BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 32 
                                                                       

                      SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                        Senator S. Joseph Simitian, Chairman
                              2005-2006 Regular Session
                                           
           BILL NO:    AB 32
           AUTHOR:     Nunez and Pavley                    
           AMENDED:    June 22, 2006
           FISCAL:     Yes               HEARING DATE:     June 26, 2006
           URGENCY:    No                CONSULTANT:       Bruce Jennings
            
           SUBJECT  :    CALIFORNIA GLOBAL WARMING SOLUTIONS ACT
                       OF 2006: GREENHOUSE GASES

            SUMMARY  :    
           
            Existing law  :

           1) Provides for the California Climate Action Registry and the  
              voluntary reporting of greenhouse gas emissions (GHGs) to  
              establish baselines against which future GHG emission  
              reduction requirements may be applied.  Chapter 1018,  
              Statutes of 2000 (SB 1771, Sher) and Chapter 769, Statutes  
              of 2001 (SB 527, Sher).


           2) Requires the California Air Resources Board (ARB) to  
              regulate GHGs emitted by passenger vehicles and light-duty  
              trucks to achieve maximum feasible reductions (Chapter 200,  
              Statutes of 2002, AB 1493, Pavley).

           3) Requires ARB to develop regulations to prevent diesel truck  
              engine idling at ports pursuant to Chapter 1129, Statutes  
              of 2002 (AB 2650, Lowenthal).

           4) Requires the state's retail sellers of electricity to  
              achieve at least 20 percent of energy sales from renewable  
              sources, pursuant to Chapter 516, Statutes of 2002 (SB  
              1078, Sher).

           5) Requires the California Energy Commission (CEC) to develop  
              and adopt by June 30, 2007, a state plan to increase the  
              use of alternative transportation fuels to achieve multiple  
              objectives, including the reduction of GHG emissions,  









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              pursuant to Chapter 371, Statutes of 2005 (AB 1007,  
              Pavley).
            

           This bill  :

           1) Enacts the California Global Warming Solutions Act of 2006.

           2) Requires the ARB to report and verify greenhouse gas  
              emissions.

           3) Authorizes the ARB to monitor and implement regulations to  
              reduce emissions of gases that cause global warming.

           4) Requires the ARB to adopt a statewide greenhouse gas  
              emissions limit that would gradually impose a limit between  
              2010 and 2020.

           5) Requires the Governor to establish an interagency task  
              force to coordinate investments of state moneys and state  
              programs to reduce emissions of greenhouse gases, promote  
              economic growth, make information publicly available to  
              assist sources of greenhouse gases to meet the requirements  
              of this act, and related activities.

           6) Requires, in place of existing requirements on CEC, the CEC  
              to update its inventory of emissions of greenhouse gases to  
              supplement information collected by the ARB to maintain a  
              reasonably comprehensive inventory of California's  
              emissions of greenhouse gases.

            COMMENTS  :

            1) Background:  The State of Climate Change  .  There is broad  
              scientific consensus that rising concentrations of GHGs in  
              the atmosphere are resulting in climate changes that will  
              continue to accelerate during this century.  A statement in  
              June, 2006 from the Attorney General's Office,  provides a  
              succinct statement about the threats from global warming.   
              The statement was provided in support of the Public Utility  
              Commission's promulgating a rule to integrate greenhouse  
              gas emission standards into procurement policies and  
              included the following findings:









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                "?the best available science establishes that GHG-induced  
                climate change is occurring and is fast approaching a  
                critical "tipping point," and that California has a  
                substantial stake in taking every possible action at the  
                earliest juncture to mitigate the potentially devastating  
                impacts - economic as well as environmental - of climate  
                change?

                Impacts from anthropogenic CO2 emissions that have  
                occurred, are occurring, and will occur, include:  
                temperature increases, heat waves, loss of Artic ice and  
                habitat, loss of Antartic ice, melting of glaciers and  
                related glacial lake outburst flows, loss of snowpack in  
                California and elsewhere, changes in precipitation  
                patterns, increased hurricane intensity, sea level rise  
                and coastal flooding, public health harms such as  
                increased heat-related illness and smog, harm to  
                habitats, and the potential for substantial social  
                upheaval resulting from significant environmental  
                changes.  ?[a one meter sea level rise threatens $48  
                billion of commercial, industrial, and residential  
                structures in the San Francisco Bay]?

                In litigation between the automakers and the State of  
                California, the automakers have challenged the authority  
                of the State to regulate greenhouse gases from mobile  
                sources.  In response to the automakers claims, the State  
                has gathered declarations from some of the world's  
                leading climate scientists concerning impacts of  
                anthropogenic greenhouse gas emissions on climate broadly  
                and on California in particular.  Many of these  
                declarations, which starkly establishes the threat to the  
                world and to California:

                At the same time as climate change is likely to cause a  
                significant reduction in California's effective water  
                supply, it is also likely to cause an increase in  
                California's demand for water because of the sharp  
                increase in summertime temperatures. 

                The effects of global warming are already observed in the  
                decrease in snow water equivalent and in the earlier  









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                snowmelt and streamflow timing of the past several  
                decades.

                Climate change will increase global sea levels?Sea level  
                rise will have two effects (a) ?increase the intrusion of  
                salt water [into the Sacramento delta]; and (b) increase  
                water levels in the channels [of the Delta] and so  
                threaten the integrity of the levees in the Delta."

                The findings strongly suggest that a climate change  
                consistent with any of the four [commonly employed]  
                climate projections?will lead to a significant increase  
                in heat-related deaths.  This increase will number in the  
                thousands for the five California cities [Fresno, Los  
                Angeles, Riverside, Sacramento and San Francisco] over a  
                period of a decade.

                If additional human-made global warming (above that in  
                2000) is so large, say 2-3 degrees C, that the expected  
                equilibrium (long-term) sea level rise is of the order of  
                25 meters, there would be a potential for a continually  
                unfolding planetary disaster of monstrous proportions.

            2) Background: The Governor's Executive Order  .  In June, 2005,  
              the Governor issued an executive order that established the  
              following GHG emission reduction targets for the state:

           By 2010 - reduce GHG emissions to year 2000 levels.
           By 2020 - reduce GHG emissions to year 1990 levels..
           By 2050 - reduce GHG emissions to 80 percent below year 1990  
              levels.

           As noted in a report by the Legislative Analyst, between 1990  
              and 2000, annual California GHG emissions increased by  
              approximately 13 percent, from about 396 million metric  
              tons in 1990 to 449 million metric tons in 2000.  The  
              Governor's Climate Action Team has estimated that achieving  
              the Governor's GHG reduction targets for 2010 and 2020 will  
              result in GHG emissions that are 11 percent and 29 percent,  
              respectively, below that which would otherwise occur  
              according to "business as usual" (BAU).

           The initial draft of recommendations drafted by the Climate  









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              Action Team included four actions essential to meeting the  
              Governor's GHG reduction goals:

              a)    Require climate change emissions reporting from all  
                 emitters of GHGs, starting with the largest emitters.

              b)    Levy fees on gasoline and diesel sales to reduce  
                 demand for these fuels and to fund promotion of  
                 alternative, cleaner fuels.

              c)    Coordinate state investment funds to reward industry  
                 development of emission reduction technologies; and,

              d)    Encourage companies to take early action to reduce  
                 their climate change emissions in anticipation of  
                 subsequent state, federal, or international emissions  
                 reduction programs.

            3) Defining Greenhouse Gases  .  Although GHG's are regularly  
              defined in accordance with five to six gases, there are  
              other recognized contaminants that affect climate change  
              (e.g., carbon black, and other chemicals, substances, and  
              gases).  Because of the long-life of certain contaminants  
              on the atmosphere, a broadened definition may be especially  
              important for making early changes that may affect the  
              atmosphere for decades to come.

           Indeed, Jim Hansen, who is among the world's foremost  
              climatologists, has recently concluded that the "total  
              forcing by non-CO 2 GHGs equals that of CO 2," and that the  
              climate changes to date has been caused mainly by non-CO 2  
              pollutants, not CO 2.  

           It is recommended that the definition of greenhouse gases be  
              expanded with a fuller listing of an array of contaminants  
              having an impact on climate are inventoried and regulated,  
              including those non-Kyoto contaminants having a potential  
              to contribute to climate change. 

            4) Flexible Compliance Mechanisms  .  The terms "flexible  
              compliance mechanisms" play a central role in AB 32, and is  
              largely employed to refer to "banking, borrowing, and  
              market mechanisms that provide compliance flexibility that  









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              are required to ensure that their greenhouse gas emissions  
              do not exceed their emissions allowances."

           The bill's use of "flexible compliance mechanisms" at first  
              glance appears to be contingent on the state board  
              evaluating and reporting on those mechanisms "most  
              beneficial in achieving reductions in GHGs." As a study.   
              Following this study, yet apparently irrespective of the  
              study's findings, by January 2009, the state board is  
              instructed to adopt regulations providing flexible  
              compliance mechanisms, including banking, borrowing, and  
              other market mechanisms as a means for entities to comply  
              with controlling GHG emissions as a basis for meeting  
              emissions allowances.  Ergo, flexible compliance, appears  
              largely to mean "banking, borrowing, and other market  
              mechanisms."  

           Flexible compliance mechanisms are also related to another  
              central term in the bill, "emissions reduction strategies,"  
              which includes programs, measures, standards, and flexible  
              compliance mechanisms that can be used with respect to  
              sources or categories of sources.  The result is that  
              "emissions reductions strategies" are also linked to  
              banking, borrowing, and other market mechanisms.

           AB 32, as a consequence, nests an important part of the  
              control of GHGs within emission reduction strategies that  
              are linked with flexible compliance mechanisms; which in  
              turn, are largely defined as market mechanisms.   

           Putting aside for a moment the question of whether AB 32  
              should rely so exclusively on market mechanisms, two  
              questions are begged by constructing AB 32 in such a  
              fashion:

           First, what is the legal basis for the state to enforce (or a  
              failure to achieve) GHG emission reductions according to  
              the bill's provisions?  While the bill constructs a penalty  
              provision for violations of the ARB's regulations (Section  
              42878.5), unresolved is whether the state, in fact,  
              exercises any authority over flexible compliance strategies  
              or flexible compliance mechanisms to the extent that these  
              are rooted in private sector activities, such as the  









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              banking and borrowing of emissions credits for which there  
              appears to be little, if any, applicable regulatory law.

           Second, how does the bill ensure that flexible compliance  
              mechanisms will yield reductions in GHG emissions?  The  
              bill appears to presume that banking, borrowing and other  
              market mechanisms can be expected to yield emissions  
              reductions.  Is there any evidence to support this  
              proposition?  In light of serious criticisms of such  
              schemes, including the recent collapse of the European  
              market for emissions trading, this is a subject deserving  
              much more scrutiny and consideration before the state  
              initiates any regulations founded on this approach.

           Moreover, the use of flexible compliance mechanisms has an  
              uncertain relationship to the ARB's current authority and  
              programs to achieve and maintain clean air (e.g., the  
              issuance of permits, the use of best achievable control  
              technologies).  The use of flexible compliance mechanisms  
              may set in motion a set of practices for which the state  
              may have only limited legal authority and considerable  
              uncertainty as to who is responsible for achieving   what  
              reductions.

           The sponsors have expressed an interest in providing some  
              manner of flexibility for achieving reductions in GHGs.   
              Rather than employing an approach that is poorly defined,  
              legally uncertain, and operates in a market context largely  
              uncontrolled by state law, an alternative would be to use  
              certain aspects of the approach adopted in another enacted  
              statute, AB 1493 (Pavley); which contains a provision  
              allowing for an alternative method for complying with the  
              regulations governing emissions from specific sources that  
              achieve the equivalent, or greater, reduction in emission  
              of greenhouse gases, as those requirements contained in  
              regulation (see, for example, Section 43018.5 (c ) (3).  By  
              comparison, this "flexibility" contained in AB 1493's  
              provisions is much more carefully integrated with the  
              existing authority of the state board, including its  
              enforcement authority.

           It is recommended that the terms "flexible compliance  
              mechanisms" be removed from the bill and that the  









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              appropriate section(s) be redrafted to clarify that the use  
              of any alternative to compliance be integrally linked to  
              existing air quality laws and regulations.  

            5) Who Is Accountable for Achieving GHG Emission Reductions?    
              As amended, it is unclear who is subject to the reductions  
              to be achieved by 2020 and by what authority.  Consider,  
              for example, the bill's reference to "electricity  
              provider."  Does a "source" include an individual power  
              plant, a company owning multiple power plants, power plants  
              in general, or a category of sources?  It is similarly  
              unclear whether the reductions are to be achieved by  
              individual emitters, companies, or sectors.  For this  
              particular case, unless the reference to electricity  
              provider is essential for the operation of the bill, it is  
              recommended that this provision be eliminated from the  
              bill. 

           The lack of clarity, however, does not simply extend to the  
              realm of electricity providers.  The bill, as amended,  
              strongly appears to lay the foundations for market  
              mechanisms, including potentially trading.  The adoption of  
              regulations to limit GHGs, for example, is explicitly based  
              on banking, borrowing, and market mechanisms.  The same  
              regulations also include the "distribution of emissions  
              allowances," or authorizations to emit a GHGs.   
              Furthermore, the regulation's reduction strategies are  
              evaluated with respect to their "cost-effectiveness," a  
              term that appears to discriminate against controls that may  
              be more expensive in the short run, but protective of the  
              environment by a longer term analysis.

           Should AB 32 be establishing a regulatory approach that is so  
              strongly oriented toward market mechanisms?  The  
              questionable role of market mechanisms is not just whether  
              these have given rise to climate change, but the equally  
              important question of how such language comports with   
              California's air quality, environmental, and other laws  
              provide clear rules for reducing GHG emissions while  
              protecting public health and the environment.

           The variety of poorly defined terms, and especially the  
              proliferation of terms referring to market mechanisms,  









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              casts considerable doubt over the question of who is  
              responsible for reducing GHG emissions and what is the  
              state's authority in this regard.  The authors' offices  
              have elsewhere explained that various analytics must be  
              performed prior to the adoption of regulations or other  
              rules advancing trading or similar market mechanisms as a  
              primary approach for controlling GHG emissions.

           It is recommended that the relevant provisions be redrafted to  
              clarify that before  adopting regulations to implement  
              flexible compliance mechanisms, a thorough review and  
              justification be established for the use of specific  
              alternative compliance mechanisms and that these be  
              integrated with existing law; and, that the surrounding  
              provisions be revised accordingly, without introducing a  
              new set of terms that only confuse who is subject to the  
              reductions and what are their responsibilities under state  
              law. (see the next section)

           6) Streamlining the Collection of Information: Avoiding  
              Duplication of Effort  .  Local air districts and ARB have  
              existing authority and responsibilities under state and  
              federal law (the Clean Air Act) to collect emission  
              information for any air contaminant.  Together, ARB and the  
              air districts have spent decades developing air emission  
              assessment and reporting protocols, coordinating with the  
              US EPA and other stakeholders to ensure consistent, high  
              quality data.  These inventories are used for a variety of  
              purposes, including the development of air quality  
              management plans, to develop potential control measures, to  
              analyze new source impacts, to determine control program  
              effectiveness, to predict future air quality through  
              modeling analyses, and to determine compliance by emission  
              sources.  To this extent, the local air districts, in  
              conjunction with the ARB, possess a capability for  
              collecting, auditing, inspecting, and enforcing  
              requirements in accordance with a facility specific  
              inventory of information.  Air district permits also  
              provide a basis for assisting ARB with ensuring that  
              emission reductions are verifiable, permanent and  
              quantifiable, and that data collection and reporting is  
              enforceable.  Tens of thousands of facilities are currently  
              reporting annual emissions data to local districts,  









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              including the largest pollution sources in the state and  
              those likely to be included in any mandatory GHG inventory  
              process.  Additionally, given the threats posed by  
              additional air contaminants affecting global climate (see  
              Comment on defining GHGs), the ability of California to act  
              decisively on these gases and particles may hinge on  
              utilizing the existing authority provided by the State's  
              air quality laws.

           It is recommended that the relevant provisions be amended to  
              allow air districts, under the direction of ARB, to collect  
              information on GHGs to assist with the compilation of a  
              comprehensive statewide data base and to ensure that  
              reductions are verifiable, permanent, and quantifiable.

            7) Transportation Sector Reductions: the Problematic  
              Implementation of Existing Law  .  Over the decades, whenever  
              California has pursued path-breaking legislation, there  
              have often been corresponding efforts to disrupt the  
              implementation of such measures.  Such is currently the  
              case with AB 1493, the measure authored by Assembly Member  
              Pavley requiring automobiles sold in California after 2009  
              to meet specified emission standards.

           Challenges to AB 1493 are especially significant since the  
              state's ability to curtail GHG emissions from the  
              transportation sector largely depend on successful  
              implementation of AB 1493.  If AB 1493 is not fully and  
              expeditiously implemented, the state's ability to attain  
              the necessary reduction of GHG's will likely be seriously  
              compromised.

           It is recommended that AB 32 be amended to allow for the  
              implementation of a specific, alternative provision that  
              would become operative should AB 1493 fail to be  
              implemented according to its statutory deadlines and/or  
              California fails to achieve the necessary reductions in GHG  
              emissions in the transportation sector.  Such a provision  
              would provide broad authority to ARB to institute necessary  
              measures to compensate for the loss of anticipated  
              reductions from the failure of AB 1493's full  
              implementation, including the authority to impose a  
              surcharge on petroleum fuels produced or imported into the  






           


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              state.  Additionally, a severability clause should be added  
              to the bill.
           
            8) Additional Issues for Consideration: Reviewing 2020  
              Objectives Based on New Information  .  As climate scientists  
              are noting with increasing regularity, the observations of  
              global climate changes are being rapidly revised; and  
              unfortunately determining that conditions are generally  
              worsening from even very recent scientific findings.  In  
              this regard, the Governor's objectives could prove to be  
              considered too modest with the appearance of new  
              information.

           It is recommended that the bill be amended to require a review  
              of the adequacy of the 2020 objectives based on indications  
              of worsening climate conditions, including measurements of  
              atmospheric levels of GHG's, Sierra snow pack, and other  
              observations of global climate change as noted by the IPPC.

            9) Additional Issues for Consideration:  Establishing a  
              Binding Policy for Agencies: Amending the Government Code  .   
              It is recommended that the current bill language regarding  
              agency obligations to conduct GHG emission reductions be  
              amended to add a new Government Code provision and clarify  
              that GHG policy is binding on all state agencies.
            
           10)Additional Issues for Consideration:  Support for Local  
              Initiatives  .  There are currently more than 50 cities in  
              California that have pledged to find ways to reduce GHGs at  
              a rate exceeding the Governor's plan.

           It is recommended that AB 32 be amended, authorizing ARB (or  
              another, more agency) to provide assistance to cities and  
              counties in their efforts to achieve GHG reductions and to  
              provide a common protocol for collecting information on  
              inventories.

            11)Additional Issues for Consideration:  State & Federal  
              Authorities  .  AB 32 currently delegates to the ARB the  
              determination of whether to implement the program, if there  
              is a federally enacted statute.  Alternatively, it might be  
              superior to allow ARB to file a petition with the  
              Legislature, establishing the reasons supporting the  









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              suspension of one or more provisions of law and to clarify  
              that such a suspension rests with the Legislature.

            12)Technical/Clarifying Amendments  .  The authors have offered  
              a number of technical and clarifying amendments which will  
              be integrated with a series of such amendments that are  
              also being prepared by the committee staff.

            13)Related Legislation  .  In the current session, there are  
              more than three dozen measures that relate broadly to  
              issues involving climate change.  Among these are:

                  SB 107 (Simitian).  Accelerates RPS to require sellers  
                of electricity to procure at least 20% of their retail  
                sales from renewable power by 2010 instead of 2017.

                  SB 1250 (Perata).  Revises the public interest energy  
                research, demonstration, and development program; the  
                renewable energy resources program, including the  
                purposes for which the money in the Renewable Resource  
                Trust Fund may be used.  Makes other changes as well,  
                including to the Reliable Electric Service Investments.

                  SB 1368 (Perata).  Requires the CEC to set emission  
                (e.g., pollution) standards for those entities providing  
                electricity to the state.  Requires the California Public  
                Utilities Commission to prohibit electricity providers  
                and corporations from entering into long-term contracts  
                which do not meet the CEC's standards.

            1) Referral to Senate Rules Committee  .  Should this measure be  
              approved by this committee, the do pass motion must include  
              the action to re-refer the bill to the Senate Rules  
              Committee.

            SOURCE  :        Natural Resources Defense Counsel and  
                          Environmental Defense
            
           SUPPORT  :       American Federation of State, County, and  
                          Municipal
                          Employees (AFSCME), AFL-CIO
                          American Lung Association of CA
                          Agoura Technologies









                                                                 AB 32
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                          Baykeeper
                          Bluewater Network
                          California Church Impact
                          California Catholic Conference of Bishops
                          California League of Conservation Voters
                          California Nurses Association
                          California Ski Industry Association
                          California Wind Energy Association
                          Californians Against Waste
                          CalWind Resources, Inc.
                          Center for Environmental Health
                          Christopherson Homes, Inc.
                          Clean Power Campaign
                          Climate Protection Campaign (600 signatures)
                          Coalition for Clean Air
                          Codding Investments Inc.
                          Community Action to fight Asthma
                          Community Fuels
                          Congress of the United States
                          Congressman George Miller
                          East Bay Municipal Utility District
                          Endangered Habitats League
                          Energy Solutions
                          Environment California
                          Environmental Entrepreneurs (E2) (160  
                          individuals - 700 members)
                          Environmental Justice Coalition for Water
                          Global Green
                          Ion America
                          KEMCO
                          Kirsh Foundation
                          KyotoUSA
                          Literacy for Environmental Justice
                          Marin Municipal Water District
                          Mendocino Wine Company
                          Natural Resources Defense Council
                          Oak Creek Energy Systems, Inc.
                          Pacific Forest Trust
                          Planning and Conservation League
                          Sacramento Metropolitan Air Quality Management  
                          District
                          San Gorgonio Farms, Inc.
                          Santa Clara Valley Water District









                                                                 AB 32
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                          Santa Cruz City Council
                          Senator Diane Feinstein
                          Sierra Club California
                          Sierra Club-Loma Prieta Chapter
                          Sonoma Wineco
                          Straus Family Creamery
                          Turtle Island Restoration Network
                          VentureSpark (SF)
                          Union of Concerned Scientists
                          Waste Management
                          Westminster Presbyterian Church
                          Whitewater Maintenance Corp.
                          Witt Rylander Advertising
                          Working Assets
                          Individuals (89) (213 emails)
                           
                          Cities/Counties/Towns of  :
                          Chino, Chula Vista, Cloverdale, Cotati,  
                          Fairfax, Hayward, Healdsburg, Huntington Park,  
                          Monterey Park, Morgan Hill, Oakland, Petaluma,  
                          Pleasanton, Rialto, Rohnert Park, Sacramento,  
                          San Francisco, San Luis Obispo, San Mateo,  
                          Santa Cruz, Santa Monica, Santa Rosa,  
                          Sebastopol, Sonoma, South San Francisco,  
                          Stockton, Sunnyvale, West Hollywood, Contra  
                          Costa County, Marin County Supervisors, Town of  
                          Windsor, County of Sonoma
            
           OPPOSITION  :    BP America
                          California Cement Manufacturers Environmental  
           Coalition
                          California Chamber of Commerce
                          California Council for Environmental & Economic  
           Balance
                          California Nevada Cement Promotion Council
                          Milpitas Chamber of Commerce
                          Pacific Gas and Electric Company
                          Silicon Valley Leadership Group
                          Western States Petroleum Association  
                           SEECalifornia Coalition:
                               Agricultural Council of California
                               Association General Contractors of  
                          California Inc.









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                               California Business Roundtable
                               California Business Properties Association
                               California Chamber of Commerce
                               California Farm Bureau Federation
                               California Forestry Association
                               California Grocers Association
                               California Hotel & Lodging Association
                               California Independent Petroleum  
                          Association
                               California Manufacturers & Technology  
                          Association
                               California Nevada Cement Promotion Council
                               California Retailers Association
                               Center for Energy and Economic Development
                               Engine Manufacturers Association
                               Rubber Manufacturers Association
                               Western Growers