BILL ANALYSIS                                                                                                                                                                                                              1

                            MARTHA M. ESCUTIA, CHAIRWOMAN

          SB 1368 -  Perata                                 Hearing Date:   
          April 4, 2006              S
          As Introduced: February 21, 2006        FISCAL           B


           This bill  prohibits "load-serving entities" (public or private  
          electric utilities and other providers of electric service) from  
          building or contracting (>3 years) base-load generation unless  
          the generation meets a GHG emission standard established by the  
          California Energy Commission (CEC).  

           This bill  requires the CEC, in consultation with the Air  
          Resources Board, to establish a GHG emission standard which does  
          not exceed the GHG emissions of a combined-cycle natural gas  
          power plant.

          The terms "global warming" and "global climate change" refer to  
          the rise in the average temperature of the earth's climate due  
          to an accumulation of "greenhouse gases" in the atmosphere.   
          GHGs include carbon dioxide (CO2), methane, nitrous oxide,  
          hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

          While the political debate over the existence, cause, and  
          effects of global warming, and what to do about it, continues,  
          the prevailing wisdom among climate scientists is that global  
          warming is occurring and that measures should be taken to  
          address its effects.

          SB 1771 (Sher), Chapter 1018, Statutes of 2000, required the  
          CEC, in consultation with other state agencies, to update  
          California's inventory of GHG emissions in January 2002 and  
          every five years thereafter.  The inventory is to include all  


          emission sources in the state that were identified in the CEC's  
          1998 report, "Historical and Forecasted Greenhouse Gas Emissions  
          Inventories for California," including power plants.

          According to the CEC's 2002 report, "Inventory of California  
          Greenhouse Gas Emissions and Sinks: 1990-1999," current research  
          has largely supported earlier scientific findings that GHG  
          emissions from human activities have been steadily increasing  
          since the industrial revolution.  In addition, the United  
          Nations-sanctioned technical body, the Intergovernmental Panel  
          on Climate Change, reported in 1999:  "There is new and stronger  
          evidence that most of the warming observed over the last 50  
          years is attributable to human activities."

          California has seen a modest increase in GHG emissions over the  
          last decade. This increase is the consequence of several  
          divergent forces within California, some leading to increases in  
          GHG emissions, and others negating those increases.

          Several key California industries emit only moderate amounts of  
          CO2.  With a relatively temperate climate, California uses  
          relatively less heating and cooling energy than other states.   
          As a leader in implementing aggressive efficiency and  
          environmental programs, California has been able to reduce CO2  
          emission rates in all sectors, as well as reducing energy demand  
          and air pollution emissions.  However, California leads the  
          nation in vehicle miles traveled.  As a result, CO2 emissions  
          from the transportation sector are increasing.

          California uses fossil fuels differently than the United States  
          as a whole.  Compared to most other states, California uses less  
          fossil energy to generate electricity.  This lower reliance on  
          fossil fuels is due to the availability of hydroelectric and  
          nuclear power, and the continuing and growing use of renewable  
          energy.  The predominant fossil fuel for electricity generation  
          in California is natural gas, which emits relatively less GHG  
          than oil or coal, the predominant fuel in many other parts of  
          the country.  As a fraction of its total fossil fuel use,  
          California uses more fossil fuels (primarily gasoline) in the  
          transportation sector. 

          The Governor announced ambitious goals and schedules for  
          reducing GHG emissions in an Executive Order last year.  The  
          strategy for achieving these goals is expected to rely heavily  


          on achieving reductions in the utility sector, primarily  
          electric generation.  In its 2005 Integrated Energy Policy  
          Report, the CEC recommended setting a GHG standard for utility  
          procurement at level no higher than emission levels from  new   
          combined-cycle natural gas turbines.  The CPUC has also  
          indicated its intention to introduce GHG factors into utility  
          procurement and place a cap on utility GHG emissions.  The  
          purpose of this bill is to prevent long-term investments in  
          power plants with GHG emissions in excess of those produced by a  
          combined-cycle natural gas power plant.  

              1.   Vague standard, unpredictable results.   Unlike the CEC's  
               recommendation, this bill does not specify that the GHG  
               standard should be based on  new  plants.  This gives wide  
               discretion to the CEC to choose a standard that could be  
               fairly easy, or very difficult to achieve.  For example,  
               emissions of CO2 from existing combined-cycle natural gas  
               power plants in California range from 651 lbs/MWh  
               (impossible for any older gas plant or commercially-proven  
               coal plant to meet) to 2,338 lbs/MWh (dirtier than many  
               coal plants).  If a stringent standard is desired,  the  
               author and the committee may wish to consider  specifying  
               that GHG emissions cannot exceed those of a  new   
               combined-cycle natural gas power plant, following the CEC's  
               recommendation.  If a less stringent standard is desired,  
               LSEs could be given an allowance to exceed the emissions of  
               a new plant by a certain percentage.  Or an initial  
               emissions level could be specified in the bill, and  
               ratcheted down as technology improves.

              2.   Contracts present verification problem, potential  
               loophole.   It is common for LSEs to contract for energy  
               that isn't tied to any particular power plant, but instead  
               is delivered from a generator or marketer's portfolio of  
               generation resources.  It is unclear how a plant-specific  
               emission standard could be enforced under these  
               circumstances.   The author and the committee may wish to  
               consider  directing the CPUC and CEC to address this issue  
               when they develop enforcement protocols.

              3.   Standard will determine which existing power plants  
               become ineligible for long-term contracts.   Depending on  


               the level of allowable GHG emissions and how existing  
               plants GHG emissions are calculated, this bill could render  
               many existing conventional natural gas, co-generation,  
               biogas, and biomass plants, as well as coal plants,  
               ineligible for contracts longer than three years unless  
               they improve their emission performance by rebuilding or  
               adding pollution controls.  It may be unreasonable to try  
               to force that kind of investment based on a contract as  
               short as three years.  If this is a concern,  the author and  
               the committee may wish to consider  a longer contract  
               threshold to support the investment necessary to reduce GHG  
               emissions.  For biogas and biomass plants, and perhaps  
               cogeneration, GHG emissions performance could be improved  
               by allowing GHG benefits associated with their production  
               cycles to offset the plants direct GHG emissions.


          E2 (Environmental Entrepreneurs)
          Natural Resources Defense Council
          Pacific Gas and Electric Company, if amended
          Sacramento Metropolitan Air Quality Management District
          Sempra Energy, if amended
          Sierra Club California
          The Utility Reform Network
          Union of Concerned Scientists

          California Municipal Utilities Association
          Center for Energy and Economic Development
          Southern California Edison
          Sustainable Environment and Economy for California
          Western States Petroleum Association


          Lawrence Lingbloom


          SB 1368 Analysis
          Hearing Date:  April 4, 2006