SB 350: Energy policy framework update

On Oct. 7, 2015, Gov. Jerry Brown signed the Clean Energy and Pollution Reduction Act of 2015 (Senate Bill 350). SB 350 includes several significant changes to California's energy policy and framework:

Doubling Energy Efficiency and Demand Reduction by 2030

SB 350 requires the California Energy Commission (CEC) to adopt, on or before Nov. 1, 2017, annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas from retail customers by Jan. 1, 2030. The California Public Utilities Commission (CPUC) is required to adopt targets for the utilities subject to its jurisdiction that are consistent with the CEC targets. Local publicly owned utilities are also required to establish similar targets.

Regionalization of the California Independent System Operator (CAISO)

SB 350 provides for possible regionalization of the CAISO, if in the interests of California and its ratepayers, and only after the enactment of legislation revising the CAISO's governance structure. This has the potential to save ratepayers considerable money and will allow California to leverage off renewable assets located outside of the State. However, it is not without controversy and opposition.

Increase Renewable Energy Procurement to 50 percent of Retail Sales by 2030

The previously existing Renewables Portfolio Standard (RPS) required retail sellers and local publicly owned electric utilities to supply at least 33 percent of total retail sales from renewable energy resources by 2020. SB 350 increases the RPS target to 50 percent of retail sales by 2030.

The increased RPS target should breathe new life into a California renewable energy market that was beginning to slow reflecting the fact that the utilities had procured enough renewables to meet the 33 percent requirement. In recent CPUC filings, Pacific Gas and Electric Company (PG&E) and San Diego Gas & Electric Company (SDG&E) proposed to forego the next round of renewable energy solicitations; PG&E indicated it might not need to engage in incremental procurement for several years. The 2030 target clearly changes things. If CAISO is regionalized, some of the target will be met with out-of-state projects.

There are, however, significant factors that could impact California's ability to meet the new RPS target. The 30 percent federal investment tax credit is set to expire at the end of 2016 which could increase the cost of renewable power. Also, the continued growth in residential, commercial and industrial procurement of renewable energy will reduce the overall retail sales applied to the RPS targets and thus the amount procured. Additionally, efforts like the Desert Renewable Energy Conservation Plan could reduce the number of viable sites within California for development of renewable energy projects.

In sum, with the passage of SB 350, once again California forges ahead in its adoption of laws and regulations aimed at aggressively addressing climate change and meeting its greenhouse gas reduction goals. As always, the devil is in the implementation details.

Jerry Bloom is a partner and Tom Solomon is an associate with Winston & Strawn LLP.