The Solar and Clean Energy Act Engenders Much Debate

Energy policy in California is, for us policy wonks, always exciting. California has historically led the way for the U.S., so what happens in California affects not only the 37 million who live in California but also soon impacts many of the other 270 million Americans. The year 2006 was particularly exciting, as the Legislature and Governor Schwarzenegger signed into law AB 32, the Global Warming Solutions Act, and SB 1368, the Emissions Performance Standard. These two laws will likely have very significant impacts in the Western U.S. over the coming decades. Next, 2007 brought us the ongoing controversy regarding California’s Clean Air Act waiver to regulate greenhouse gas emissions from new cars – currently denied by the EPA.

Now, 2008 promises also to be a banner year, with numerous interesting and promising bills pending in the Legislature, on energy efficiency in buildings, renewable electricity, enhanced net metering, and other topics. There is also likely to be at least one very important energy policy measure on the ballot in November, which is the focus of the rest of this article.

The Solar and Clean Energy Act of 2008 (“Solar Act”) will, if it passes, require that all utilities achieve 40 percent renewable electricity by 2020, and 50 percent by 2025. The current mandate is for 20 percent by 2010, which applies only to the investor-owned utilities (about 75 percent of the state’s demand). The state’s energy agencies and the Governor have also backed a 33 percent goal by 2020, though this is not yet law (SB 411, which would make this goal law, is pending in the Legislature and it is not clear if it will pass). Needless to say, if the Solar Act passes, it will be revolutionary in its impact. Going from today’s average for all California utilities of about 10 percent renewables to 50 percent by 2025 will not be easy!

The Solar Act makes many other changes to current law, including changing the “market price referent” system, which is the approximate cost of electricity from new natural gas plants. The market price referent is used to judge the cost-effectiveness of renewable energy projects under the current renewable energy mandates. The Solar Act would change current law — which considers renewable energy projects at or below the market price to be “per se reasonable” and thus very likely to be approved by the Public Utilities Commission — to require the PUC to consider projects that are no more than 10 percent over the market price to be “per se reasonable.” Perhaps more importantly, the Solar Act requires the California Energy Commission (CEC) to take over the calculation of the market price, which is currently performed by the PUC. The CEC must also, under the Solar Act, explicitly consider additional items in determining the market price referent, including the “value and benefits of renewable resources.”

While the Solar Act literature discusses a “cap” on costs due to the Solar Act – in order to avoid drumming up opposition by those folks who want to avoid additional costs for renewable energy – the initiative doesn’t actually impose a cap. Rather, by limiting utility obligations to those renewable energy contracts that cost no more than 10 percent above the market price referent, there is a built-in cost containment mechanism. However, if the PUC or the CEC decide they want to approve renewable energy contracts above these levels, they will be able to do so, as they can under current law within certain limitations.

The Solar Act also creates a “feed-in tariff” that will require utilities and Community Choice Aggregators (CCA) to accept renewable energy power contracts that are below the market price. However, this requirement only applies if the utility or CCA is behind on its annual obligations to procure renewable energy. Under this new feed-in tariff, utilities must only buy renewable electricity when it is, by definition, cost-effective (because it must be below the market price in order to qualify).

More controversially, the Solar Act also changes the penalty system for utilities not meeting their renewable energy obligations. Currently, the PUC has set a penalty level of 5 cents per kilowatt hour (kWh) for non-compliance, but has capped the penalty level for each year and each utility at $25 million. The Solar Act reduces the penalty amount to 1 cent per kWh, but eliminates the cap. While the cents per kWh penalty is reduced by the Solar Act, the actual effect of the Solar Act, due to its elimination of the $25 million cap for each utility, will very likely be to increase penalty amounts. For example, if PG&E is, in 2010, 5 percent behind in its annual obligations, its penalty under current law would be a maximum of $25 million, even though the uncapped amount would be about $275 million. Under the Solar Act, the penalty in this scenario would be about $55 million, more than twice what current law would allow. The new penalties may also, under the Solar Act, be imposed on publicly-owned utilities like the Los Angeles Department of Water & Power, and CCAs because these entities are also subject to the higher renewable energy requirements in the Solar Act.

The Solar Act would also change permitting requirements for renewable energy projects and transmission necessary to serve those projects. It would create an expedited permitting process at the Energy Commission, reducing the current twelve-month process to six, if no significant environmental impacts are found in an initial review. If, after the expedited permitting process is underway, significant environmental impacts are found, the normal permitting process is re-instated. It seems unlikely, however, that any renewable energy or transmission project will be found to have no significant environmental impacts, so it is also unlikely that the expedited process will be utilized frequently, if ever.

Last, the Solar Act would require a 2/3 vote by the Legislature to change any of its provisions, as a protection against easy amendment by the Legislature. In this case, there is much to debate regarding whether a 2/3 vote requirement is a good or a bad thing.

Perhaps surprisingly, many of California’s established environmental organizations and trade groups are criticizing the Solar Act. Unfortunately, opposition letters currently circulating contain some significant inaccuracies regarding “trash burners,” the level of penalties, and the expedited permitting process. Despite what some parties are claiming, the Solar Act does not change current law regarding using municipal solid waste for energy, so will not promote “trash burners” as renewable energy facilities because such facilities are forbidden under current law.

The Solar Act is bankrolled by Peter Sperling, the son of billionaire John Sperling who made his money with the University of Phoenix. Sperling apparently felt that California’s current process for encouraging renewable energy was not working and decided to shake things up in a big way with his initiative. He and his team decided not to engage in early consultation with many of the “usual suspects” in California energy policy, which may have been a strategic mistake. Time will tell.

With a momentous presidential election upon us this year, however, we are sure to have large numbers of progressive voters turning out. The demographics of this particular voting season seem to weigh in favor of the Solar Act passing because of the high levels of support for renewable energy expressed by voters over the last few years.

Regardless of the outcome, we are sure to have much fodder for continuing debate regarding energy policy. And that, at least, warms my cockles.

Tam Hunt is a Lecturer in renewable energy law and policy at the Bren School of Environmental Science & Management at UC Santa Barbara. He is also Energy Program Director and Attorney for the Community Environmental Council in Santa Barbara.

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