BILL ANALYSIS
SB 1368
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Date of Hearing: June 26, 2006
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 1368 (Perata) - As Proposed to be Amended: June 26, 2006
SENATE VOTE : 21-13
SUBJECT : Electricity: emissions of greenhouse gases.
SUMMARY : Creates a Greenhouse Gas (GHG) performance standard
for baseload generation. Specifically, this bill :
1)Makes 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 a new ownership investment in baseload generation or a
new or renewed contract with a term of five 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 (CEC).
4)Prohibits the California Public Utilities Commission (PUC)
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 CEC.
5)Authorizes the PUC to review any proposal for a long-term
financial commitment by an electric service provider (ESP) or
a community choice aggregator, in order to enforce the
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requirements relating to GHG emission performance standards.
6)Requires the PUC to adopt rules to enforce GHG emission
performance standards for electrical corporations, electric
service providers, and community choice aggregators and to
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 CEC to adopt regulations to enforce this act
with respect to a local publicly owned electric utility. The
CEC 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 CEC, in consultation with the Independent System
Operator and 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 emission rate of GHG for combined-cycle natural gas
baseload generation.
9)Requires the CEC to establish an output-based methodology to
ensure that the calculation of GHG emission for cogeneration
plants recognizes the total usable energy output and includes
all greenhouse gases emitted by the facility in the production
of both electrical and thermal energy.
10) Requires the CEC, in calculating GHG emissions of biomass
facilities, to consider net emissions from the process of
growing, processing and generating the electricity from the
biomass feedstock.
11) States that carbon dioxide captured from a power plant
shall not be considered to have been emitted from such power
plant if it is permanently disposed of in geological
formations in compliance with applicable regulations.
12) Requires the CEC to consider the effects of the standard on
system reliability and overall costs to electricity customers.
13) Requires the CEC to re-evaluate the GHG gas emission
standard when and if an enforceable greenhouse gas emission
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limit applying to the electricity sector is established and in
operation.
EXISTING LAW :
1)Requires 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. SB 1771 (Chapter 1018, Statutes of 2000.)
2)Requires the Registry to develop and adopt protocols to report
and certify forestry sector projects and entity-wide GHG
emissions inventories. The intent of the bill is to foster
carbon sequestration and other co-benefits in California's
forests through sustainable forest management practices. SB
812 (Chapter 423, Statutes of 2002.)
3)Requires 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
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. AB 1493 (Chapter 200, Statutes of 2002.)
FISCAL EFFECT : Unknown.
COMMENTS : 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) Is it just me or is it hot in here? : 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,
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hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.
According to a 2002 CEC inventory of GHG emissions, current
research has largely supported earlier scientific findings that
GHG emissions from human activities have been steadily
increasing since the industrial revolution. <1> 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 uses fossil fuels differently than the United States
as a whole. Compared to most other states, California uses less
fossil energy to generate electricity. Close to 40% of
California's instate electricity generation comes from non-GHG
emitting sources, including hydroelectric, nuclear, and
renewable resources. The predominant fossil fuel for
electricity generation in California is natural gas, which emits
less GHG than oil or coal, which is the predominant fuel in many
other parts of the country.
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 PUC has already begun the process of introducing GHG factors
into utility procurement and place a cap on utility GHG
emissions. The PUC directed the IOUs to employ a GHG adder when
evaluating fossil and renewable bids for long-term procurement.
The GHG adder requires the utilities to account for the
financial risk associated with GHG emissions when evaluating
fossil fuel generation bids. The GHG value is to be calculate on
top of the actual prices of bids to help develop a more accurate
price comparison between and among fossil, renewable and
demand-side bids. The GHG adder is an analytical tool only, and
does represent a price that is actually paid to generators or
charged to ratepayers. The effect of the adder is to potentially
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<1> Inventory of California Greenhouse Gas Emissions and Sinks:
1990-1999
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change which bids and resources are selected.
On October 6, 2005, the PUC issued a Policy Statement on
Greenhouse Gas Performance Standards. The Policy Statement
directs staff to investigate adoption by the PUC of a greenhouse
gas emissions performance standard for IOU procurement that is
no higher than the GHG emissions levels of a combined-cycle
natural gas turbine for all procurement contracts that exceed
three years in length and for all new IOU-owned generation. In
effect, Senate Bill 1368 and the PUC Policy Statement mirror
each other.
In February, 2006, the PUC stated its intent to develop a
load-based cap on GHG emissions for the IOUs and non-utility
load serving entities (LSEs) that is compatible with other GHG
cap-and-trade regimes that may be developed in the future,
either in the Western Region, nationally, or internationally.
As such, the GHG emissions allowances associated with the PUC's
load-based cap will be in the form of "tons of carbon-dioxide
equivalent."
2) What is a long-term contract : This bill currently applies to
all contracts for baseload power that are at least five years in
length. The PUC's procurement planning process currently defines
"long-term" as five years or longer. Under PUC rules, long-term
contracts require PUC approval. The IOU's currently plan their
procurement activities based on this five-year period. The PUC
resource adequacy rules require IOUs to have almost all of the
forecasted demand contracted for at least a year in advance.
This means they make very few purchases on the spot market. Most
utilities do have numerous contracts for terms shorter than 5
years. These contracts would not be subject to this bill.
3) What is baseload : The bill currently only applies to
contracts for baseload power. Baseload power is defined as
electricity generation from a power plant that is designed to
provide electricity at least 60 percent of the total hours in a
year (a 60% capacity factor). Baseload power contracts are for
power that is intended to be operating to meet demand night and
day and throughout the year. This is different from peak power,
which is intended to be available only at those times of the day
and year when demand spikes. Baseload power generally comes from
more efficient power plants and tends to be cleaner and cheaper
than peak power.
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Opponents Concerns : Several opponents of the bill are concerned
that the bill will result in most utilities only purchasing
short-term contracts or relying on the spot market for power
purchases. This argument is based on a belief that most
utilities will want to avoid the requirements of the bill and
can do so by signing contracts of less than 5 years. It is
unclear why utilities would wish to avoid the requirement of the
bill if it is enacted, given the fact that most of the energy
consumed in California today already meets this standard.
Additionally, the PUC's long-term procurement plans will require
utilities to make long-term electricity procurement decisions so
they will not be able to enter into many short-term contracts or
rely on the spot market simply to avoid the GHG standards.
Some opponents have also argued that this bill will eliminate
one of the cheapest sources of electricity in the United States,
coal. Today, coal represents only 20% of California electricity
portfolio, and that number will likely decline as California
meets an increasing amount of its electricity demand through
renewable resources and energy efficiency. Supporters of coal
believe that "new clean coal technology is being developed to
burn coal more efficiency" and thus should not be excluded from
California's electricity portfolio. The bill however, does not
prohibit the use of any fuel source, including coal, provided it
is designed to have the same emission as natural gas. If new
technologies do in fact result in low coal emissions, this power
can be used under the provisions of the bill.
The opposition is concerned that upwards of 45% of California's
current generation would not meet the standards of this bill and
would be forced to shut down. This number is somewhat suspect
since 43% of California's electricity, by definition, today
comes from resources that produce little or no GHGs (hydro,
nuclear, and renewable) and many of the existing natural gas
plants meet the standard set by this bill. Additionally, many of
the facilities citied by the opponents as being non-compliance,
are not used to meet baseload power today and thus not subject
to the requirements of this bill, are scheduled to be repowered,
or are scheduled to be taken off line in the near future.
Additionally, some parties have specific process concerns with
the bill. Some of the IOUs believe that the PUC and not the CEC
should set the rules this bill requires and they believe that
the regulatory agency, and not the Legislature, should set
performance standard they must meet.
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One final concern is that this bill requires the CEC to
implement some of the standards in a new proceeding while the
PUC has already begun a proceeding to set GHG portfolio emission
standards. The PUC is expected to issue a decision in its
proceeding in December of this year. This bill would require the
CEC to start a new process that the PUC may be close to
completing.
REGISTERED SUPPORT / OPPOSITION :
Support
American Lung Association
California Coastal Protection Network
California League of Conservation Voters
Calpine (as proposed to be amended)
Clean Power Campaign
Coalition for Clean Air
Environment California
Environmental Defense
Environmental Entrepreneurs (E2)
Natural Resources Defense Council (NRDC)
Pacific Gas and Electric (PG&E) (if amended)
Planning and Conservation League (PCL)
Sierra Club California
TURN
Union of Concerned Scientists
Opposition
California Municipal Utilities Association (CMUA)
Center for Energy and Economic Development (CEED)
Sempra Energy
Sustainable Environment & Economy for California
Western States Petroleum Association (WSPA)
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083