BILL ANALYSIS                                                                                                                                                                                                    


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                                 THIRD READING

          Bill No:  SB 1368
          Author:   Perata (D)
          Amended:  4/24/06
          Vote:     21

           SENATE ENERGY, U.&C. COMMITTEE  :  6-1, 4/4/06
          AYES:  Escutia, Alarcon, Dunn, Kehoe, Murray, Simitian
          NOES:  Cox
          NO VOTE RECORDED:  Battin, Bowen, Dutton

           SENATE ENV. QUALITY COMMITTEE  :  5-1, 4/24/06
          AYES:  Simitian, Chesbro, Escutia, Kuehl, Lowenthal
          NOES:  Runner
          NO VOTE RECORDED:  Cox

           SENATE APPROPRIATIONS COMMITTEE  :  8-5, 5/25/06
          AYES:  Murray, Alarcon, Alquist, Escutia, Florez, Ortiz,  
            Romero, Torlakson
          NOES:  Aanestad, Ashburn, Battin, Dutton, Poochigian

           SUBJECT  :    Electricity:  emissions of greenhouse gases

           SOURCE  :     Author

           DIGEST  :    This bill requires the State Energy Conservation  
          and Development Commission to set emission (e.g.,  
          pollution) standards for those entities providing  
          electricity in the state.  The bill requires the Public  
          Utilities Commission to prohibit electricity providers and  
          corporations from entering long-term contracts which do not  


                                                               SB 1368

          meet the State Energy Conservation and Development  
          Commission's standard.

           ANALYSIS  :    Existing law provides that the Public  
          Utilities Commission (PUC) has regulatory authority over  
          public utilities.  Existing law provides for the State  
          Energy Conservation and Development Commission, referred to  
          as the California Energy Commission (CEC).

          The bill requires the CEC to set standards for greenhouse  
          gas emissions from powerplants.  The standard may not  
          exceed the average emissions of a comparable combined-cycle  
          natural gas plant.  The bill directs the CEC, when setting  
          the standard, to consult with the Air Resources Board.

          The bill prohibits certain electricity providers from  
          making a long-term commitment to electricity supplies  
          unless the electricity generated under the commitment meets  
          the CEC's emission standard.  "Long-term" is defined as  
          three years.  The electricity providers covered under this  
          provision are electrical corporations, electrical service  
          providers, community choice aggregators and local public  
          electricity utilities.

          Under the bill, the PUC may not approve a long-term  
          commitment that violates the CEC's standard.  The PUC may  
          adopt rules to monitor and enforce the prohibition among  
          corporations, providers, and aggregators.  The CEC is to  
          enforce the prohibition among local public utilities.


           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 1368

          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-sanctions 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 in the consequence of  
          several divergent forces within California, some leading to  
          increases in GHG emissions, and others negating those  
           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  


                                                               SB 1368

          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.  
           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

                          Fiscal Impact (in thousands)

           Major Provisions             2006-07            2007-08           
            2008-09           Fund
          Electricity costs                     -- Unknown, see below  
          --                  GF & SF*

          Develop & pro-
          mulgate regulations          $50                             

             *The costs paid by departments would be financed with  
            the General Fund and all special funds which are  used to  
            finance operations within buildings.
          **These costs are likely financed by the Energy Resources  
            Products Account

          The bill imposes some costs on the CEC and ARB to develop  


                                                               SB 1368

          emission standards and promulgate regulations.  These costs  
          are unknown, but could be in excess of $50,000.  These  
          costs would likely be borne by special funds, primarily the  
          Energy Resources Products Account.  The PUC says it will  
          incur no new net costs to monitor or enforce the bill's  

          In addition, to the extent the regulations limit the number  
          of suppliers who may provide power to the California  
          market, the bill could increase wholesale electricity  
          costs.  If these costs are reflected in the electricity  
          rates the state pays, then the state's long-term utility  
          costs would rise, potentially beginning in the budget year.  
           These costs, potentially major, could be charged to the  
          General Fund and most special funds.

           SUPPORT  :   (Verified  5/25/06)

          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

           OPPOSITION  :    (Verified  5/25/06)

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

          NC:cm  5/26/06   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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