LOS ANGELES — California legislation that increases renewable energy requirements is a credit negative for coal-dependent southern California municipal electric utilities, Moody's Investors Service said.
The bill signed by Gov. Jerry Brown Oct. 7, requires all California utilities to generate 50% of electricity from renewable energy sources like wind and solar by 2030.
“The legislation will be credit negative for municipal utilities if ratepayers balk at higher prices that come with the transition to renewable energy from coal-fired generation,” Moody’s Analyst Dan Aschenbach wrote in the Oct. 15 report.
Municipal electric utilities in southern California would be particularly affected given their reliance on coal-fired generation, Aschenbach wrote.
Cities like Anaheim and Los Angeles have historically received 40% of their electricity from coal. In contrast, San Francisco and Sacramento derive none of their power from coal, relying instead on solar, hydroelectricity and natural gas, Moody’s said.
Senate Bill 350, a contentious three-pronged clean energy bill passed by lawmakers the last week of session in mid-September, also requires the state to double energy efficiency in homes, offices and factories.
The effort pushed by Brown and Sen. Leader Kevin de Leon, a Los Angeles Democrat who authored the bill, failed to achieve the third prong of cutting gasoline use in half. That aspect of the bill was eliminated after it received stiff opposition from oil companies and failed to receive enough support from Democrats.
Brown said he plans to keep working on the issue.
The 2050 benchmark builds on environmental legislation passed by Gov. Arnold Schwarzenegger and Brown. In 2011, Brown signed a bill that required 33% of the state’s electricity to come from renewable resources by Dec. 31, 2020.
SB 350, the Clean Energy and Pollution Reduction Act of 2015, ramps up state mandates that dictate the rate at which utilities reduce the use of oil and gas in favor of renewable energy sources such as wind and solar. Current requirements mandate 33% of power production come from renewable sources by 2020. The new bill targets 50% by 2030.
Coal-fired generation has been a significant source of power for cities like Los Angeles and Anaheim, but they have already taken steps to reduce dependence. Eleven power providers cited by Moody’s have achieved current benchmarks increasing renewable power generation to 20% and are making progress toward the 2016 benchmark of 25%.
So far, Moody’s said municipal utilities have been able to raise rates and maintain a sound financial performance, but Los Angeles ratepayers are likely facing a 3.4% annual water and power rate increase over the next five years to support the transition to cleaner energy.
Six Southern California utilities have supported a move to shut down the coal-powered Intermountain Power Project located in Utah. It would be replaced by a natural gas-fired plant nearby.
LADWP is also divesting itself from its share in coal-fired plants in Nevada, Utah and New Mexico.
Municipal utilities will also face challenges in maintaining consistent service as they increase the use of renewable resources, because solar and wind can be unreliable sources of power.