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

Fitch says 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.

Furthermore, Fitch believes California's diversified power supply market and generally low dependence on coal will make complying with this regulation manageable statewide.

The firm notes that natural gas is the most common fuel used by the state's utilities, accounting for 37% of statewide power production in 2011, with nuclear accounting for 16% and large hydroelectric for 13%.

InĀ  contrast, national consumption is more concentrated in coal and much less diversified, Fitch reports. Nationally, utilities used coal to generate nearly 53% of their electricity supply in 2011, while natural gas and nuclear produced almost 17% each.

Fitch adds that public power agencies in the state that have a greater reliance on coal-fired generation - such as Anaheim Public Utilities Department, Pasadena Water and Power, and Los Angeles Department of Water and Power - will face greater challenges in repositioning their power supply portfolios to meet greenhouse gas reduction requirements.

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.

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