BILL ANALYSIS                                                                                                                                                                                                    




                                                                  SB 1368
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          Date of Hearing:  June 29, 2006

                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES
                                 Loni Hancock, Chair
                    SB 1368 (Perata) - As Amended:  June 22, 2006

           SENATE VOTE  :  21-13
           
          SUBJECT  :  Electricity: emissions of greenhouse gases.

           SUMMARY  :  Requires the California Energy Commission (CEC) to set  
          greenhouse gas emission standards for those entities providing  
          electricity in the state.  The bill also requires the California  
          Public Utilities Commission (PUC) to prohibit electricity  
          providers and corporations from entering long-term contracts  
          which do not meet the CEC's standard provided under this bill.

           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.  

          2) Requires the 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.

          3) Requires the Registry to develop and adopt protocols to  
             report and certify forestry sector projects and entity-wide  
             GHG emissions inventories with the intent of fostering carbon  
             sequestration and other co-benefits in California's forests  
             through sustainable forest management practices.

          4) Requires the California Air Resources Board (ARB) to adopt  
             regulations to reduce the emissions of GHG's from motor  
             vehicles, starting with the 2009 model year.  The regulations  
             would take effect no sooner than January 1, 2006.  The ARB  



           







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             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 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 GHG emission performance standard. 

          4) Prohibits the 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 a electric service provider or a  
             community choice aggregator, in order to enforce the  
             requirements relating to GHG emission performance standards.

          6) Authorizes the PUC to adopt rules to enforce GHG emission  
             performance standards for electrical corporations, electric  



           







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             service providers, and community choice aggregators.  To this  
             extent, the bill requires the PUC to adopt procedures to  
             verify the emissions of GHG's 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  
             Systems Operator and the ARB, 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 existing 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 GHG's 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 GHG emission limit applying to the  



           







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             electricity sector is established and in operation. 

           FISCAL EFFECT  :  According to the Senate Appropriations Committee  
          Analysis, the bill imposes some costs on the CEC and ARB to  
          develop emission standards and promulgate regulations.  These  
          costs are unknown, but could be in excess of $50,000.

           COMMENTS  :

           1) Climate Change and Greenhouse Gas Emissions  

          The term "greenhouse gas emissions" refers to gases, such as  
          water vapor, carbon dioxide, nitrous oxide, methane,  
          hydroflurocarbons (HFCs), and perflurocarbons (PFCs) that when  
          allowed to build up in the atmosphere, cause a rise in the  
          average temperature of the earth's surface. In California,  
          nearly 40% of our GHG pollution comes from our 24 million motor  
          vehicles and over 30% comes from our growing population of power  
          plants that burn natural gas<1>.  
           
          The potential adverse consequences of global warming from GHG  
          emissions are globally significant, and recent studies predict  
          major statewide impacts.  A 2004 study published by the Union of  
          Concerned Scientists includes modeling data showing that if  
          there are no further controls on the emission of GHG's  
          California's summer temperatures could increase by as much as  
          ten degrees annually in the Central Valley and other parts of  
          the state by the end of the century.  A ten-degree increase in  
          summer in the Sacramento Valley, for example, would have  
          profound impacts on the environment and economy of the region.

          Predicted temperature rises in California will result in  
          increased mortality among the elderly and other vulnerable  
          populations, increased respiratory illness from further  
          degradation of air quality, and profound transformation in the  
          landscape, including the potential extinction of several animal  
          species. There could be severe economic impacts from water  
          supply problems, changes in agricultural production, and  
          increased energy costs, among other impacts. Specific examples  
          ---------------------------
          <1> From the California Energy Commission's "Inventory of  
          California 
          Greenhouse Gas Emissions and Sinks: 1990-1999", November 2002


           







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          include reduction in Sierra snow pack, more intense rainfall in  
          some areas, extended droughts in others, greater evaporation of  
          surface waters, and rising sea levels making vulnerable valuable  
          wetland ecosystems that rely on a specific fresh water-salt  
          water balance.  Agricultural impacts vary, including predictions  
          ranging from large decreases to large increases in production,  
          depending on assumptions of temperature increase, potential  
          benefits of increased carbon dioxide, and adaptation measures.   
          Energy needs would substantially increase, particularly in  
          summer, to keep warmer parts of the state habitable.

          Last year, the Governor announced ambitious goals and schedules  
          for reducing GHG emissions in Executive Order S-3-05.  The  
          strategy for achieving these goals is expected to rely heavily  
          on achieving reduction in the utility sector, primarily electric  
          generation.  In its 2005 Integrated Energy Policy Report, the  
          CEC recommended that the state "should specify a GHG performance  
          standard and apply it to all utility procurement, both in-state  
          and out-of-state, both coal and noncoal."<2> The CEC further  
          recommended that "any GHG performance standard?be set no looser  
          than levels achieved by a new combined-cycle natural gas  
          turbine."<3> The PUC has also indicated its intention to  
          introduce GHG factors into utility procurement and place a cap  
          on utility GHG emissions.  According to the author's office, 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.

           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 Investor Owned Utilities (IOUs) 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  
          ---------------------------
          <2> California Energy Commission, 2005 Integrated Energy Policy  
          Report, Publication CEC-100-2005-007, November 2005, p.84
          <3> Ibid.


           







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          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. 

           4) Technical Drafting Error
           
          In its current form, this bill contains a technical drafting  
          error.  The committee may wish to correct the error as follows:

          On page 8, line 26, delete ", as of March 31, 2007" 

          On page 8, line 19, after (1), insert "On or before March 31,  
          2007, "

           5) Related Legislation  

          In the current legislative session, there are a number of  
          measures that relate to climate change.  Among them are:

             a)    SB 107 (Simitian).  Accelerates the Renewable Portfolio  
                Standard to require sellers of electricity to procure at  
                least 20% of their retail sales from renewable power by  
                2010 instead of 2017.

             b)    SB 1250 (Perata).  Revises the public interest energy  
                research, demonstration and development program; the  
                renewable energy resources program, including for the  
                purposes for which the money in the Renewable Resource  
                Trust Fund may be used.



           







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             c)    AB 32 (Nunez and Pavley). Enacts the Global Warming  
                Solutions Act of 2006 which among other things, requires  
                ARB to report and verify greenhouse gas emissions and  
                require ARB to adopt statewide greenhouse gas emissions  
                limits.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Lung Association
          California Coastal Protection Network
          California League of Conservation Voters
          Calpine
          Clean Power Campaign
          Coalition for Clean Air
          Environment California
          Environmental Defense
          Environmental Entrepreneurs
          Natural Resources Defense Council
          Pacific Gas and Electric
          Planning and Conservation League 
          Sierra Club California
          TURN
          Union of Concerned Scientists

           Opposition 
           
          California Municipal Utilities Association
          Center for Energy and Economic Development
          Sempra Energy
          Sustainable Environment & Economy for California
           
          Analysis Prepared by  :  Kyra Emanuels Ross / NAT. RES. / (916)  
          319-2092