the goal expressed in the EAP. On September 26, 2006, Governor Schwarzenegger signed Senate Bill (SB) 107, which accelerates the State’s RPS targets to 20% by 2010, subject to the Commission’s rules on flexible compliance. During the past four years, California utilities including PG&E and SDG&E have sought to increase the amount of eligible renewable energy procurement to meet RPS targets.
In addition to the 2010 mandate, in 2005 the EAP II set a more ambitious goal to reach 33% renewable energy by 2020. In 2005, the Governor called for an acceleration of the RPS to 33 percent by 2020. While the state is not mandated by legislation to reach this more ambitious goal, the Commission is working with the investor-owned utilities (IOUs) to evaluate to what extent this goal can be achieved.
Regarding PG&E’s Wave Energy Conversions Projects — PG&E proposes to document the feasibility of a facility that converts wave energy into electricity by using wave energy conversion (WEC) devices in the open ocean adjacent to PG&E’s service territory. PG&E explains that WEC devices have been tested in Europe and Hawaii but have not demonstrated for commercial viability. PG&E believes that wave power is a viable energy source along California’s coast, and received preliminary Federal Energy Regulatory Commission (FERC) permits in March 2008. PG&E proposes that WaveConnect will be funded in three stages. The first stage includes all of the feasibility and licensing work for the two wave sites and is estimated to cost $6 million over 3 to 5 years. These costs include fees for consultants, legal services, engineering and technical consultants, environmental studies, design and planning for WEC devices and costs for the deployment of a limited number of WEC devices for testing. The second stage, estimated to cost between $15-$20 million per site over 2-4 years, includes development of infrastructure, undersea cabling, and greater numbers of WEC devices. During stage three, the most promising WEC devices will be deployed in larger quantities up to 40 Megawatts per site and connected to the grid. PG&E does not have a cost estimate for Stage 3. In the Application, PG&E is only requesting funding for Stage 1. PG&E states it will request funding for Stages 2 and 3 either in separate applications or through subsequent ERRP AL filings.
Although interested parties do not object to either the Solar Center or WBD ERRP projects discussed above, IEP (Independent Energy Producers Assoc.) contends that WaveConnect should be denied ERRP funding. IEP argues that PG&E’s WaveConnect project would provide project development costs and give PG&E an unfair advantage over independent power producers in a competitive solicitation. IEP recommends that if PG&E wishes to pursue wave energy, it should do so through a competitive wave energy RPS solicitation. In response, PG&E argues that the results of the WaveConnect project will not be known for 3 to 5 years, at which time a commercial plant may or may not be proposed. Furthermore, PG&E notes the immediate aim of WaveConnect is not to develop a commercial generating facility to compete against other project developers, but to evaluate the feasibility of extracting energy from ocean waves. PG&E states that wave energy has tremendous potential as a renewable energy source since California has over 750 miles of coastline, or over 37,000 MW of potential, of which an upper limit of about 20% could be converted into electricity. PG&E estimates that an average 7460 MW might be expected to generate up to 65 terawatt hours (TWh) per year from California’s ocean waves. California’s 2005 total energy generated was 288 TWh. Thus, wave energy could potentially provide 23% of California’s current electricity consumption. It should be noted, however, that this estimate is an upper limit, since environment impacts, land-use, and grid interconnection constraints will likely impose limits on development. The wave potential along the 600 miles of Pacific Ocean coastline in PG&E’s service territory is also very good, and has a higher wave energy climate than further south.
Other states and countries are in various stages of testing wave energy projects. Recently PG&E filed an AL for approval of a PPA from a potential wave energy provider. The State of Oregon has also begun exploring wave energy projects. While these developments suggest wave energy may become a more common energy source, the question remains as to whether we should wait until other possible wave energy developers enter the market, or approve the WaveConnect project as a means of furthering wave energy development now. It is apparent that legislation encouraging renewable power and reductions in GHG strongly support all reasonable cost effective means to achieve these ends. Furthermore, as proposed by PG&E, the commercial development of wave energy is not an immediate goal but rather a lengthy study necessary to prove or disprove the potential for wave energy from various WEC devices. On that basis we believe it important to begin expanding our knowledge and understanding of whether wave energy is a reasonable means for achieving these goals now rather than waiting to see how this market may develop. We will conditionally authorize PG&E to begin the WaveConnect project as part of its ERRP. However we are less certain about the WaveConnect project as proposed over the many years outlined in the Application and WaveConnect information provided in PG&E’s Response. We desire to allow PG&E to move forward with the tasks to complete the goals and milestones in year one, including steps necessary to file the Pre-Application Document by March 2009, which is the next milestone in the FERC licensing process. While PG&E is conducting these activities, ED and its TRP consultants will review the other activities proposed in Stage 1 from years two through five. As a result, we only authorize PG&E to spend up to $2 million in ERRP funds to cover the expenditures necessary to complete the tasks for Year 1.
Once the TRP is established, it will review WaveConnect and recommend to ED whether, and how much additional spending is reasonable. Following this review, and upon receipt of a letter from the Energy Division directing PG&E on how to proceed, PG&E may file a Tier 2 or Tier 371 AL requesting additional funds for the WaveConnect project. In this AL filing, PG&E must demonstrate that it has acquired additional funds covering at least 20% of the total amount requested for Stage 1.72 PG&E shall record and recover these costs as described in Section 5.11.
In addition to seeking funding for Stage 1, PG&E indicated that it would seek funding for Stages 2 and 3 through subsequent ERRP AL filings or through applications. Since the maximum ERRP funding for one project is $7 million dollars, PG&E cannot exceed this limit over the life of WaveConnect. Thus, if PG&E is authorized to expend up to $6 million for Stage 1 through ERRP, WaveConnect will only be eligible for $1 million in additional funding for future stages. PG&E cannot request over $7 million in ratepayer funding for WaveConnect through subsequent ERRP funding periods nor through a separate application.