Proposition 7’s language removes the cap on penalties for utilities not meeting state-mandated renewable energy requirements in their portfolios. Currently, utilities face penalties of 5 cents/kWh for shortfalls in their renewable energy target, although the total penalty is capped at $25 million. Proposition 7 would lower the penalty to 1 cent/kWh of shortfall, but eliminate the cap. Based on California Energy Commission demand projections and the language in the proposed ballot measure, for each 1 percent utilities fall short of the proposition’s goal of 36 percent renewable energy in ten years, or in 2018, they would pay penalties as follows: Pacific Gas & Electric and Southern California Edison could both face around $12 million and San Diego Gas & Electric around $2 million. Extrapolating from the bill’s language, for instance, if PG&E and Edison reached only the 30 percent renewable power level by 2018, not 36 percent, they each would face fines in excess of $72 million. This would total 7 percent of PG&E’s net income last year and more than 9 percent of Edison’s 2007 profit. According to a July Securities & Exchange Commission filing, Edison noted that Proposition 7 could affect its profit, but did not specify to what extent. The measure specifies that any penalties must come out of shareholder and not ratepayer pockets. In major reports to the SEC, corporations are expected to reveal to potential investors in so called 10k filings whether they face a “material” impact on their profits. However, that determination is subjective. A U.S. Supreme Court decision on that issue that the SEC pointed out to Circuit says, “The determination [of materiality] requires delicate assessments of the inferences a ‘reasonable shareholder’ would draw from a given set of facts and the significance of those inferences to him.” When asked specifically to comment on the ballot measure’s penalty provisions and on how they might affect utilities, Southern California Edison and Pacific Gas & Electric spokespeople declined. They indicated that the companies oppose the proposition because it would disrupt progress on renewable power.
