BILL ANALYSIS                                                                                                                                                                                                    

                                                               SB 1368

                        Senator S. Joseph Simitian, Chairman
                              2005-2006 Regular Session
           BILL NO:    SB 1368
           AUTHOR:     Perata
           AMENDED:    April 24, 2006
           FISCAL:     Yes               HEARING DATE:     April 24, 2006
           URGENCY:    No                CONSULTANT:       Bruce Jennings

            SUMMARY  :    
            Existing law  :

            1) SB 1771 (Chapter 1018, Statutes of 2000) required the  
              Secretary of the Resources Agency to establish a non-profit  
              public benefit corporation, known as the California Climate  
              Action Registry (Registry) to administer a voluntary  
              greenhouse gases (GHG) emissions registry.  The legislation  
              required the California Energy Commission (CEC) to qualify  
              third-party organizations to provide certification services  
              and technical assistance to Registry participants.  The CEC  
              is required to provide technical guidance to the Registry  
              on protocol development.  The CEC is required to  
              periodically update the state's inventory of GHG emissions  
              and serve as an information clearinghouse for information  
              on climate change issues.

            2)  SB 812 (Chapter 423, Statutes of 2002) required the  
              Registry to develop and adopt protocols to report and  
              certify forestry sector projects and entity-wide GHG  
              emissions inventories.  Intent of the bill is to foster  
              carbon sequestration and other co-benefits in California's  
              forests through sustainable forest management practices.

            3) AB 1493 (Chapter 200, Statutes of 2002) required the  
              California Air Resources Board (CARB) to adopt regulations  
              to reduce the emissions of greenhouse gases from motor  
              vehicles, starting with the 2009 model year.  The  


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              regulations would take effect no sooner than January 1,  
              2006.  The CARB adopted regulations in 2004, but these  
              regulations are currently the subject of legal challenges  
              in both federal and state courts.

            This bill  :

           1) Makes extensive legislative findings concerning the adverse  
              consequences of global warming, the historic context of  
              California's promotion of energy efficiency, conservation,  
              and renewable energy resources, and the necessity for  
              reducing emissions of greenhouse gases with respect to both  
              electricity consumption and production, including  
              establishing performance standards for procurement of  
              electricity by load serving entities.

           2) Provides various definitions, including: "load serving  
              entity" which refers to every electrical corporation,  
              community choice aggregator, electric service provider, and  
              local publicly owned electric utility serving end-use  
              customers in California; and, "long-term financial  
              commitment" which means either an ownership investment in  
              baseload generation or a contract with a term of three or  
              more years, which includes procurement of baseload  

           3) Prohibits a load serving entity from entering into a  
              long-term financial commitment unless any baseload  
              generation supplied under the long-term financial  
              commitment complies with a greenhouse gases emission  
              performance standard, to be established by the California  
              Energy Commission (commission).

           4) Prohibits the commission from approving a long-term  
              financial commitment by an electrical corporation, unless  
              any baseload generation supplied under the long-term  
              commitment complies with the GHG emission performance  
              standards established by the commission.

           5) Authorizes the commission to review any proposal for a  
              long-term financial commitment by a electric service  
              provider or a community choice aggregator, in order to  


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              enforce the requirements relating to GHG emission  
              performance standards.

           6) Authorizes the commission to adopt rules to enforce GHG  
              emission performance standards for electrical corporations,  
              electric service providers, and community choice  
              aggregators.  To this extent, the commission shall adopt  
              procedures to verify the emissions of greenhouse gases from  
              any baseload generation supplied under a contract subject  
              to the GHG emission performance standard in order to ensure  

           7) Authorizes the commission to adopt regulations to enforce  
              this act with respect to a local publicly owned electric  
              utility.  The commission is also authorized to apply the  
              procedures for verifying emissions of GHG from baseload  
              generation to ensure compliance by publicly owned electric  
              utilities with GHG emission performance standards.

           8) Requires the commission, in consultation with the  
              California Air Resources Board (CARB), to establish a GHG  
              emission performance standard for all baseload generation  
              at an emission rate of GHG that is not higher than the  
              average emission rate of GHG for existing combined-cycle  
              natural gas baseload generation (and to be adopted as a  

              The commission's basis for determining an emissions rate  
              for GHG for baseload generation must include the net  
              lifecycle emissions resulting from the production of  
              electricity by the baseload generation.

              The commission is also required to consider the effects of  
              the standard on system reliability and overall costs to  
              electricity customers.

            COMMENTS  :
            1) Purpose of Bill  .  The author's office explains that SB 1368  
              addresses the problem arising from current law not  
              addressing the GHG emissions associated with long-term  
              financial commitments for the procurement of energy by  
              California-based utilities and electricity providers.


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           SB 1368 prohibits load serving entities (LSEs) from entering  
              into long-term financial commitments for baseload  
              generation, unless that baseload generation complies with a  
              GHG emission performance standard.

           SB 1368 precludes the CPUC from approving procurement plans or  
              commitments to generators that do not meet the emissions  

           It requires the commission to develop the GHG performance  
              standard by regulation, in consultation with the CARB and  
              the CPUC.  The standard must not exceed emissions  
              associated with a combined-cycle natural gas power plant.

           It authorizes the CPUC to adopt rules to enforce the new  
              emission performance standard with entities under its  
              jurisdiction.  It authorizes the commission to adopt  
              regulations to enforce the performance standard with local  
              publicly-owned electric utilities.

            2) Background  .  The Kyoto Protocol aims to reduce global  
              carbon dioxide emissions by an average of 5.2 percent below  
              1990 baseline levels by 2012.  The treaty went into effect  
              on February 16, 2005.  The United States Senate has not  
              ratified the agreement.  The United States produces  
              approximately 25 percent of the world's anthropogenic  
              greenhouse gases, while it encompasses only four percent of  
              the world's population.

           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.

              In general, debates over the existence, cause, and effects  
              of global warming have given way to a discussion about how  
              to reduce greenhouse gas emissions.  And even in this  
              regard, the discussion has turned to how fast measures need  
              to be implemented in order to reduce emissions.  Economists  
              with the University of California have explained that  


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              California's early and aggressive action to stem the  
              release of GHG's may not only help the state to avoid more  
              costly environmental consequences, but also serve to  
              stimulate innovations that will benefit the state's  

           3) California's Role  .  California is the seventeenth largest  
              emitter of GHG in the world.  From 1990 to 2002, total GHG  
              emissions increased by nearly 12 percent.  If current  
              trends are permitted to continue, GHG emissions would  
              increase by 24 percent from 1990 to 2020.  After the  
              transportation sector and industrial facilities, which  
              include oil refineries, electricity generation is the third  
              largest GHG emitter and produces nearly 20 percent of total  
              emissions.  While imported electricity is a relatively  
              small share of California's electricity mix, out-of-state  
              electricity generation sources contribute about half of the  
              GHG emissions associated with electricity consumption in  

            4) The CEC, the CPUC, and a GHG Standard  .  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.  SB 1368 would prevent  
              long-term investments in power plants with GHG emissions in  
              excess of those produced by a combined-cycle natural gas  
              power plant.

           According to the CPUC's October 6, 2005 report, the  
              consequences of global warming to California include  
              potential reduction in the Sierra snow pack, severe  
              disruption of the state's hydropower electricity  
              generation, coastal erosion, serious threats to the  
              integrity of the levee system, and dramatic increases in  
              electricity consumption; "In sum, the impact of climate  
              change on California's natural resources and economic  
              vitality could be calamitous."  The CPUC concluded that in  
              order to have any meaningful impact on climate change, the  
              Governor's GHG emissions reduction goals must be applied to  
              the State's electricity consumption, not just to the  


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              State's electricity production.  In this regard, the CPUC  
              recommended that any GHG performance standard for utility  
              procurement be set no lower than levels achieved by a new  
              combined-cycle natural gas turbine.

           Additionally, the CPUC stated that the State must act  
              expeditiously and in concert to send the right investment  
              signals to electricity markets throughout the West.  "?.For  
              example, there are approximately 30 proposed coal fired  
              plants across the West, some of which are planned in  
              anticipation of meeting demand in California.  The carbon  
              dioxide emissions from just three 500 MW conventional  
              coal-fired power plants would offset all of the emissions  
              reductions from the IOU's energy efficiency programs and  
              would severely compromise the State's ability to meet the  
              Governor's GHG goals.  As the largest electricity consumer  
              in the region, California has an obligation to provide  
              clear guidance on performance standards for utility  

            5) GHG Emissions Standard and Eligibility for Long-Term  
              Contracts  .   Much of the debate concerning SB 1368 centers  
              on the question of how a GHG emissions standard will affect  
              the eligibility of different power plants to participate in  
              long-term contracts.  As noted in the  EU&C Committee  
              analysis, "depending on the level of allowable GHG  
              emissions and how existing plants' 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  

           The problem, as noted by the CPUC, however, is that California  
              has an obligation to signal markets about meeting GHG  
              standards.  And for plant investments that can extend over  
              a period of decades, the state needs to be clear that  
              emissions in future years will have to achieve significant  
              reductions.  Moreover, as also noted by the CPUC, in the  
              absence of an aggressive schedule of reductions in GHG  
              emissions, the costs to the public may be unlike any other  
              fiscal consequences the state has experienced in its  


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            6) Prior Committee Action  .  SB 1368 was heard in the Senate  
              Energy, Utilities and Communications Committee and passed  
              by a vote of 6 to 1.

            SOURCE  :        Senator Perata  

           SUPPORT  :       American Lung Association  
                           Clean Power Campaign
                          Natural Resources Defense Council
                          Planning and Conservation League
                          Sierra Club
           OPPOSITION  :    Center for Energy and Economic Development
                          Milpitas Chamber of Commerce  
                           Southern California Edison
                          Southern California Public Power Authority
                          Sustainable Environment and Economy for