California's public power agencies will likely be able to manage the state's plan to reduce greenhouse gas emissions by 25% because they have been gradually adding renewable resources for a number of years, according to Fitch Ratings.

"Additionally, implementation of the full requirement is set on a reasonable timeline and most public power agencies in California could exercise rate flexibility to absorb the additional cost of compliance," analysts said in a report released Nov. 1.

Fitch believes the state's diversified power supply market and generally low dependence on coal will make complying with these regulations manageable statewide.

Among the state's utilities, natural gas is the most common fuel, accounting for 37% of statewide power production in 2011. Nuclear energy is second at 16%, and large hydroelectric is third at 13%.

Public power agencies that have a greater reliance on coal-fired generation will face greater challenges in repositioning their power supply portfolios to meet requirements of the legislation, analysts said.

Anaheim Public Utilities Department used coal for 51% of its electricity production in 2012 and Pasadena Water and Power used coal for 44% of its electricity production in the same year. The state's largest public power agency, Los Angeles Department of Water and Power, used coal for 34% of its power supply in 2012.

"Although more challenging, Fitch expects these utilities to manage plans for investing in new gas-fired generation resources, adding renewable generation, and raising rates to retail customers over time to recover the costs associated with the state's environmental agenda," analysts said.

On Oct. 28, Gov. Jerry Brown signed a regional agreement with the governors of Oregon and Washington and the premier of the British Columbia to align policies to reduce greenhouse gases.

The pact seeks to enhance cooperation through a range of activities including accounting for costs of carbon pollution in each jurisdiction, harmonizing 2050 targets for greenhouse gas reductions, taking steps to expand use of zero-emission vehicles, and adopting and maintaining low-carbon fuel standards in each jurisdiction.

 

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