Proposition 7 - State Renewable Energy Rules

What it does

Proposition 7 would make many changes to the laws and regulations affecting public and private electrical utilities in California. The most significant change proposed by Prop. 7 affects state law regarding California's Renewable Portfolio Standard. The RPS is defined in the state Public Utility Code as the specified percentage of renewable energy that retail electricity sellers are required to procure. Prop. 7 would raise RPS targets for the state's regulated private electricity providers — including PG&E, Southern California Edison, San Diego Gas & Electric, and other smaller providers — and apply these new requirements to municipal utilities. Currently, only private electrical corporations are required to generate 20 percent of their power from renewable energy by 2010. Prop. 7 would retain this benchmark, and then raise the RPS for all utilities to 40 percent by 2020 and 50 percent by 2025. To meet this goal, all electricity providers would need to increase their share of renewable electricity purchasing by at least 2 percent per year, rather than the current 1 percent.

Prop. 7 also makes a number of changes to the rules about new renewable energy plants. It shortens the time frame for certification of new renewable energy plants and transmission lines, giving the California Energy Commission a six month deadline rather than the current 12 to 18 months. It also changes two types of review, limiting the authority of the courts to halt construction or operation of renewable facilities, and limiting public comment to a 100 day comment period. Further, Prop. 7 expands the CEC's permitting authority, which now resides in local governments, and transfers some functions — including permitting electrical transmission lines and determining the market price of electricity — from the California Public Utilities Commission to the CEC.

Prop. 7 appears to limit electricity rate increases to 3 percent though it does not provide a mechanism for this "cap." The measure would require electricity providers to offer renewable energy procurement contracts of no less than 20 years in duration. It expands penalties and removes the cap on monetary penalties if an electricity provider fails to procure sufficient amounts of renewable energy. It directs this penalty revenue into a "Solar and Clean Energy Transmission Account" to purchase property or rights of way for renewable energy.

Lastly, Prop. 7 amends the Public Utilities Code to allow executed contracts, rather than completed infrastructure, to count toward meeting renewable obligations. It also excludes energy produced from facilities that generate less than 30 megawatts from the amount that qualifies for the new higher renewable energy standards.

Why it is on the ballot

Prop. 7 is an initiative state statute put on the ballot through a signature petition drive. The primary financial backer is Peter Sperling, an environmental philanthropist, whose well known father, John Sperling, is the founder of the University of Phoenix. The campaign has also been partially funded by Jim Gonzalez, the chairman of the campaign and a former member of the San Francisco Board of Supervisors.

California has demonstrated national leadership in setting aggressive targets to reduce greenhouse gas emissions and fight global warming. Over the past several years, California has adopted a suite of legislation and executive orders that set mutually reinforcing targets to address emissions reductions through the many ways we use energy and fuels. Principal among these measures is the Global Warming Solutions Act of 2006 (Assembly Bill 32), which set a target of reducing emissions to 1990 levels by 2020. The state has a longer-term target of an 80 percent reduction from 1990 levels by 2050. Implementation of AB 32 will take an economy wide approach to reducing emissions, including redirecting energy production toward renewable and alternative energy resources. The draft scoping plan for implementation was released in June 2008 and is scheduled to be adopted in November, after public review.

California also has the highest renewable energy targets of any state in the country. The first Renewable Portfolio Standard was passed in 2002. This legislation originally called for a goal of 20 percent renewables by 2017, and was later amended by Senate Bill 107, which pushed the 20 percent goal to 2010. California is taking steps each year to increase the amount of renewable energy provided in the state. Gov. Arnold Schwarzenegger has proposed a target of 33 percent renewables by 2020, a goal that pending legislation, Senate Bill 411, has been crafted to implement.

These targets are ambitious compared to the amount of renewable electricity that is purchased today. In 2006, investor owned utilities — such as PG&E and Southern California Edison — had an average of 13 percent of their electricity from renewable sources. Other private electricity service providers, such as those supplying certain government entities and universities, averaged 2 percent. Municipal utilities, such as L.A. Water and Power, and the Sacramento Municipal Utilities District, averaged 12 percent, but only 7 percent if large hydroelectric sources are excluded.

Numerous agencies are responsible for managing and regulating energy production and use in California. The California Public Utilities Commission is responsible for regulating electricity rates charged by investor owned utilities. The California Energy Commission issues permits for power plants exceeding 50 megawatts. The Federal Energy Regulatory Commission is responsible for hydroelectric facilities. Local governments are usually responsible for permitting facilities smaller than 50 megawatts, including renewable sources such as wind and solar. The California Independent System Operator is responsible for ensuring the reliability of the electric grid and managing the queue of suppliers providing electricity to the statewide grid. Energy transmission lines are subject to permitting based on the ownership of the line, but may involve the California PUC if an investor owned utility proposes the line, the CEC if the line is related to a large power plant, FERC if the line is part of the state transmission grid, and local governments if the line crosses their territory.

Pros

Arguments in favor of Prop. 7:

• The measure would bolster California's efforts to fight climate change, and would promote renewable energy in a time of rising oil prices. It would push California's electric providers to buy more electricity from renewable sources and speed the establishment of more, larger sources of renewable energy generation than might otherwise be built.
• It is a worthwhile goal to set even more aggressive targets than those in place, in spite of the gap between today's renewable energy purchasing levels and the goals of the existing RPS. Ambitious goals and removing the cap on penalties would change the pace at which utilities and regulators work to bring renewable sources to market.
• The measure would attract investment and clean technology business to California to take advantage of the increase in demand for renewable energy supplies.
• The measure would require the California Energy Commission to identify clean energy "zones" to promote them as sites for new facilities, specifically of large-scale solar facilities in the desert. Renewable energy zones and transmission corridors have been identified as a way to improve the permitting process while facilitating public participation and minimizing environmental damage.
• This measure would bring equity to the statewide rules for renewable energy goals by requiring municipal electric utilities to meet the higher RPS standards expected of private and investor owned utilities. Municipal utilities account for approximately 24 percent of retail electricity sales in the state, and are not subject to the existing RPS for private utilities.
• The measure would extend the period of required procurement contracts from 10 years to 20 years, ensuring a longer-term commitment by utilities. This would also provide greater financial security for investors.

Cons

Arguments against Prop. 7:

• Prop. 7 would limit the growth of renewable energy projects by excluding projects smaller than 30 megawatts from being counted toward the state's renewable energy targets. These smaller projects supply more than 60 percent of the renewable energy contracts under today's RPS.
• Prop. 7 actually would make its ambitious renewable energy targets harder to reach. The measure would allow for contracts—as opposed to installed capacity — to count toward the RPS. It also would allow retail sellers (in certain circumstances) to avoid compliance with RPS standards, rather than the current flexible arrangement that allows them to defer compliance for up to three years. By allowing utilities to engage in speculative contracts—which already have a high failure rate under today's RPS — and providing a way to avoid compliance altogether, this measure could result in less installed renewable energy than expected.
• The measure sets a rigid timetable for permitting decisions while limiting the scope of judicial, expert agency and public review. Delays in project permitting that occur today are generally due to factors outside of the Energy Commission's control. The existence of a shorter timetable would not help speed up the development of renewables, and the loss of public and agency participation could lead to insufficient evaluation, poorly designed projects and controversy.
• The measure could result in an increase in electrical rates, by guaranteeing renewable energy providers a rate at least 10 percent above the market price of electricity, as determined by the California Energy Commission. This artificial cost increase could stifle competition, and the measure provides no mechanism by which ratepayers would be protected from resulting price increases.
• Prop. 7 fails to address the barriers to the development of renewable energy and could thwart more effective legislation in the future. A statewide initiative is already underway to address barriers to the development of renewable energy. The Renewable Energy Transmission Initiative is assessing renewable energy zones and transmission corridors in California and neighboring states that could provide significant renewable electricity to California by 2020. RETI is identifying the areas that would be cost effective and have the least impact on the environment. RETI involves numerous natural resource agencies and other stakeholders, and is a much more comprehensive and broad based approach to address this barrier than is Prop. 7.
• The measure does not address the backlog of 68,000 megawatts of renewable projects in the California Independent System Operator queue awaiting interconnection to the grid. Since the adoption of the RPS, and of California's climate action goals in AB 32, power plant developers have flooded the interconnection queue, with more than 105,000 megawatts awaiting study. Under Federal Energy Regulatory Commission rules, these projects are vetted on a first-come, first-served basis. Cal ISO, the CPUC, and other stakeholders have been working to reform this process, and the Cal ISO board voted in July 2008 to support several queue planning changes that will also dovetail with the RETI process. Prop. 7 does nothing to address the problem of the grid connection backlog.
• This measure could harm California's environment—particularly sensitive desert ecosystems. The measure misleadingly claims to guarantee environmental protections, citing the Desert Protection Act, which is a provision of federal law and cannot be enforced by state agencies such as the CEC. The initiative would actually override current environmental protections such as the California Environmental Quality Act by reducing public and environmental review time frames in the name of expediting permits.

SPUR’s analysis

While increasing renewable energy production is a worthy goal, Prop. 7 as crafted would hamper California's efforts to green our energy portfolio.

There are two main reasons to oppose Prop. 7. First, it would do nothing to address the issues and problems we face in meeting existing goals for renewable energy, which are already ambitious at 20 percent by 2010. These barriers include finding sites for new transmission infrastructure, speculative contract failures, bringing new projects online—especially smaller facilities that are closer to load centers and that can provide grid reliability—and identifying areas for the development of renewable energy and transmission zones in a way that minimizes environmental damage and facilitates public participation. Second, Prop. 7 actually undermines the ways that energy agencies, utilities, renewable-energy developers and environmental organizations and others have identified as ways to help reach goals for renewable energy. Its fatal flaws include limiting judicial, agency, environmental and public review to an arbitrary and short time frame; excluding projects smaller than 30 megawatts from counting towards the RPS; and rushing the development of clean energy zones when there is already a public process underway to identify the best and lowest cost sites; and creating a loophole for utilities that allows them to avoid compliance altogether. Experience shows that rushing environmental reviews and eliminating public oversight does not lead to strong outcomes that earn public support.

SPUR recommends a "No" vote on Prop. 7.