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Reason Foundation

California's Proposition 7 Is Flawed

Plan will actually hurt the state's renewable energy efforts

Skaidra Smith-Heisters
September 18, 2008

Television ads about Proposition 7 have been airing for weeks in California. The ads are part of a ballot battle that pits Arizona billionaire Peter Sperling and campaign spokesman Jim Gonzalez against a coalition which includes the state's Democratic and Republican parties, big utilities, alternative energy providers, California Labor Federation, California Taxpayers' Association, California League of Conservation Voters and California Chamber of Commerce.

Proposition 7 would change California's renewables portfolio standard (RPS), a set of state mandates for electricity procurement from geothermal, biomass, small hydro, wind, solar and other state-approved alternative energy sources. California's first RPS was enacted in 2002, when 11 percent of the state's electricity came from renewable sources. The 2002 RPS mandated that 20 percent of the state's electricity be renewable electricity by 2017. In 2006, the state's actual renewable energy share was unchanged at 11 percent, but legislators upped the ante and called for an accelerated RPS anyway-20 percent by 2010.

Today, the state's renewable electricity share still hovers around 11 percent, yet government energy experts remain confident that the state will eventually meet the 20 percent goal-if not in the next 16 months, then soon enough. They've even begun workshops to explore what will be needed to meet Gov. Arnold Schwarzenegger's longer-term goal of 33 percent renewable electricity by 2020.

Without even a preliminary analysis completed, Proposition 7 would arbitrarily mandate an increase in renewable electricity share of 40 percent by 2020 and 50 percent by 2025.

Anyone with a bad idea and a billion dollars can buy their way onto the California ballot. What remains to be seen is whether the combined opposition of California's major lobbies is enough to convince voters to oppose a proposition that nearly two-thirds of them supported in preliminary polling.

Voters have many reasons to oppose Proposition 7. The RPS targets are imprudent and regrettably out of sync with the considerable effort already underway to devise a coherent greenhouse gas reduction strategy for the state. Further, the poorly-worded initiative may inadvertently drive small and mid-size renewable energy projects out of the state market. But the biggest problem with Proposition 7 is that it requires Californians to buy renewable energy no matter how expensive it is-a scenario that promises to damage both ratepayers and the environment.

Proposition 7 softens the criteria for determining the state's reference price for electricity, allows utilities to charge 10 percent over that reference price to accommodate the higher price of renewable energy generation, and locks utility companies into 20-year contracts with generators. That means Californians could be bound to very expensive utility contracts even as far more cost-competitive renewable energy sources, energy-saving technologies, and other greenhouse-gas-cutting opportunities become available. To top it off, the proposition specifies that the new laws it creates could only be changed by a two-thirds vote of both houses of the legislature or another ballot initiative, so it would be hard to fix the problems that Proposition 7 would create in the future.

Proponents of the measure get one thing right: they say it won't raise taxes. But since it will expand state government, create redundant responsibilities among state agencies, and increase local government costs, it will certainly result in greater government spending. Their claim that the measure won't increase electricity rates by more than 3 percent is simply false; the Legislative Analyst's Office has determined that "the measure includes no specific provisions to implement or enforce this declaration."

The solar thermal generation favored by the proposition's authors is still two-to-four-times more expensive than electricity from natural gas (20 to 40 cents per kWh as compared to 9 cents for natural gas), and it will take billions of dollars in new transmission infrastructure to bring these alternative energy sources into the California grid.

Greenhouse gas reduction policies will backfire if they significantly raise the cost of living and doing business in California. Bad policies like Proposition 7 can easily increase near-term greenhouse gas emissions more than no policy at all. The effort to clean up California's power supply is better served by maintaining the state's flexibility to buy from the best sources at the right time and the right price.


Skaidra Smith-Heisters is Policy Analyst


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