Both Sides of California Proposition 7

It is difficult to put both sides of any initiative into a few words and capture all the nuances, but here are some observations for voters to consider as we go into the last days before the election. The points made here are based on very recent conversations with people intimately involved with the campaigns both for and against Prop 7. While everything revealed here was on the record, sources will not be disclosed. Here is the Legislative Analyst analysis of Proposition 7. If you wish to view for yourself the areas in the bill cited below, click here for full text of Proposition 7 (this is a .pdf and will not accommodate text searches, if you prefer to keyword search the text, please click here for the full text in a format that permits text search):

The question as to whether or not Proposition 7 excludes producers of electricity under 30 megawatts is hotly disputed. The NRDC has put out a talking points memo that states “Prop 7 could exclude smaller renewable energy providers from participating in California’s energy markets; it excludes renewable power facilities smaller than 30 megawatts from counting toward the measure’s new requirements.” And if you read the text of the measure it appears this is true. You can read for yourself section 14, which states “Section 25137 is added to the Public Resources Code, to read: 25137. “Solar and clean energy plant” means any electrical generating facility using wind, solar photovoltaic, solar thermal, biomass, biogas, geothermal, fuel cells using renewable fuels, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current technologies, with a generating capacity of 30 megawatts or more…” But proponents of Prop. 7 claim this is a misinterpretation, noting that the amendments to the Public Resources Code only refer to the projects that are eligible for expedited siting permits. If you skip through each section’s preamble, you will see the amendments to the Public Utilities code only go through Section 11 of the initiative, then beginning with Section 12 the amendments to the Public Resources code begin. According to the proponents, they are not connected, and therefore no change is being made to the existing renewable portfolio standard in terms of what would be a qualifying project.

According to one source, the reasons the big solar companies are against Proposition 7: have more to do with the fact the initiative would require them to use union labor, ref. Section 24 “All solar and clean energy plants receiving certification pursuant to this section shall be considered a public works project subject to the provisions of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code, and the Department of Industrial Relations shall have the same authority and responsibility to enforce those provisions as it has under the Labor Code.” Our position here is unequivocal – the government should normalize taxpayer-supported (or rate-payer supported) benefits so all workers get the same deal, upgraded social security and universal opt-in medicare (available to anyone at any age who wants to buy it and competing with private sector insurance); collective bargaining in America has become an anachronism that preserves special treatment for those folks lucky enough to work in heavily regulated and subsidized, relatively noncompetitive industries such as government and public works. Normalizing taxpayer and rate-payer funded benefits to benefit all workers might reduce some union worker benefits, particularly in the public sector, but would render most unionized workers in the totally competitive private sector better off, make America more competitive, make municipalities and large manufacturers solvent again, and would use our taxes to protect ALL American workers according to one set of rules.

Several reasons were thrown around as to why the environmental groups oppose Proposition 7: those in favor of Prop. 7 have suggested the 30 MW reason is not their true concern. The expedited siting provisions of this bill – which we believe are absolutely necessary if utility scale renewable energy is ever going to get built – will trample many cherished prerogatives of the environmental community. Another reason cited is the environmental community objects to the mandatory 10% cap on the premium the utility will be directed to pay renewable energy producers. But it should be noted this is a cap, not a floor, and if there is sufficient supply of renewable energy, the renewables producers will begin to compete under the cap to win contracts. As for the 10% cap not being sufficient to incentivize renewable energy construction, this is possible but completely dependent on the future price of fossil fuel, natural gas in particular. The notion that environmental groups oppose Prop. 7 because the penalties to the utilities for not achieving RPS targets have been slashed to $.01/kWh vs. the current $.05/kWh don’t really make sense, when you consider the initiative also removes the $25 million cap on these penalties. Under Prop. 7, renewable electricity production will need to increase to about 500 gigawatt-hours per day, more than five times what it is today. At $.01 per kilowatt-hour, you have $10,000 per gigawatt-hour, which implies if the 2030 standards were imposed today, the utilities would be paying about $40 million per day in fines. Not much of an objection there.

At the end of the day – why would the utilities oppose Proposition 7? They are investor owned, but publicly regulated. They earn a return for their investors according to a strictly managed set of pricing and cost recovery formulas. They will make money with or without renewables – why wouldn’t they be renewable agnostic? Proposition 7 appears to have flaws, but not necessarily the flaws that are being made most public. Actually moving this fast – installing well over 100 gigawatts of renewable energy generating stations (full output) is a logistical challenge that may simply be impossible. It is also important to consider what better technologies may emerge, rather than quickly build large scale projects based on current or near-term technological solutions.


Can California go from about 10% to 50% renewables in under 20
years? If sunny California can do it, can the rest of the U.S. follow?
(Source: U.S. DOE)

The most significant potential problem with Proposition 7 may be how to facilitate the level of investment necessary to build this much capacity. We stand by our analysis of Prop. 7′s costs as reflected in our posts “Costing California Proposition 7″ and “California Proposition 7″ published earlier this year: It will cost a minimum of $330 billion to install this much renewable generating capacity – that is based on $2.5 billion per gigawatt, a 17.5% yield, and a need to increase renewables output to 500 gigawatt-hours per day (forget about electrification of the car at anything less than this). Adding to amortization of capital the costs for interest, return to investors, operating costs, and transmission infrastructure, it is likely adding this capacity will result in deliverable renewable electricity priced at about $.20 per kilowatt-hour to the consumer. Can renewables deliver electricity for less than this? It is certainly possible, but it would be helpful to see the numbers. Big solar – big wind – can you show us your assumptions? How do you arrive at projections of wholesale prices of $.04/kWh (wind) or $.07/kWh (solar), and what price does that translate into for the retail consumer?

And of course we would need a crystal ball to know the future cost of natural gas. Anyone who doesn’t think the price equilibrium of fossil fuel remains volatile hasn’t been following the news of the past few weeks.

3 Responses to “Both Sides of California Proposition 7”
  1. Tam Hunt says:

    Ed, the 30 MW is not really debatable. It’s quite clean – and supported by Berkeley Law’s independent analysis – that Prop 7 does not exclude projects under 30 MW from the RPS. This has been clear from day one, for those with a background in CA’s admittedly complex energy law. The bottom line is that an agency or court will NEVER use definitions from a different legal code unless explicitly referenced. This is not the case in Prop 7. So the “solar and clean energy plant” definition in Prop 7, which applies to projects 30 MW and up, only applies to the fast track permitting process. It has no impact on RPS eligibility.

    Also, as I pointed out in a comment to your last post, your economic analysis is a piece of the picture but not the whole picture. See the PUC’s finalized GHG Regulatory Strategies decision, in R.06-04-009 for a description of the very detailed economic analysis by E3.

  2. Suzzane says:

    From your article, it sounds like prop 7 is a good thing to pass. I am glad to finally get a solid explanation about the 30MW criticism. Thanks.


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