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IN SEARCH OF THE RIGHT POLICY

The debate over how best to promote renewables such as wind power in a restructured electric utility industry has led to a showdown in the California legislature. While many special interests -- including utilities, industrial users, consumer groups, independent power producers and environmentalists -- are behind a bill that would earmark an annual percentage of utility funds for wind and other clean power sources, this approach seems to in direct conflict with the American Wind Energy Association's "renewables portfolio standard." In addition, one particularly influential utility has risen up in opposition.

Assembly Bill 1123, by Assembly Member Byron Sher (D-Palo Alto), addresses a request by the California Public Utilities Commission (CPUC) to specify what the new state policy should be on programmes that offer environmental benefits. The legislation sets funding levels for demand-side management, research and development (R&D) and renewables at 3.6% of utility revenues. AB 1123 states this revenue should come from an electricity distribution charge which is "non-bypassable, " meaning that it will be assessed on every consumer of electricity in the state, regardless of whether they are served by a private or publicly-owned utility or other provider. Amendments insisted upon by the California Manufacturers Association would limit R&D expenses to transmission and distribution spending in light of its position that utilities should exist to serve the electric generation business.

This 3.6% figure, which may also be reduced to ensure the bill is passed, was derived by incorporating an analysis performed by the Natural Resource Defense Council (NRDC) of the actual spending on energy efficiency and R&D in 1994 made by Pacific Gas & Electric, the largest energy utility in the US. These figures are 2.4% and 0.65%, respectively. Added to this amount are the incremental costs associated with renewables projects put forward under the CPUC's Biennial Resource Update Plan (BRPU). According to an analysis performed by the Environmental Defense Fund (another environmental group pushing wind and other renewable sources), the above market costs associated with the 440 MW of renewables included in the BRPU competitive auction for supply-side resources is 0.6% of utility revenues.

Ralph Cavanagh, senior energy specialist with the NRDC, claims AB 1123 represents "a solution to the current problem of how do we ensure that the potential stranded benefits associated with programmes providing environmental quality and equity do not get lost under utility restructuring." He points out that the costs identified in the bill "were not new costs" but would simply be itemised on the electricity bills of the future.

Not a good option

Despite Cavanagh's assertions, Nancy Rader, a California consultant for the American Wind Energy Association (AWEA), claims the renewables distribution fee embraced in AB 1123 conflicts with AWEA's proposal. "Renewables would have to be taken out of the distribution fee," she says. The primary appeal of AWEA's standard is there is no need for an identifiable subsidy."

AB 1123 passed unanimously off the assembly floor to the Senate in late July. However, a last minute amendment allowing cities or other local governments to band together to purchase power directly -- like a co-operative -- has enraged Southern California Edison (SCE) since it is a step towards direct access to electricity, sidestepping the utility structure. The concept is being pushed by large industrials precisely because they want to circumvent the utility monopoly on energy. SCE's David Takashima charges that small cities and rural areas "with less buying power will be left paying for higher cost energy after the large cities capture all the low cost power." He also complains about further subsidies to renewables, claiming that SCE's ratepayers "already are required to subsidise renewable resources at a cost of over $1 billion per year."

The fate of the bill was to be determined in late August or early September.

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