California Governor Jerry Brown signed into law Senate Bill 350, the “Clean Energy and Pollution Reduction Act of 2015” on October 7, 2015.  SB 350 reflects some of Governor Brown’s bold commitments from his inaugural speech earlier this year to address global climate change.  Most notably, the new law incorporates the governor’s call to increase the procurement of electricity from renewable resources from 33 percent to 50 percent and to double the energy efficiency savings in buildings by 2030.  Governor Brown’s proposal to reduce petroleum use by 50 percent, however, was eliminated from SB 350 before the bill’s enactment.

SB 350 will have far-reaching impacts on California’s energy supply and use.  SB 350 will increase the diversity of resources on California’s electrical grid and promote the development and use of new technologies to increase the efficiency of the grid, including energy storage and demand response. 

Increases the Renewables Portfolio Standard

One of the most significant components of SB 350 is its changes to California’s Renewables Portfolio Standard (RPS) program.  The RPS Program is implemented by the California Public Utilities Commission (CPUC) and California Energy Commission. 

When it was originally enacted in 2002, the RPS Program set a goal that by 2017, 20 percent of the electricity in the portfolios of investor-owned utilities would be from renewable resources.  This goal was accelerated in 2003 to 20 percent renewables by 2010. In 2011, the renewables goal was increased to 33 percent by 2020 and expanded to also include electric service providers and community choice aggregators.  SB 350 further increases the RPS target from 33 percent by 2020—which was already one of the most aggressive renewable energy goals in the United States—to 50 percent by 2030.  The legislation also includes interim targets of 40 percent by 2024 and 45 percent by 2027.

The new legislation also contains several provisions concerning the content of renewable portfolios and procurement requirements.  SB 350 continues to require a “diversified and balanced energy generation portfolio” and the procurement of “least-cost and best-fit” renewable energy resources.  SB 350 also did not change the categories (or “buckets”) of renewable energy required previously; however, utilities will need to procure more renewable energy in each of these categories to reach the new 50 percent mark.  

SB 350 provides the CPUC until January 1, 2017 to establish the quantity of electricity that retail sellers need to procure from eligible renewable resources.  Beginning in 2021, utilities will be allowed unlimited banking of “Bucket 1” resources, i.e., renewable energy directly connected to the California grid.  SB 350 made other notable changes to procurement requirements, including the following:

  • Requiring at least 65 percent of the renewable generation to be from contracts of 10 years or more, or ownership of eligible renewable energy resources for all retail sellers of electricity.
  • Allowing a Publicly Owned Utility to exclude generation that is produced through a voluntary green pricing or shared renewable generation program.
  • Prohibiting the use of any renewable energy credits associated with electricity credited to a customer to be counted toward procurement requirements.
  • Allowing compliance flexibility for Publicly Owned Utilities that satisfy 50 percent or more of their retail sales from specified large hydroelectric power, as well as Publicly Owned Utilities that have coal contracts entered into prior to June 1, 2010 in their electricity resource mix.

Increases Energy Efficiency

SB 350 also sets out an aggressive program for increasing energy efficiency within the state.  It requires the California Energy Commission to establish annual targets for statewide energy efficiency savings and demand reduction that will double statewide energy efficiency savings in electricity and natural gas uses by retail customers by 2030.

The California Energy Commission must also develop and implement a comprehensive program to achieve these energy savings.  The comprehensive program may include a broad range of energy assessments, building benchmarking, energy rating, cost-effective energy efficiency improvements, and public and private sector energy efficiency financing options.  The bill also requires the California Energy Commission, in consultation with the California Public Utilities Commission, to establish consumer protection guidelines for energy efficiency products and services.

SB 350 further requires the CPUC to establish efficiency targets for electrical and gas corporations consistent with the energy efficiency goals.  Publicly Owned Utilities must also establish annual targets for energy efficiency savings and demand reduction consistent with these goals.

Sets the Stage for Expansion of the Independent System Operator

The new legislation is also a first step towards the regionalization of the Independent System Operator (ISO), the state-founded nonprofit organization that administers the state electricity grid, to include out-of-state transmission owners. Under prior law, the ISO ensured efficient and reliable operation of the electrical transmission grid in California, but the ISO could not enter into a multistate entity or regional transmission organization without approval of the Electricity Oversight Board.

SB 350 specifies a process for the potential transformation of the ISO into a regional transmission organization expanding outside of California to create a regional electricity market.  The legislation requires studies of how such a regional market would affect California ratepayers, disadvantaged communities, renewables integration and greenhouse gas and other air pollutants.  This provision in SB 350 defers the Legislature’s ultimate decision on whether to approve the changes to the ISO through additional legislation by 2019.

The regionalization of the ISO to include members outside of California would have substantial impacts to the transmission grid in the western United States.  The ISO’s implementation of the Energy Imbalance Market was an important step in this direction.  Expansion of the ISO likely would provide additional flexibility, reliability and potential cost savings generated by a more efficient use of the western transmission grid and renewable resources throughout the region.  For instance, the substantial wind resources in Wyoming could be imported into California to balance the grid when California’s solar generation ebbs. 

There are significant issues that must be resolved prior to the expansion of the ISO.  These include several political concerns, such as the potential importation of out-of-state fossil fuel generation.  There are also potential changes to the ISO’s structure if the ISO were to expand beyond California’s borders.  For instance, the California Legislature currently approves the ISO’s Board of Governors.  If the ISO were to expand into other states, the ISO’s governance structure may need to be amended to allow other states’ legislatures to approve appointments to the Board of Governors.  These are just a sample of issues that would need to be resolved prior to the 2019 deadline established in SB 350.

© 2015 Perkins Coie LLP