By David B. Amerikaner, Marc T. Campopiano, and David A. Goldberg 

In a legislative effort that could impose a significant new requirement on electric utilities that sell in California and have important ramifications on power producers, electrical infrastructure, and energy markets throughout western states, the California Senate voted on February 24, 2011 to approve Senate Bill SBX1 2 to increase California’s existing Renewables Portfolio Standard (RPS).  Authored by Sen. Joe Simitian of Palo Alto, the bill would  require utilities to obtain 33% of their total energy supplies from renewable sources by December 31, 2020.  The current RPS sets a 20% renewable energy mandate by 2010.  Statewide compliance (PDF) with the RPS reached 18% by the end of 2010 and is expected to surpass 20% by 2012.  Senate Bill SBX1 2 still needs to pass the state Assembly.  Governor Jerry Brown has previously expressed his support for raising the RPS.

The California Public Utilities Commission has estimated (PDF) that a 33% by 2020 RPS will require almost a tripling of available renewable electricity supplies, potentially requiring $115 billion in new infrastructure investment and at least seven major new transmission lines.  

Senate Bill SBX1 2 also proposes other important statutory changes beyond increasing the renewable energy mandate.  Currently, the RPS applies to California’s large investor-owned utilities (IOUs), along with other electric service providers (ESPs).  Local publicly owned utilities (POUs) are currently exempted from the RPS but would be covered if Senate Bill SBX1 2 passes.

In addition, Senate Bill SBX1 2 is intended to make it easier for utilities to procure energy from renewable resources outside of California.  In 2009, Governor Schwarzenegger vetoed a similar set of bills to raise the RPS over concerns that the bills limited the eligibility of out-of-state renewable resources, as analyzed in a prior Client Alert by Latham & Watkins (PDF).  Senate Bill SBX1 2 would change the RPS to require minimum and maximum quantities of three types of renewable energy “products,” including renewable electricity generated within California, renewable electricity generated outside of California but delivered into the state in accordance with certain requirements, and unbundled renewable energy credits (RECs) that can be created from eligible in-state or out-of-state renewable resources.  

If passed, Senate Bill SBX1 2 would also likely preempt a regulation promulgated last year by the California Air Resources Board (CARB), known as the Renewable Electricity Standard (RES).  CARB adopted the RES pursuant to its mandate to reduce greenhouse gases under the 2006 Global Warming Solutions Act after Governor  Schwarzenegger vetoed the 2009 RPS bills, as analyzed in a prior Client Alert by Latham & Watkins.