Last night, the California legislature failed to pass Senate Bill 722—the 33% Renewable Portfolio Standard (RPS) legislation—by the close of the legislative session. The bill would have increased California's RPS to 33% for both investor-owned and publicly owned utilities. It would also have placed limits on the use of renewable resources located out-of-state to meet California's RPS—utilities would have been required to meet a certain percentage of their RPS obligations through resources whose first point of interconnection was a California balancing authority, or whose power is transmitted to California through a dynamic transfer arrangement or scheduled hourly or inter-hourly into California. The proposed legislation also would have authorized the use of renewable energy credits (RECs)—the environmental attributes of renewable power separated from the power itself—for RPS compliance, but would have imposed limits on the amount of RECs that could be used to meet the utilities' RPS obligation.

Last year, California also failed to enact a 33% RPS bill, similar to SB 722, although the process proceeded farther than this year. Last year, the legislature passed the bill, but it was vetoed by Governor Schwarzenegger due to concerns about the limits placed on the use of out-of-state generation. Like SB 722, last year's bill would have limited the extent to which California could rely on out-of-state renewable resources to meet California's RPS. Part of the failure of SB 722 to pass this year can be attributed to disagreements between the legislature and the Governor regarding what limits would be appropriate for out-of-state generation.

Despite his concern about limits on out-of-state generation, Governor Schwarzenegger supports increasing California's RPS to 33%. Following his veto of the legislation last year, he issued an executive order directing the California Air Resources Board (ARB) to develop regulations to implement a 33% RPS under authority the ARB had under AB 32, California's Global Warming Solutions Act. Pursuant to the executive order, the ARB was to enact those regulations by July 2010. Shortly before the ARB considered those regulations, the Governor requested via letter to the ARB that it postpone consideration of those regulations while the legislature attempted to pass a 33% RPS bill. ARB therefore moved the hearing on those regulations to September 22, 2010. With the failure of SB 722, ARB may now move forward with those regulations, although there are questions regarding the extent to which those regulations would be implemented by the new Governor.

In March, the California Public Utilities Commission (CPUC), which is responsible for administering portions of California's current 20% RPS for investor-owned utilities, adopted a decision that would have authorized the use of RECs to meet the 20% RPS, subject to certain caps. In May, the CPUC stayed that decision. If SB 722 were enacted, it would have preempted the CPUC's efforts to set standards for the use of RECs. Just last week, the CPUC issued a proposed decision that, if adopted, will lift the stay. The proposed decision was seen by many as an effort to encourage the legislature to act on SB 722 and adopt standards for the use of RECs. Now that the legislation has failed, the CPUC is free to move forward with its proposed decision allowing the use of RECs, and to lift the stay of the March decision.