LOS ANGELES — California's public power utilities could face additional financial pressure over the medium to long term from the passage of new state legislation targeting greenhouse gas emissions, Fitch Rating said.
Senate Bill 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 or 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.
"Rate flexibility and the ability to preserve financial metrics in the face of these regulatory changes will be fundamental to maintaining long-term credit quality," Fitch analysts wrote in the Sept. 15 report. The higher renewable portfolio standard will be phased in over a 10-year period, with utilities mandated to reach interim targets of 40% by 2024, 45% by 2027 and 50% by the end of 2030. This significant increase in renewable energy will push public power utilities to identify and acquire resources that are generally more expensive and less flexible than thermal resources. Positively, the bill allows for the indefinite banking of certain resources beginning in 2021, which will allow those utilities that exceed their annual target to roll over credits toward future compliance years. Gov. Jerry Brown is expected to sign the bill, because it conforms to his previously stated objectives of raising renewable portfolio standards to 50% and reducing greenhouse gas emissions to 40% below 1990 levels by 2030, Fitch wrote.
SB 350, authored by Senate President Pro Tem Kevin de Leon, D-Los Angeles, and Sen. Mark Leno, D-San Francisco, was approved Sept. 11, the final day of the session, after give-and-take that removed targets to reduce the use of fossil fuels in vehicles.
