A controversial new law gives the California Energy Commission authority over clean energy projects and authorizes the Department of Water Resources to fund new energy sources and extend the life of existing power plants.

Last week, Governor Gavin Newsom and lawmakers negotiated and approved several “trailer bills” to the state’s $300 billion budget. One of these bills, Assembly Bill (AB) 205, which Governor Newsom signed into law on June 30, 2022, expands the California Energy Commission’s (CEC) authority under the Warren-Alquist Act to now cover solar, wind, and other select clean energy projects. The governor and lawmakers hope the expanded authority will streamline the environmental review and authorization process.

AB 205 also authorizes the California Department of Water Resources to administer a $2.2 billion “Strategic Reliability Reserve” to extend the life of existing generation facilities, secure new emergency and temporary power, and develop new, clean generation facilities during extreme climate events. The expanded state authority was a top priority of the governor to speed up renewable development while propping up the state’s strained electrical grid that is expected to be stressed further in coming years by wildfires, heat waves, retiring power plants, and an increasingly intermittent power supply from renewable energy. Environmental groups and local agencies criticized both provisions. Companies in the energy sector, however, will benefit from the opportunity to streamline the prolonged environmental review and approval process for new renewable generation and related facilities.

Exclusive CEC Authority for Certain Energy Projects

In the face of another energy crisis, California again expanded the CEC’s authority to approve new power projects. Specifically, AB 205 amends the Warren-Alquist Act[1], to grant the CEC exclusive authority over siting and approving certain types of clean energy facilities until June 30, 2029. The Warren-Alquist Act, which initially established the CEC in 1974 to respond to the energy crisis of the early 1970s and California’s growing demand for energy resources, gives the CEC jurisdiction to approve thermal electrical generating facilities with a generating capacity of 50 megawatts or more.

Since it was first signed into law, the legislature has amended the Warren-Alquist Act several times in response to pressing energy needs and issues. Under AB 205, the CEC’s authority has been expanded, and the CEC will have exclusive authority over the following types of projects if a developer submits an application to the CEC:

  • Solar photovoltaic or terrestrial wind powerplants with a generating capacity of 50 megawatts or more
  • Energy storage systems capable of storing 200 megawatt hours or more of electrical energy
  • Stationary electrical generating powerplants using any source of thermal energy, with a generating capacity of 50 megawatts or more, excluding nuclear fuels
  • Discretionary projects that cost at least $250 million and are for the manufacturing, production, or assembly of an energy storage system or component manufacturing of wind or solar photovoltaic energy system or other components
  • Electric transmission lines carrying electric power from a facility described in the first three bullets above

AB 205 removes authority from local cities and counties to site and approve these types of projects if a developer submits an application to the CEC. Consistent with the existing requirements in the Warren-Alquist Act, local governments may participate in the process but they will no longer have primary land use authority over the application. Importantly, the CEC’s exclusive siting authority does not supersede the need for leases issued by the State Lands Commission and permits issued by the Coastal Commission, the San Francisco Bay Conservation and Development Commission, the State Water Resources Control Board, or regional water control boards.

Streamlined Energy Project Review

In addition, AB 205 streamlines project approvals by setting a 270-day deadline from receiving a completed application for the CEC, as the California Environmental Quality Act (CEQA) lead agency, to certify the environmental impact report for the project and issue a certificate for the site and related facilities, with some exceptions. AB 205 also requires the CEC to hold several public meetings in the communities of the proposed project, consult with all Native American tribes associated with the geographic area of the proposed site, and make a finding that the facility will have an overall net positive economic benefit to the local government.

Strategic Reliability Reserve

The 2022 Budget Act allocated $2.2 billion to support a “Strategic Reliability Reserve,” which can be used to support electrical grid reliability during an “extreme event,” — including when weather, climate, or environmental conditions such as temperature, precipitation, drought, fire, or flooding present a level of risk that would constitute or exceed a one-in-10 event, as referred to by the North American Electric Reliability Corporation — or when a California balancing authority has taken emergency measures.

AB 205 authorizes the Department of Water Resources (DWR) to administer this fund and to construct, own and operate, contract for, purchase, finance, extend the life of, or otherwise secure electrical generation from certain types of facilities/activities to create additional capacity during extreme energy grid events. This is reminiscent of the 2000–2001 energy crisis when DWR was authorized to enter into energy agreements, ultimately purchasing more than 5,000 megawatts of newly built power supplies and entering into dozens of long-term agreements at a cost of $42 billion. Now, during extreme events, AB 205 authorizes DWR to use the Strategic Reliability Reserve to fund the following facilities/activities:

  • Extension of the operating life of existing generating facilities planned for retirement, including Diablo Canyon nuclear plant and natural gas-fired power plants utilizing once-through cooling. For the Diablo Canyon plant, in particular, it was announced that the facility would be voluntarily shuttered in 2024–2025 following the expiration of the reactors’ operating licenses. However, Governor Newsom’s administration has indicated that the premature retirement of Diablo Canyon could add further strain to the state’s electric grid. Some commenters also believe that this provision in AB 205 will allow natural gas-fired power plants in Redondo Beach, Huntington Beach, Long Beach, and Oxnard which were previously scheduled to shut down in 2020 and then 2023, to continue operating.
  • New emergency and temporary power generators of 5 megawatts or more.
  • New energy storage systems of 20 megawatts or more that are capable of discharging for at least two hours.
  • Generation facilities using clean, zero-emission fuel technology of any size to produce electricity.
  • Supporting the development of zero-emission generation capacity with a point of interconnection at a California balancing authority.

AB 205 also authorizes DWR to procure additional energy for electric reliability during the summer of 2022.

When implementing the Strategic Reliability Reserve, AB 205 requires DWR to consult with the CEC, the Public Utilities Commission, the California Independent System Operator, and the California Air Resources Control Board when allocating funds under the Strategic Reliability reserve toward any of the above facilities/activities. Moreover, AB 205 requires DWR to prioritize investments in feasible, cost-effective zero-emission resources, followed by feasible, cost-effective conventional resources.

Finally, AB 205 grants the CEC exclusive authority to permit the siting of facilities by DWR in implementing the Strategic Reliability Reserve and also establishes an expedited review of applications. Like the CEC’s exclusive authority for other types of energy facilities, when siting for emergency resources under the Strategic Reliability Reserve, the CEC must consult with local governments on land use and Native American tribes associated with the geographic area where DWR wishes to site emergency resources.

Stakeholder Reactions

Local jurisdictions have objected to AB 205 on the grounds that it usurps local control over project permitting and excludes them from project development. Likewise, environmental groups have expressed concerns regarding the streamlined environmental review provisions in AB 205, particularly in cases when the Strategic Reliability Reserve may be utilized to extend the life of fossil fuel-based generation facilities. At the same time, energy project developers will welcome any streamlining benefits from AB 205 and the signal from Sacramento that the state needs to improve reliability and accelerate new generation.

Balancing the Energy Transition and Grid Reliability

AB 205 responds to a critical tension in California’s energy policy — on the one hand, the need to develop and rapidly deploy clean energy technologies to meet the state’s ambitious climate goals, and on the other, the need to ensure near- and mid-term grid reliability in the face of growing climate emergencies. AB 205 is intended to speed up the review and approval of new projects that will be necessary for California’s clean energy transition while ensuring near-term grid reliability, despite broad opposition from environmental groups and those opposed to fossil fuel or nuclear generation.