Something surprising is happening in California. There is a ballot initiative (Proposition 7) coming up for a vote in November that would mandate that 50% of the State’s electricity come from renewable sources (wind, solar, geothermal etc.) by 2025. That’s not the surprising part. What is surprising is the widespread opposition to Proposition 7 by the most unlikely players. When ardent environmental advocacy groups like the Environmental Defense Fund et. al. oppose pushing the green envelope, something unusual is going on. So I decided to look into it.

By way of a brief background, California already has a renewable portfolio standard mandating 20% renewable energy by 2010 (they’ve achieved somewhere near 12-14% currently). The Republican governor has upped the ante with a 33% goal by 2020; a goal still being studied for feasibility but generally well received. And now comes Proposition 7 kicking the target all the way up to 50% and suddenly there’s widespread opposition.

What gives? As someone who has previously built power plants in California, I’m always interested in the energy trends of this progressive bellwether state. So after a little digging around I arrived at the following conclusions on key elements of California’s Proposition 7.

• 50% Target – Good idea verdict: MAYBE, BUT TOO SOON TO TELL – If I was a State in the midst of assessing if 33% was a viable target and someone came along outside of the normal process and jammed me with a firm 50% mandate with little wiggle room, I’d be more than a little pissed and resistant. While 50% may ultimately prove workable, it’s too early to tell. California is only at 13% today, heading towards a 20% target, with 33% being evaluated. Why not get closer to 33% first and see how things look and then decide if ramping up to 50% makes sense? Fact is, California is already going where nobody has gone before. Let’s do it prudently.

• Rigid Cap On Price Paid – Good idea verdict: BAD IDEA: – Utilities would have to pay 10% above market price for the renewable energy. A key reason renewable energy needs mandates is that it usually costs more than power from fossil fuels like coal, oil and gas. To create a mandate and then arbitrarily cap the price is just plain dumb. This would thwart market-transforming technologies that may need a higher initial price – just like wind did until more recently. Conversely, to pay 10% above market to all comers when you don’t have to is just wrong. Better to create tiered pricing based on technology type with room for adjustment based on the specifics. Less expensive technology like wind power would be paid less compared to solar which would be paid the more. It’s called “flexibility”.

• Would require 2/3rds legislative vote to unwind/modify – Good idea verdict: GOOD IDEA: – I know the arguments against this but I still give it a big thumbs up for one very important reason. The biggest impediment to the implementations of a government mandated programs are the fickle minded politicians that turn around and pull the rug out from underneath companies that have invested $ millions by changing the rules after the fact. That’s called “political risk” and political risk inhibits investment. So if something like Proposition 7 does pass, there should be a high hurdle to overturning it for political convenience. If it turns out to be a bad enough program, then the 2/3rds vote will be found. If not, leave it alone and live with it.

• Would cap rate increase to consumers at 3% – Good idea verdict: REALLY BAD IDEA: – This is the same regulatory design flaw that drove California utilities into bankruptcy earlier this decade. In that instance, a badly designed deregulation plan prohibited the California utilities from raising consumer retail prices when their wholesale costs to purchase power from the market went up. The notion that you can insulate consumers from the true costs of a government mandate – especially one that the voters themselves explicitly vote for in the case of Proposition 7 – is deceptive and insulting to the voter. Worst idea yet.

• Fast-tracking plant permitting process – Good idea verdict: MAYBE: – California has a permitting process that can keep project developers in the review barrel for years on end. It’s called the CEQA (California Environmental Quality Act) process and I’ve been on the receiving end of this so I know of what I speak. In my view, it’s a bloated review process that needs to be put on a diet. But Proposition 7 bypasses the CEQA process entirely and that sacrifices the State’s prerogative of environmental review on the altar of green energy. Not so fast. And there’s no doubt the environmental community views this as an unacceptable threat to 25 years of progress – hence the strange bedfellows opposing Proposition 7.

• Changing the regulatory oversight horse – Good idea verdict: BAD IDEA: – Proponents want to take control of this program away from the Public Utilities Commission and hand it to the California Energy Commission. Without getting into a long analysis of these two public agencies, proposing such a change would be highly disruptive at best. Moreover, this is an example of overreaching and adding complexity to an otherwise simple notion of increasing a renewable energy goal. There are additional elements proposed as part of this that further compound the sins but these are not worth getting into. Turning the State’s energy regulatory agencies on their heads as part of this proposition is simply a bad idea on the face of it.

• Uses penalty revenues to put that State into the business of buying land and building/owning transmission assets – Good idea verdict: INCREDIBLY BAD IDEA: – This feature is breathtakingly ill conceived. The very last thing we need is getting the State into the business of owning and operating power generation assets. Enough said.

• Minimum 20 year term on power purchase contracts – Good idea verdict: A VERY GOOD IDEA: – It’s well understood by developers and the banking and investment community that finances these energy projects that long term contracts are essential to making it happen. Without bogging down in financing minutiae, a 20 year contract significantly increases the probability that this mandate will bear fruit, and, at the lowest possible costs all around. All too often government agencies just don’t get this because it’s complex and they think they’re giving something away when they’re not.

• Plan has real teeth than imposes penalties for non-compliance by utilities – Good idea verdict: ANOTHER VERY GOOD IDEA: – Let’s stop playing around. What good are mandates if there’s no substantive downside for noncompliance. This is a brand of common sense that seems to elude politics as usual. It’s also the kind of common sense that will likely appeal to the average voter considering Proposition 7. Damn good idea! Which is probably why this is showing up in a proposition and not through the legislative process.

• Confusing authority over projects 30 Megawatts or larger in size – Good idea verdict: REALLY BAD IDEA: – It appears that most (but not all) projects 30 MW or larger would be under the auspices of Proposition 7 law and that all projects under 30 MW would fall under other existing authorities or programs. Confused yet? Really bad idea.

So while there are bright spots, taken as a whole, Proposition 7 is an ill conceived overreaching plan.  No wonder there’s such widespread opposition. One can only hope that the public doesn’t allow its enthusiasm for renewable energy to blind them to bad policy. When otherwise pro-green advocacy groups align themselves with the usual naysayers to oppose a green mandate, you just know it’s time to say no. Say no to Proposition 7.

Tags: energy policy, renewable energy