Already straining under high unemployment and large budget deficits, California could face a new crisis of spiraling costs for renewable energy unless officials loosen new rules, the state's three large utilities say.

California 's aggressive goals have attracted wind- and solar-farm developers from around the world, and made the state the largest renewable energy market in the U.S. and one of the largest solar-power markets in the world.

However, a recent decision by state regulators to limit the amount of renewable energy California utilities can buy from outside the state will jeopardize their ability to reach the goals, argue utilities owned by PG&E Corp. (PCG), Edison International (EIX) and Sempra Energy (SRE). A similar disagreement last year derailed a key bill, and the new limit could create uncertainty about California 's renewable energy market.

If the utilities are correct, the new restrictions could drive up renewable energy prices, which could lead to utility rate increases at a time when the state is groaning under 12.5% unemployment and as state and local governments plan several billion dollars' worth of budget cuts.

California 's three large private utilities are required by the end of this year to be using renewable sources for a fifth of the power they sell. Pending regulations will require all the state's utilities to use renewables for one-third of their retail power by 2020.

PG&E, Southern California Edison and San Diego Gas & Electric have been signing purchase agreements and developing their own renewable energy and transmission projects. Municipal utilities, like Los Angeles Department of Water & Power, also have been buying up renewable energy, much of it from outside the state, to meet the looming 33% requirement. However, the California Public Utilities Commission adopted rules in March that restrict the amount of out-of-state renewable energy that a private utility can use, to 25% from a previously unlimited amount.

PG&E, SoCal Edison and SDG&E on Monday asked the CPUC to remove the limit, which they said will drive up renewable energy prices for consumers and prevent the state from meeting its goals.

The limits "will reduce flexibility, restrict procurement options, make RPS compliance more difficult and expensive for customers, and discourage the development of new renewable generation and efficient use of existing renewable resources," the utilities wrote in a filing with the CPUC. The CPUC originally devised the rules to allow utilities to use renewable energy credits to meet their obligations while keeping costs down. A renewable energy credit is a tradable commodity that represents 1 megawatt-hour of electricity generated from a verified renewable energy resource. Buying that from a wind or solar farm is generally much cheaper and easier than signing a power purchase agreement and scheduling delivery.

In their rules governing and limiting the use of such credits, the CPUC included a wide range of other types of out-of-state renewable energy contracts that the utilities have routinely used to comply with state requirements.

The rules reclassify four of SoCal Edison's wind-power contracts as renewable energy credits, said Stuart Hemphill, a senior vice president at the utility. The CPUC approved one of those contracts, for 845 megawatts of Oregon wind power from privately held Caithness Energy LLC, last year.

"We're putting a lot of effort into this project and to classify it as a renewable energy credit is just unfair," Hemphill said in an interview.

The rules could affect 15 other contracts signed by PG&E and SDG&E, primarily for wind power from the Pacific Northwest and Canada .

Hemphill said the rules will reduce access to some of the best renewable energy resources in the West, which will limit supply, reduce competition and drive prices higher.

Limiting the use of credits and out-of-state power would likely drive the prices of credits lower, but would also drive up prices for every other kind of renewable energy contract, said Nicole Finerty, a renewable energy broker at Evolution Markets Inc.

"This is actually going to escalate prices for the utilities," Finerty said. The CPUC "has taken a large chunk of supply that is no longer going to be available to the utilities."

CPUC member Dian Grueneich said the 25% out-of-state limit will protect utility customers from paying for renewable-energy products that aren't yet completely understood.

"I think there is an important role that [renewable-energy credits] will play," Grueneich said recently. "But we all know there can be failures of markets and abuses of markets. That's why having information will be so important as we look at the ground rules."

The disagreement is likely to attract the attention of state lawmakers and Gov. Arnold Schwarzenegger, who battled over the issue last year. The legislature passed a bill that would have codified the state's 33% renewable-energy goal into law. Although Schwarzenegger originally supported the bill, he vetoed it because it would have limited out-of-state purchases. The bill was reintroduced last month, without an explicit limit on out-of-state renewables.

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