Rewiring California: Integrating Agendas For Energy Reform

This report by the California Milton Marks “Little Hoover” Commission, an independent state oversight agency, calls on State leaders to direct the state’s energy organizations to assess the cumulative impact of recent major energy-related policies on electricity rates and reliability and whether these policies are achieving California’s energy and environmental goals. An excerpt of the executive summary is provided below. The full report can be found by clicking on the links at the bottom of this page.

How Much Will It Cost?

The Commission is concerned that the Renewable Portfolio Standard is being implemented simultaneously with numerous other far-reaching policies, including greenhouse gas reduction and the associated cap-and-trade program; regulations to reduce the use of coastal water to cool power plants; the expansion of distributed electricity generation to 12,000 megawatts; and potential regulations dictating water flow from the state's hydroelectric facilities to improve the health of the Delta's ecosystem. On its own, each policy or regulation could influence electricity rates and reliability. Combined, the impact is far greater.

Until very recently, the cost of renewable energy has exceeded the cost of energy produced by plants powered by fossil fuels. Witnesses expressed concerns that in the rush to integrate renewables, the state, specifically, the California Public Utilities Commission (CPUC), was approving power purchase agreements that lock in peak renewable generating costs for the three large investor-owned utilities that provide electricity to approximately three-fourths of all California customers. The power purchase agreements approved by the CPUC remain secret for three years and it will be a few years before the bulk of the already approved renewable projects come online and their costs are built into electricity rates. Until that time, consumers remain in the dark as far as how much the renewable energy contracts will affect their future electricity bills.

The CPUC Division of Ratepayer Advocates, which represents consumers during the power purchase agreement approval process, has publicly voiced concern over the costs of the long-term contracts. In a February 2011 report, the division expressed concerns that urgency to comply with the Renewable Portfolio Standard created inelastic demand for renewables that was driving very high prices. In February 2012 testimony to the Commission, the acting executive director of the division said that the CPUC had accepted all but two of 170 contracts and that they were still looking at overpriced contracts.

CPUC Commissioner Michel Florio expressed serious concerns about the value of three renewable energy contracts that were before the commission for approval in May 2012. "I am a strong supporter of California's RPS goals, but at the same time I believe we can achieve those goals in a far more cost-effective manner," Commissioner Florio wrote in his dissent to approve the contracts.

Previous Estimates Out-of-Date

CPUC staff, working with outside consultants, earlier attempted to come up with a projection of what it would cost to implement the 33 percent renewable goal by 2020. A 2009 staff report indicated that total statewide electricity expenditures would be 10.2 percent higher if the state pursued the 33 percent goal rather than rely on additional investments in natural gas plants.

Much has changed since the 2009 assessment. The costs of photovoltaic panels dropped dramatically in 2011 and 2012 as a result of a market glut from Chinese manufacturers. A February 2012 report from the CPUC, the first since legislation was passed in 2011 requiring reporting of aggregate costs of renewable contracts, indicated bids for power purchase agreements showed "significantly lower costs than bids from the past few years, which will be reflected in future IOU (investor-owned utilities) contracts."5 At the same time, however, natural gas prices have plummeted, so even with the fall of renewable costs, the premium remains. While the Commission appreciates the difficulty in trying to model future fuel prices, the tools exist to incorporate different scenarios and to illuminate the costs of trade-offs. What has been missing is the political will to develop and update an analysis that should be essential to a strategy for achieving the state's goals while avoiding unnecessary costs.

Most agree that utility customer rates will likely rise as a result of implementing the Renewable Portfolio Standard. Less clear is the significant risk that these rate increases will fall more heavily on some than others. Although low-income electricity customers and some with certain medical conditions are shielded from high costs, those who do not benefit from those protections and who use more electricity than others - particularly those in the Central Valley who run air conditioning more than do those on the temperate coast - effectively subsidize those who consume less. The California Public Utilities Commission has begun a proceeding to evaluate rate tiers in California. Without changes, some will unduly bear the burden of the inevitable rate increases more than others.

Demand response also can play a greater role than it has in the past to contain costs and rein in demand. Designing programs that empower electricity consumers to better manage their electricity use and control costs not only will help offset rising costs, but also can improve reliability and grid management.

Other cost drivers include trade-offs made in crafting the 2011 Renewable Portfolio Standard. The law favors in-state electricity production over potentially cheaper renewable energy produced outside of California. The goal was to bring new, green jobs to California to build, install and operate new power plants. Some contend that this preference for in-state renewable plants limits imports of renewable energy from other parts of the West while also limiting California exports.

Concerns also have been expressed that the utilities have not pursued and procured a diversified portfolio of renewable energy projects, and have paid scant attention to geothermal power, which offers greater reliability, as well as biomass generation.

Report214 Final Complete

Download file (3.86 MB) pdf


DEC 1 2012
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