Here’s an Energy Law Alert prepared by Seth Hilton, John McKinsey and Stephen Hall:

Last Thursday evening, the California Air Resources Board (ARB) unanimously adopted its Renewable Energy Standard (RES), mandating that California’s electric utilities—both public and investor-owned—procure 33% of their electricity from renewable resources by 2020. The RES was adopted pursuant to the authority granted the ARB in AB 32, the California Global Warming Solutions Act of 2006, which vested the ARB with the authority to promulgate regulations to reduce California’s greenhouse gas emissions. The RES requires utilities to submit plans by July 2012 on how they will comply with the new regulations. The regulation includes several multi-year compliance intervals—from 2012 to 2014 the RES is 20%, from 2015 through 2017 it is 24%, from 2018 to 2019 it is 28%, and from 2020 forward the RES remains at 33%. The RES is met through the retirement of Western Renewable Energy Generation Information System (WREGIS) certificates; unlike the current 20% Renewable Portfolio Standard (RPS) that applies to investor-owned utilities, there is no requirement that any energy be delivered to California. WREGIS certificates may be retained or traded for up to three years, utilities may also bank those certificates for RES compliance indefinitely. The RES also provides that ARB will conduct comprehensive reviews of the program by December 31, 2013, 2016, and 2018, and that those reviews may trigger modifications to the RES.

The proposed RES faced vigorous opposition from a variety of sources. On September 20, 2010, Senate President Pro Tempore Darrell Steinberg and Speaker of the California Assembly John Perez sent a joint letter to ARB Chair Mary Nichols, urging the ARB to set aside consideration of the RES, as the ARB’s proposed action was "contrary to law, creates economic uncertainty and potential job losses…, and creates an inefficient and duplicative state bureaucracy." The letter noted that the Legislative Analysis Office had opined that the ARB lacked the authority to implement the RES, and recommended that the legislature de-fund those positions being used by the ARB to proceed with RES adoption.

The letter also noted that California also has two energy agencies already involved in implementing the legislative 20% RPS—the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC)—and that the ARB’s efforts to regulate the increase from a 20% RPS to a 33% RES would lead to inefficiencies and wasteful spending.

Perhaps to address concerns about inefficiencies and duplications of effort, the following day, on September 21, 2010, the ARB, CPUC, CEC, the California Environmental Protection Agency and the California Independent System Operator released a report entitled "California’s Clean Energy Future," an implementation plan and roadmap for reaching 33% renewables by 2020. In its resolution adopting the RES, the ARB also emphasized its intent to cooperate with the CPUC and CEC on implementation of the RES.

One area of potential conflict between the 20% RPS administered by the CEC and the CPUC and the RES is the lack of any delivery requirement under the RES—compliance is demonstrated through the surrender of renewable energy credits unbundled from the associated renewable energy. In contrast, the 20% RPS requires that energy be delivered to California. The CPUC is currently considering a proposed decision that would allow the use of unbundled or tradable renewable energy credits for compliance with the 20% RPS, but that would put caps on the amount of such credits that could be used for compliance.

However, the ARB resolution adopting the RES states that no later than 30 days after the CPUC adopts its decision regarding tradable renewable energy credits, the ARB will initiate a rulemaking to ensure "continued harmonization of the two programs, specifically incorporating provisions related to Tradable Renewable Energy Credits for all regulated parties under the RES regulation."

There remain significant questions as to whether the RES will ever be implemented. In addition to comments from the legislature concerning potential de-funding of any positions used to implement the regulations, the elections this November could also change the course of implementation. Depending on who is elected governor, the new governor may seek to suspend the ARB’s implementation of the regulation, or to have it modified. Also on the November ballot is Proposition 23, which would suspend implementation of AB 32, the Global Warming Solutions Act. ARB’s claimed authority to implement the RES is primarily based the grant of authority given it under AB 32. Continued efforts are also underway to have the legislature pass a 33% renewable statute that would preempt ARB’s efforts. Finally, given the uncertainties concerning ARB’s authority to implement the new regulation, a legal challenge to that authority is also a possibility.

If you have any questions about the issues of this update, please contact:

Stephen Hall at (503) 294-9625 or
Seth Hilton at (916) 319-4749 or
John McKinsey at (916) 319-4746 or