The end of the California State Legislature’s regular session for the year culminated in a frenzy of action, with Assembly members scrambling to pass dozens of bills before midnight on September 12, 2015. The California Legislature voted on a package of 12 bills addressing environmental and health concerns, such as off-shore drilling, divestment of investment funding from coal companies, water quality, energy efficiency in disadvantaged communities, and increased public transportation. This post analyzes three of the more significant and controversial bills proposed this year, including last minute changes to each during the final week of the session: SB 350; SB 32; and AB 1288.

SB 350 (De León): The Clean Energy and Pollution Reduction Act of 2015

The most far-reaching climate change goals of the climate bill package were enshrined in SB 350. The proposed bill, authored by Senate President Pro Tempore Kevin de León and Senator Mark Leno, originally called for a 50 percent reduction in petroleum use in cars and trucks, a 50 percent increase in energy efficiency in buildings, and for 50 percent of the state’s utility power to be derived from renewable energy, all by 2030; termed the “50-50-50” formula.

These standards paralleled Governor Jerry Brown’s climate change agenda for the year, which was first announced during his inaugural address in January. Last Wednesday, following a failure to garner the necessary votes amid resistance from moderate Democrats, state legislative leaders amended SB 350 to drop requirements for a 50 percent reduction in petroleum use for cars and trucks. As modified, the bill passed on a 52-27 vote.

Despite the removal of the petroleum reduction provision, which garnered headlines, SB 350 represents a sweeping expansion of renewable energy and energy efficiency mandates. The bill requires the state to double energy efficiency savings in electricity and natural gas by retail customers by 2030 and increases the Renewables Portfolio Standards (RPS) so that half of the state’s electricity must be procured from renewable sources by 2030, which remain groundbreaking measures in themselves.

California’s RPS was originally established in 2002 under SB 1078. In 2011, Governor Brown signed legislation to increase the RPS to 33 percent by the year 2020 (SB 2-1X Chapter 1 Statutes of 2011). Currently, most energy utilities have bought or have built enough energy resources to meet the 33 percent RPS before the target year. SB 350 continues the effort to boost renewable energy use by increasing the RPS to 50 percent by the year 2030. As per current law, the 50 percent renewable energy standard will be implemented by the California Public Utilities Commission (CPUC) for investor-owned utilities (IOUs) and other retail sellers subject to CPUC jurisdiction , and by the California Energy Commission (CEC) for publicly-owned utilities (POUs).

SB 350 is fairly comprehensive in setting forth a regime to implement and evaluate procurement plans, including a renewable energy procurement plan, that each retailer of electricity (IOUs, POUs, community choice aggregation and energy service providers) must provide on an annual basis. In addition, they each must regularly file an integrated resource plan (IRP) for approval. Other than for POUs, these IRPs will be reviewed by the CPUC. The governing body of the POU will approve the IRP subject to review by the CEC.

SB 350 is quite specific as to what factors must be considered in proposed procurement plans and provides (in a nod to the challenges presented when attempting to integrate intermittent energy sources) that the goals must be balanced by the need to have just and reasonable rates, to ensure system and local reliability, to preserve the resilience of the electric grid, and to enhance distribution system management. Those goals are exemplified by a provision that requires the CPUC to identify a “balanced portfolio of resources” to ensure “reliability” and “optimal integration” of renewables, and requires that utilities include in their procurement plans a “strategy for procuring best-fit and least cost resources” to meet the portfolio needs the CPUC identifies. The review of the CPUC’s portfolio and of the utilities’ proposed strategies will be battlegrounds in which any entity that has an economic interest in the transformation of the grid will be at risk.

Notably, transportation electrification must be addressed in the IRPs. Indeed, widespread transportation electrification is now “the policy of the state” and a legislatively-recognized means to achieve both ambient air quality standards and the state’s climate goals. SB 350 implicitly acknowledges the uncertainty in how rapidly and how extensively the transportation system will be electrified, as well as the potential increase in retail sales and related greenhouse gas (GHG) emissions. Accordingly, SB 350 provides that RPS enforcement can be waived if a retail seller demonstrates that it missed its RPS target due to transportation electrification exceeding demand forecasts. Similarly, SB 350 lays the groundwork for retail sellers to receive an additional allocation of Cap-and-Trade Program allowances from the California Air Resources Board (ARB).

SB 350 requires the doubling of energy efficiency but, in doing so, tries to bring some coherence to the concept of “energy efficiency savings.” It provides guidance as to what measures qualify and requires an evaluation of feasibility and cost effectiveness in setting annual targets for those savings. SB 350 also requires the CEC to adopt a responsible contractor policy and establish consumer protection guidelines.

The bill expands the mandate of the  California Independent System Operator (CAISO) to permit it to enter into compacts with states within the Western Electricity Coordinating Council (WECC) and to, thereby, become a regional system operator along the lines of the PJM[i].  This will ultimately require further legislation once CAISO develops new by-laws and will require the willingness of other states to participate in the new organization, which could result in a new grid operator/ISO to manage the flow of electricity for portions of the Pacific/Western region. This is consistent with the ambitions of the CAISO, but also provides another tool for California to minimize the cost of an abundance of renewable power during times of the day when it is not needed. CAISO demonstrated with its recently implemented Energy Imbalance Market that utilities who are not under the jurisdiction of the CAISO see an economic benefit in selling into and buying from the California energy market.

SB 32 (Pavley): California Global Warming Solutions Act of 2006: Emissions Limit

On September 8, members of the State Assembly rejected a bill that would have amended AB 32, the Global Warming Solutions to Act, to codify GHG emissions reduction targets for 2030 and 2050. Passed in 2006, AB 32 requires the state to reduce GHG emissions to 1990 levels by 2020. Two executive orders set emissions reduction targets for subsequent years—Governor Brown’s Executive Order B-30-15 requires reduction of GHG emissions levels to 40 percent below 1990 levels by 2030, and Governor Schwarzenegger’s Executive Order S-3-05 requires a reduction of GHG emissions to 80 percent below 1990 levels by 2050.

In June, the Senate passed a version of SB 32, introduced by Senator Pavley, which would have codified the executive orders’ 2030 and 2050 GHG emissions reduction targets, and would have authorized ARB to set an interim target for 2040. Last Tuesday, however, SB 32 failed to pass in the Assembly in a 35-30 vote. The bill was amended later in the week to remove the 2050 target and authorization for ARB to set a 2040 standard. Despite the amendment, the Assembly shelved the revised bill, though it may take it up again next year.

Although SB 32 failed in the Assembly last week, CEQA may nonetheless require GHG sections of EIRs to analyze a project’s consistency with Executive Order B-30-15’s 2030 emissions reduction target and Executive Order S-3-05’s 2050 target. As discussed in a previous post, late last year the Court of Appeal struck down San Diego County’s Climate Action Plan, in part for failing to analyze post-2020 GHG reductions targets.[ii] In addition, the Supreme Court is currently considering a similar issue in Cleveland Natl. Forest Found. v. San Diego Assn. of Governments, in which the Court of Appeal held that SANDAG violated CEQA by failing to discuss the proposed regional transportation plan’s consistency with state climate policy, as reflected by Executive Order S-3-05, and related mitigation measures.[iii]

AB 1288 (Atkins): California Global Warming Solutions Act of 2006: Regulations

The Legislature passed a significantly scaled down version of Assembly Bill (AB) 1288, which adds two new members to the ARB. Pursuant to the new bill, the Senate Committee on Rules and the Speaker of the Assembly will each appoint one member to work with communities that are significantly burdened by, and vulnerable to, high levels of pollution, including communities with diverse racial and ethnic populations and communities with low-income populations.

As passed, AB 1288 looks little like the original version, which was introduced by Speaker Toni Atkins (D-San Diego). Atkins’ proposed bill would have removed the sunset date for further GHG reductions in California’s Cap-and-Trade Program. Although this measure was stricken from the final bill, ARB has long expressed its intention to extend the Cap-and-Trade Program beyond 2020. Indeed, ARB just this week announced that it is holding a public workshop on October 2, 2015 to discuss, among other things, potential regulatory amendments necessary for a post-2020 Cap-and-Trade Program.

Summary

The Legislature’s failure to pass SB 32 and the amendments made to SB 350 and AB 1288 have been noted by some political commentators as significant setbacks for Governor Jerry Brown’s ambitious climate and energy agenda. At a press conference following the news that the 50 percent target for reduction in petroleum use would be dropped from SB 350, Brown appeared defiant. He promised to use ARB’s existing authority to achieve both the 50 percent petroleum reduction goal proposed by SB 350 and the GHG emissions reduction targets proposed by SB 32, which he believes can be implemented through the Low Carbon Fuel Standard, Zero Emission Vehicle Program, as well as the Cap-and-Trade Program. Since they would not be codified under state law, however, the petroleum and GHG emissions reduction targets could later be rescinded or changed by a future governor who disagrees with Governor Brown’s executive orders. Moreover, regulated parties and other affected industry groups may not share the Governor’s perspective on the extent of ARB’s existing authority, leading to potential administrative and judicial challenges should ARB press forward without the Legislature’s blessing.