BILL ANALYSIS
SB 1368
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
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
SUBJECT : ELECTRICITY: EMISISONS OF GREENHOUSE GASES
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
generation.
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
compliance.
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
regulation).
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
standard.
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
economy.
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
California.
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
procurement."
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
controls."
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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history.
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
California
TBP/Architecture