Note: The Background, Proposal, and Fiscal Effect sections are taken from the LWVCEF In Depth publication, based in part on the Legislative Analyst’s Office analysis included in the Secretary of State’s official Voter Information Guide.

BACKGROUND

California Electricity Providers

California customers generally receive electricity from one of three types of providers.

1. Investor-owned utilities (IOUs) provide 68 percent of the state’s retail electricity service. The state’s three IOUs, which are regulated by the Public Utilities Commission (PUC) are Pacific Gas and Electric (PGE), Southern California Electric (SCE), and San Diego Gas and Electric (SDGE).
2. Local, publicly owned companies governed by appointed or elected boards supply 24 percent of retail electricity service. The two largest locally owned utilities are the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District. They are subject to a different energy requirement that requires each public utility to set its own renewable standard. There is no penalty for their failing to do so.
3. The remaining 8 percent of retail electricity service is provided by Electric Service Providers (ESPs), which also are regulated by the PUC. ESPs are companies that provide electricity service directly to customers that have chosen not to receive electricity from the utility serving their geographic area.

Use of Natural Gas for Electricity Production

Except for the two nuclear plants at San Onofre and Diablo Canyon and some hydroelectric facilities, most of the electricity generated in California power plants is fueled by natural gas. The amount of natural gas used for electricity production is growing as new plants come on line. However, the percentage may decline as more renewable fuels are used. A substantial amount of electricity used in California is produced out-of-state from coal.

California Energy Programs

California leads the nation in adopting legislation to curb greenhouse gas emissions.  In 2002, California adopted Renewable Portfolio Standards (RPS), later augmented in 2006 when the state enacted the California Global Warming Solutions Act (AB 32). These laws require California to reduce statewide greenhouse gas emissions to 1990 levels by 2020 and PUC-regulated utilities to produce 20 percent of their electricity from renewable sources of energy by 2010. Utilities were to
increase use of renewable sources of energy by no less than 1 percent a year until the 20 percent goal was reached. Recently, the PUC and the California Energy Commission (CEC) recommended in the 2008 Energy Action Plan Update that the renewable energy goal for utilities be raised to 33 percent by 2020.

The PUC’s July 2008 Renewables Portfolio Standard Quarterly Report casts doubt on the state’s ability to meet the 20 percent renewable goal by 2010. Other problems include delays in securing contracts, negotiations with the military over concerns about radar reception, lack of transmission capability and reduction in small hydroelectric sources caused by the continuing drought. Increased demand for electricity and problems bringing new renewable fuels on line have reduced the share of electricity actually produced by renewable energy from 14 percent in 2003 to 12.7 percent in 2007.

Governor Schwarzenegger has also issued an Executive Order establishing a ground-breaking low carbon fuel standard that will reduce the carbon intensity of California’s passenger vehicle fuels by at least 10 percent by 2020. Another state law requires public utilities to reduce electricity use by 16,000 gigawatts from 2004 to 2013.  In July 2008, the PUC required reduction of another 16,000 gigawatts by 2020. These cuts are expected to eliminate the need for nine 500-megawatt natural gas-fired power plants.

THE PROPOSAL

Proposition 7 is intended to boost renewable energy use in California and require that the state meet greenhouse gas reduction targets substantially higher than those already in place. It would require that 50 percent of all electricity be produced from renewable fuels by 2025. These requirements would apply to publicly-owned utilities as well as investor-owned utilities.

Higher Renewable Portfolio Standards (RPS) Targets.  The proposal would require all utilities, including publicly-owned facilities, to generate 20 percent of their power from renewable energy by 2010, a standard currently applicable only to investor-owned utilities (IOUs) and electric service providers (ESPs). The measure further raises the renewable energy requirement for all utilities to 40 percent by 2020 and 50 percent by 2025. All three types of electricity providers would be required to increase the amount of renewables in their mix by 2 percent a year instead of the 1 percent presently required.

Application of RPS Requirements to Publicly Owned Utilities.The higher RPS targets would apply to publicly-owned utilities, as well as IOUs and ESPs. The proposal specifies the Energy Commission as the state agency responsible for enforcing the new requirements on publicly-owned utilities. The PUC would continue to be the enforcement agency for IOUs and also for ESPs if the measure becomes law.

New Process for Defining Market Price of Electricity and Eligibility of Solar and Clean Energy Plants.  The measure shifts responsibility for determining the market price of electricity from the PUC to the Energy Commission. The measure adds new criteria for determining the market price, including consideration of the value and benefit of renewable resources.

The measure also adds to the Public Resources Code a new definition of “solar and clean energy plant” as any electrical generating facility using wind, solar photovoltaic, solar thermal, biomass, biogas, geothermal, fuel cells using renewable fuels, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current technologies with a generating capacity of 30 megawatts or more.

Changes to Cost-Cap Limits.  Currently, the amount of electricity an IOU must acquire is set by PUC regulation, regardless of the annual RPS targets that apply. Proposition 7 adds penalties for failing to meet RPS targets as long as the cost of the new renewable sources is no more than 10 percent above the Energy Commission-defined market price for electricity. Increased costs would be recovered from customers subject to the same 10 percent limitation.

Revises RPS-Related Contracting Period and Obligations.  The measure would require all electricity providers to offer contracts for renewable fuels for no less than 20 years with certain exceptions.  Providers must accept all offers for renewable energy meeting the requirements of the initiative that are below the market price of electricity set by the Energy Commission.

Lower Penalty Rate; Removal of Cap on Total Penalty Amount.  The measure would reduce the present penalty set by the PUC for an electricity provider that fails to sign contracts for sufficient amounts of energy from 5 cents to 1 cent per kilowatt hour. However, the measure specifies that neither the PUC nor the Energy Commission can limit the total amount of penalties that can be placed on a utility in a given year.

Penalties cannot be recovered from consumers. The measure is not clear about how publicly-owned utilities would pay for penalties, since they generally have no other source of income except their customers. The state agencies can make some exceptions if the utility can demonstrate a “good faith effort” to meet the RPS.

Use of Penalty Monies.  Money collected from penalties would be used to facilitate acquisition of right-of-way for, and construction of, transmission facilities.

Expansion of Energy Commission’s Permitting Authority.  In addition to provisions cited above, the measure would grant the Energy Commission authority to issue permits for new nonthermal renewable energy power plants producing 30 megawatts or more. It would also grant the Energy Commission authority to permit IOUs to construct new transmission lines within the transmission grid. It is not clear whether by giving this authority to the Energy Commission; the measure has removed the PUC’s authority. Permits must be granted within 6 months, but the time may be extended if there would be significant harm to the environment or the applicant has demonstrated other legal or operating problems.

Declares Limited Impact on Consumer Rates.  The proposed measure declares in its findings section that in the “short term,” California’s investment in solar and clean energy (including that required by the proposed measure) would result in no more than a 3 percent increase in rates for consumers. However, the measure contains no specific provisions to implement or enforce this declaration.

FISCAL EFFECT

State and Local Administrative Impacts.  The Legislative Analyst and the Director of Finance estimate that Proposition 7 would increase state administrative costs by a total of up to $3.4 million annually for the Energy Commission and the PUC combined. Under current law, these additional costs would be funded by fees paid by electricity customers. Of the annual total of around $3.4 million, approximately $2.4 million would be attributable to new responsibilities and expansion of existing duties for the Energy Commission, and up to $1 million would be attributable to increased workload for the PUC related to the increased RPS targets.

State and Local Government Costs and Revenues.  The primary fiscal effect in this area would result from any effect Proposition 7 would have on electricity rates. There would be increased costs, particularly in the short term, to state and local governments as a result of potentially increased retail electricity rates. The Legislative Analyst believes those rates may increase because of higher cost factors (such as day-to-day operational costs and construction of facilities) for renewable resources as compared to conventional resources. It is unknown how the measure’s cost caps would affect electricity costs, because the Electricity Commission would have discretion in setting them.

There would be possible offsetting cost savings to state and local governments over the long term if the measure hastens renewable energy development and thereby lowers electricity rates. However, it may also be possible that the same cost factors for renewable resources that are expected to increase rates in the short term may also increase rates in the long term. On balance, it is unknown whether the factors that may decrease electricity rates in the long term would outweigh those that could increase them.

State and local government revenues may also be affected, first because some local governments charge a tax on the cost of electricity use, and second because tax revenues are affected by profits, income, and taxable sales, all of which are affected by electricity costs. Since it is unclear whether electricity rates will be higher or lower in the long term, the overall effects of Proposition 7 on government revenues is unknown.

LEAGUE POSITIONS AND DISCUSSION

The LWVC Energy position supports a state energy policy that will ensure reliability of energy resources and protection of the environment and public health and safety, at reasonable customer rates, giving primary consideration to conservation and energy efficiency.

The League believes that in acquiring new electric resources, major additional factors to consider include the:

1. reduction of greenhouse gas emissions
2. development and deployment of renewable resources
3. contribution to the diversity of the resource mix
4. availability at times of peak power demand
5. level of support for base load power requirement
6. protection of public health and safety

Statewide standards should be set for renewable resource development, demand-side management procurements, and reserve requirements. These standards should be applied to all load-serving entities.

The state should use economic/market and other incentives to foster renewable energy, conservation, demand-side management, and greenhouse gas reductions.

Decisions about implementation of the energy planning process should be made on a region-wide basis through a mechanism that incorporates participation by local governments.

Discussion

In 2003 the relevant state agencies adopted a policy that made energy efficiency the highest priority resource in the state’s “loading order” (the order of priority for procurement of energy sources). Proposition 7 fails to consider energy efficiency and reduction in the need for additional generation, the least environmentally damaging and the lowest cost resource.

California has led the nation in fostering ways to conserve energy over the past 30 years. The state’s appliance and building standards are the most rigorous anywhere in the world, and now the state is supporting development of a “smart” distribution grid to foster demand-side management—to encourage customers to decrease their demands for power, particularly at times of peak demand.

Proposition 7 calls for the overly simplistic mandate that half of all the power produced in the state should come from solar, wind and other alternative resources by 2025. For decades California has led the nation in the procurement and use of renewable energy—from solar, wind, geothermal, biomass, and small hydroelectric facilities. Since 2002 the state has had a Renewables Portfolio Standard (RPS) requiring electric providers regulated by the California Public Utilities Commission (PUC) (i.e., the investor-owned utilities and the electric service providers) to increase their reliance on renewable resources to 20 percent of total generation resources by 2010. While sufficient contracts have been signed to meet this RPS, in fact, it is clear that many of those projects will not be operational before 2012 or 2013.

The PUC has conducted a study to determine the reasons for the delays in meeting the current RPS. There are four notable causes: (1) a lack of transmission capacity to carry renewable power from areas in the state where it is abundant to the load centers; (2) the failure of the federal government to renew the investment tax credits that currently are an important inducement to developers of renewable energy; (3) uncertainties regarding the siting of renewable energy projects on lands managed by the Bureau of Land Management, particularly in and around the Mojave Desert; and (4) issues related to the technical maturity of some renewable projects.

Major efforts are currently underway on the part of the PUC, the Energy Commission, and numerous other stakeholders to address the delays associated with achieving the 20 percent RPS, but the state does not have the authority to challenge either federal policies or local jurisdictions that object to expansion of transmission lines. Meanwhile, the governor and the Air Resources Board have called for an expansion of the RPS to 33 percent renewable generation by 2020 in conjunction with implementation of the plan to reduce greenhouse gas emissions as called for in AB 32, the Global Warming Solutions Act. This expansion would require all energy providers in the state to meet this requirement. The PUC has called for an analysis of issues associated with meeting this 33 percent goal and the establishment of a schedule.

Passage of Proposition 7, with its confusing and sometimes contradictory provisions, would certainly upset this effort to expand the deployment of renewable resources in the state.

The rebuttal to the argument in favor was signed by Tom Adams, Board President, California League of Conservation Voters; Gary T. Gerber, President, Sun Light & Power; and Betty Jo Toccoli, President, California Small Business Associates.

The rebuttal to the argument in opposition was signed by Dolores Huerta, Co-Founder, United Farmworkers Union; Congressman Paul “Pete” McCloskey Jr. (Ret.); and Jim Gonzalez, Chair, Californians for Solar and Clean Energy.

RESOURCES

Jane Turnbull, LWVC Energy Program Director, energy@lwvc.org

Mignon Marks, LWVC Energy Committee member, energy@lwvc.org

Jane Bergen, LWVC Energy Committee member, energy@lwvc.org

Linda Craig, LWVC Advocacy Director, legislation@lwvc.org

Trudy Schafer, LWVC Senior Director for Program
1107 9th Street, Suite 300, Sacramento 95814
916 442.7215, Fax 916 442.7362, tschafer@lwvc.org

www.NoProp7.com, Californians Against Another Costly Energy Scheme—No on  7
866-811-9255

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