On the ballot: Proposition 7

So far in the last month, we’ve talked about Proposition 4 and Proposition 8. Continuing our look at the California ballot, it’s Proposition 7 day here at Toxic Culture. This initiative would require California utilities to get half of their power from renewable energy sources by 2025. This would mean a 2% increase in renewable procurement every year, and would require that renewable energy sources quadruple their output to meet the new demand. The argument, from the slick website with weird “breaking news” sound effects put up by the proposition’s backers, is that we need these mandated procurement increases to spur massive renewable energy development and use to reduce global warming, etc, etc.

Now, there’s a good argument for government intervention in this market. I’m sure Toxic Culture friend Will Chamberlain will have something to say about this, but the idea is that a mandate will dramatically increase the demand for renewable energy, encouraging the development of new sources to fill the supply gap.

Seems like a winner, right? Even the most die-hard oil barons are getting behind renewable energy these days, and unless you’re Sarah Palin, you believe that global warming exists and that human contributions accelerate it. So why are utilities like Edison and PG&E, the California Democratic Party, the California Republican Party, the California Labor Federation, the California Taxpayers’ Association, the League of California Cities, the California Solar Energy Industries Association, the California League of Conservation Voters, the Natural Resources Defense Council, the Union of Concerned Scientists, the Environmental Defense Fund, and the Center for Energy Efficiency and Renewable Technologies all opposed to Prop 7? Basically, they think the initiative will actually hurt renewable energy development in California.

Evoking the nasty brown-out memories of the Enron Era is another slick website, this one produced by the No on 7 people, who have named themselves “Californians Aganist Another Costly Energy Scheme.” Catchy. Here are their basic arguments:

1. Prop 7 will close down and crowd out small solar providers. Renewable plants smaller than 30 megawatts would be excluded from the new requirements, even though 60% of California’ existing renewable energy contracts are from providers that fall into this category. It’s hard to get a sense of how big a 30 megawatt provider would be (here’s a picture of a 12 MW solar farm in Bavaria), but consider that oil wind magnate T. Boone Pickens (whose own Prop 10 will be featured later this week on the blog) has described 83 megawatt wind farms as “pissant.” The California Solar Energy Industries Association has said that the measure would basically devastate the state’s existing solar infrastructure by driving the bulk of providers out of the market.

2. It sets prices. The idea is to create a seller’s market for renewable energy, presumably increasing incentives for people to enter the market by building new plants. Opponents say that the initiative sets price floors by allowing providers to charge 10% above market price for their energy. The legislative analyst’s report on the initiative sheds some light on this. Right now, there are caps placed on the total amount of above-market costs that utilities can pass on to consumers. The intiative removes those caps, allowing utilities to recover costs for energy bought that was priced up to 10% above market price. The Yes on 7 people say that this price hike (because that’s what it is, for good or ill – a price hike) won’t significantly increase utility bills for consumers. They say that the measure won’t increase energy costs to consumers by more than 3%. But, as the legislative analyst points out, there is no part of the initiative that would implement this cap. Oops.

So, fears of higher utility bills (which are regressive and disproportionately hurt the poor) are probably well-founded. This isn’t necessarily a bad thing – I’ve long supported higher energy prices that include accounting for pay-later externalities like pollution and carbon emissions – but that’s not what we’re talking about here. And price fixing runs a high risk of stifling competition, especially as small providers are squeezed out of the market.

3. Sourcing safeguards are rushed and inadequate. Prop 7 dramatically shortens the review and public comment period for new plants to just 100 days. As Craig Noble over at the NRDC notes, it also allows for a signed contract to count as compliance rather than, say, actual delivery of energy. In a state that’s had its fill of the costs of energy speculation, this is a losing proposition at best.

But, if passed, it will require a 2/3 vote of the legislature for revision – a staggering roadblock in a state where you’d be hard pressed to get a 2/3 vote on a resolution saying “Puppies are cute.” So whither Prop 7? At the moment, it’s got high voter approval ratings. It’s a complicated initiative that will likely be lumped right in with Prop 10, and people will say a yes on renewable energy means a yes on 7. But it’s not that simple, and it’s always dangerous to mess with the market, particularly when your first step will be to cripple the existing solar industry in California.