BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1368 
                                                                  Page  1

          Date of Hearing:   August 16, 2006

                                   Judy Chu, Chair

                   SB 1368 (Perata) - As Amended:  August 7, 2006 

          Policy Committee:                              UtilitiesVote:7-3
                        Natural Resources                     7-3

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No


          This bill requires the California Energy Commission (CEC) to set  
          greenhouse gas emission standards for entities providing  
          electricity in the state, and requires the Public Utilities  
          Commission (PUC) to prohibit electricity providers and  
          corporations from entering long-term contracts that do not meet  
          the CEC standard. Specifically, this bill:

          1)Prohibits a load-serving entity from entering into a long-term  
            financial commitment, through ownership or contracts exceeding  
            five years, unless any baseload electricity generation  
            supplied under the long-term financial commitment complies  
            with a greenhouse gas (GHG) emission performance standard,  
            which is to be developed by the CEC. 

          2)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 CEC's GHG emission performance standards. 

          3)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. 

          4)Requires the PUC to adopt rules and procedures to enforce GHG  
            emission performance standards for electrical corporations,  


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            electric service providers, and community choice aggregators. 

          5)Requires the CEC to adopt regulations to enforce the GHG  
            emission performance standards with respect to a local  
            publicly owned electric utility.

          6)Requires the CEC, by March 31, 2007, and in consultation with  
            the Independent Systems Operator and the Air Resources Board  
            (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, and specifies  
            a methodology for cogeneration plants and biomass facilities. 

          7)Requires the CEC to consider the effects of the standard on  
            system reliability and overall costs to electricity customers.  


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           FISCAL EFFECT  

          1)The CEC estimates an ongoing need for four staff positions  
            (about $400,000) and one-time costs of around $750,000 for  
            technical contract support, for development of the GHG  
            standards and regulations, and for monitoring and enforcement  
            with regard to the local publicly owned utilities. [Energy  
            Resources Programs Account]

          2)The PUC indicates that costs are absorbable, as the bill is  
            consistent with ongoing activities at the commission.

          3)To the extent the bill results in a more expensive portfolio  
            of procured energy and higher electricity costs, there will be  
            increased General Fund and special fund costs for electricity  
            use in state facilities.


           1)Background and Purpose  . 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 GHG pollution comes from the state's  
            24 million motor vehicles and over 30% comes from power plants  
            burning natural gas. The potential adverse consequences of  
            global warming from GHG emissions are globally significant,  
            and recent studies predict major statewide impacts. According  
            to experts, 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 also be  
            severe economic impacts from water supply problems, changes in  
            agricultural production, and increased energy costs, among  
            other impacts.

            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  


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            specify a GHG performance standard and apply it to all utility  
            procurement, both in-state and out-of-state, both coal and  
            noncoal." The CEC further recommended that "any GHG  
            performance standard?be set no looser than levels achieved by  
            a new combined-cycle natural gas turbine." 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)Opposition  . The Desert Water Agency (DWA) believes that the  
            bill will limit the ability of California utilities to  
            purchase generation capacity from coal-fired powerplants  
            located outside the state. The DWA believes this will increase  
            the state's reliance on natural gas, thus putting pressure on  
            natural gas prices and hence electricity costs.

           3)Related Legislation  . SB 107 (Simitian), pending in the  
            Assembly, 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  

            AB 32 (Nunez), pending in the Senate Appropriations Committee,  
            in part requires the ARB to report and verify greenhouse gas  
            emissions and requires ARB to adopt statewide greenhouse gas  
            emissions limits. 

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081