Supplemental Energy Payments (SEPs)

April 29, 2008

Summary

Production-based incentives, referred to as supplemental energy payments (SEPs), are available to eligible renewable generators for the above-market costs of eligible procurement by California’s retail sellers to fulfill their Renewables Portfolio Standard (RPS) obligations. These payments are authorized by SB 1038 and SB 1078 of 2002, as revised by SB 107 and SB 1250 of 2006. As of August 2007, total funding available is approximately $734 million. SEPs are only available to facilities that have been certified by the California Energy Commission (Energy Commission) as eligible for the RPS and SEPs. Eligible renewable generating facilities must have been selected by an Investor-Owned Utility (IOU) or another electrical corporation through an RPS competitive solicitation approved by the California Public Utilities Commission (CPUC), or by another retail seller, such as an Electric Service Provider or Community Choice Aggregator, through a least cost, best fit process that is accepted by the CPUC. With some exceptions for small hydro and small conduit hydro, facilities must begin commercial operations on or after January 1, 2005, or be repowered and re-commence operation on or after January 1, 2005, and meet other fuel specific and electricity delivery criteria. After the IOUs’ solicitations are closed to new bids, the CPUC calculates and announces the market price referent (MPR). The MPR is an estimate of the levelized, cents-per-kWh price of a comparable long-term, natural gas electricity product. The IOUs have the opportunity to finalize contract negotiations after the MPR is announced and before selecting their final list of winning bidders. The “final bid price” is the cent/kWh revenue amount that the seller (representing the renewable facility) seeks under the contract terms. The final bid price is compared to the MPR:

• Contracts priced at or below the MPR may be accepted as per se reasonable by the CPUC;
• If the final bid price is above the MPR, the CPUC may authorize the IOU to enter a contract with the seller at the price of the MPR. The facility may apply to the Energy Commission to receive SEPs to cover the above market costs (the difference between the MPR and the final bid price),subject to funding availability and Energy Commission determination.

The IOUs submit RPS contracts to the CPUC for approval. The Energy Commission will only consider a SEP application once a retail seller executes an eligible contract with a facility. SEPs will not exceed the difference between the final bid price and the MPR. A facility awarded SEPs for eligible renewable generation may receive SEPs based on the above-market costs of contracted generation over the life of the contract; however, the Energy Commission will make monthly payments for no more than 10 years. Program details are available from the New Renewable Facilities Program Guidebook (March 2007), Renewables Portfolio Standard Eligibility Guidebook (March 2007), and the Overall Program Guidebook, (March 2007), all of which are available from the Energy Commission's RPS Documents Page.