The implications of deregulation for biomass and renewable energy in California Page: 4 of 53
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The Implications of Deregulation for Biomass and Renewable Energy in California
Since its inception more than 100 years ago, the electric utility industry has been considered a natural
monopoly, requiring either public ownership or regulation to ensure fairness in the marketplace.
Electricity generation is the most capital-intensive industry in the economy, and presents a significant
barrier to market entry. Local distribution facilities are a major part of basic municipal infrastructure, and
duplication would be highly undesirable. Moreover, to be usable, electricity must conform to rigid
specifications (voltage, cycles), making product differentiation unusually difficult. Thus, electric utilities
have traditionally been assigned exclusive franchise areas, with public oversight substituted for market
In the interest of promoting economic efficiency and consumer choice, all that is about to change. AB
1890, California's landmark electric utility deregulation legislation, was signed into law in September
1996. AB 1890 set January 1, 1998, as the date on which the restructuring of the electric utility industry
would begin. This meant that the many facets of implementation had to be completed during a 15-month
period, a daunting challenge.
A potential deficiency of unfettered market competition acknowledged in AB 1890 is that environmental-
quality concerns are not addressed by natural market forces. Energy production is one of society's major
sources of air pollution and greenhouse gas emissions. Some of the cheapest energy sources, such as
coal, are among the most highly polluting. To address this problem, AB 1890 provides for the creation of
a renewables transition fund, to be collected and invested during a 4-year transition period, to promote the
future competitiveness of renewables within the context of a fully restructured market. AB 1890 also
recognizes the special waste-disposal services provided by biomass power generation, and envisions the
enactment of policies to shift some of its costs to the beneficiaries to promote its long-term viability.
AB 1890 assigned to the California Energy Commission (CEC) the task of proposing a comprehensive
plan for allocating the renewables transition funds, which would total $540 million over the 4-year
transition period to the full implementation of market restructuring. The legislation stipulates that at least
40% of the funds be used to support existing renewable generators, and at least 40% of the funds be used
to support new and emerging renewables. The CEC was given 6 months to formulate a detailed plan for
the use of the funds, and report back to the legislature. AB 1890 assigned to the California Environmental
Protection Agency (Cal/EPA) the task of reporting on the special benefits of biomass power generation,
and formulating a plan for the development of cost-shifting policies that would support the biomass
industry after the transition period. Like the CEC, Cal/EPA was given 6 months to report back to the
The CEC convened a series of public hearings and workshops to elicit proposals from interested parties
for the allocation of the renewables transition funds. More than a dozen proposals were submitted, five of
which provided comprehensive programs for the use of the funds. The proposals represented a broad
spectrum of approaches and priorities. The major issues of contention included:
" How much of the 20% of the funds not allocated by the legislation between existing, and new and
emerging, should go to each category.
Future Res es Ass i tes In % Fina lR 7/10/98
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Morris, G. The implications of deregulation for biomass and renewable energy in California, report, July 1, 1998; Golden, Colorado. (https://digital.library.unt.edu/ark:/67531/metadc711057/m1/4/: accessed April 22, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.