A legal update from our colleagues Seth Hilton, John McKinsey and Allison Smith:
The results are in on the California election, and it’s supportive of renewable energy. The two most important developments: Jerry Brown prevailed over Meg Whitman in the gubernatorial race and Proposition 23 failed. The election appears to have been, in part, an affirmation of California’s quest to expand its use of renewable energy.
Proposition 23 would have suspended the California Global Warming Solutions Act (AB 32) until the state’s unemployment rate dropped to 5.5% or less for four consecutive quarters. Given that California’s current unemployment rate is about 12% and the unemployment rate has been below 5.5% for four consecutive quarters only three times since 1980, Proposition 23 would have likely halted the implementation of AB 32 indefinitely. AB 32 mandates a reduction in greenhouse gas emissions to 1990 levels by 2020. More importantly for the renewably energy industry, the current mandate for 33% of the state’s electricity to come from renewable energy resources by 2020 hinges almost entirely on AB 32. The California Air Resources Board (ARB), pursuant to its authority under AB 32 and following the edict of Governor Schwarzenegger’s Executive Orders S-21-09 and S-14-08, is implementing a "33% by 2020" renewable energy standard (RES).
Whether or not Proposition 23 had succeeded in stopping the implementation of AB 32 in its tracks, Republican gubernatorial candidate Meg Whitman had publically stated her intention to seek a one-year moratorium of AB 32. The future of AB 32, particularly an executive-mandated 33% RES, would have been uncertain under Whitman. Brown, on the other hand, has been vocal about his support for renewable energy in the state. The Clean Energy Jobs Plan Brown released during his campaign calls for an additional 20,000 MW of renewable energy by 2020.
Of course, the assured status quo of AB 32 and Governor-elect Brown touting renewable energy in his acceptance speech isn’t the end of the story.
Moving Forward Under an RES
An expansion of California’s statutory 20% by 2010 renewable portfolio standard (RPS) has been through extensive legislative and executive wrangling over the past several years. In 2009, the California Legislature passed a 33% by 2020 RPS, only to have it vetoed by the Governor. Governor Schwarzenegger’s main objection appeared to be the stringent delivery requirements for out-of-state renewable energy to qualify for the RPS, though the Governor’s statements also cited the bills’ failure to streamline permitting for renewable energy projects. In 2010, despite a concerted push at the end of the legislative session, a 33% RPS didn’t get through the Legislature.
For the time being, the expansion of renewable energy in California to 33% will proceed under an RES pursuant to AB 32. .However, the proposed RES has vigorous opposition from a variety of sources. On September 20, 2010, Senate President Pro Tempore Daniel 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 potential for a legal challenge to ARB’s authority to implement the RES remains on the horizon.
ARB’s implementation of the RES may also be affected by the California Public Utilities Commission’s (CPUC) action on the proposed use of tradable renewable energy credits (TRECs) to meet RPS obligations. ARB’s resolution adopting the RES regulations directed the agency’s Executive Officer to monitor the ongoing CPUC proceeding and to institute a rulemaking no later than 30 days after the CPUC issues a decision on the use of TRECs "to ensure the continued harmonization of the [RPS and RES] programs, specifically incorporating provisions related to [TRECs] for all regulated parties under the RES regulation." The CPUC was set to decide in October 2010 what restrictions it would place on the use of TRECs, but the Commission’s consideration of the matter has now been postponed until December 2, 2010. As the CPUC has postponed its hearing of this issue on several occasions, whether the CPUC will hear the item and issue a decision in December remains to be seen. A revised proposed decision from Commissioner Peevey would limit the use of TRECs for the next two years to 30% of a regulated utility’s RPS obligations and institute a price cap of $50 per TREC. An alternate proposed decision from Commissioner Grueneich would impose a 25% cap, with no sunset.
Things to Look For
The coming months will (hopefully) bring a decision on TRECs from the CPUC. We’ll also see the implementation of AB 32 move forward, including the proposed cap-and-trade program. ARB issued its revised cap-and-trade regulations on October 28, 2010. The public comment period for the revised cap-and-trade regulations runs from November 1 to December 15, 2010; ARB will consider adoption of the regulations at a public hearing on December 16, 2010. After the installation of the Governor-elect and new California legislators, we may see movement from the executive and legislative branches. Look for direction from the new Governor on continuing implementation of the RES and other aspects of AB 32 and movement from the California Legislature on a statutory 33% RPS that could either codify as is or modify the 33% RES. Lastly, as the RES steams forward and the CPUC’s restrictions on TRECs are set, it remains to be seen if utilities or out-of-state interests will challenge the RES or any limitations on compliance with the RES using TRECs.
If you have any questions about the issues of this update, please contact:
Seth Hilton at (916) 319-4749 or email@example.com
John McKinsey at (916) 319-4746 or firstname.lastname@example.org
Allison Smith at (916) 319-4759 or email@example.com