Senate Bill 1078, approved in September 2002, established a renewable portfolio standard. The RPS legislation requires all retail energy providers, including electrical corporations, community choice aggregators and electric service providers, to increase their procurement of renewable energy by at least 1% each year so that 20% of their total energy is procured from renewable sources by 2017. In 2003, the California Public Utilities Commission adopted regulations implementing the RPS for investor-owned utilities under its jurisdiction.

CPUC regulations require the utilities to administer annual RPS solicitations according to CPUC prescribed rules.Winning bids are selected by the utilities using “least-cost, best-fit” criteria, and contracts must be approved by the CPUC. The evaluation of bids must include estimated transmission costs based on a transmission ranking cost report issued by the CPUC. The selected bids are compared to a CPUC-calculated market price referent, or “MPR,” that estimates a longterm market price for electricity from conventional sources. Contracts at or below the MPR are automatically determined to be reasonable. Any approved bids requiring payments above the MPR will be considered by the California Energy Commission for supplemental energy payments using funds collected through the public goods charge. To date, all winning contracts have been priced below the MPR. In 2005 the 20% RPS requirement was extended to all load-serving entities under the CPUC’s jurisdiction, including direct access providers and community choice aggregators.

The California RPS legislation established which renewable resources are eligible to be counted toward the RPS targets. Qualifying technologies are biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuel, hydroelectric generation with capacities less than 30 megawatts, digester gas, municipal solid waste conversion using a non-combustion thermal process, landfill gas, ocean wave, ocean thermal and tidal current. An eligible renewable resource must also be located in California or near the state border so that the first point of interconnection to the transmission system is within California. Existing resources under the control of the investor-owned utilities count toward the baseline for each utility. The amount of renewables that must be purchased each year is equal to the baseline from the previous year plus 1% of the utilities’ retail sales for the previous year. Utilities may bank renewables purchases to count towards future periods, and may carry forward shortfalls of up to 25% of their annual target for up to three years. Any shortfalls not fulfilled within the three-year make-up period will incur a penalty of 5¢ per kWh.