BILL ANALYSIS SB 1368 Page A SENATE THIRD READING SB 1368 (Perata) As Amended August 21, 2006 Majority vote SENATE VOTE :21-13 UTILITES & COMMERCE 7-3 NATURAL RESOURCES 7-3 ----------------------------------------------------------------- |Ayes:|Levine, Baca, Cohn, De La |Ayes:|Hancock, Koretz, Laird, | | |Torre, Jerome Horton, | |Lieu, Nava, Saldana, Wolk | | |Montanez, | | | | |Ridley-Thomas | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Bogh, Keen, Wyland |Nays:|La Malfa, Keene, Villines | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 13-5 ----------------------------------------------------------------- |Ayes:|Chu, Bass, Berg, | | | | |Calderon, | | | | |De La Torre, Karnette, | | | | |Klehs, Leno, Nation, | | | | |Laird, Ridley-Thomas, | | | | |Saldana, Yee | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Sharon Runner, Emmerson, | | | | |Haynes, Nakanishi, | | | | |Walters | | | | | | | | ----------------------------------------------------------------- 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 SB 1368 Page B 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, and electric service provider 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 or a municipal utility 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 Public Utilities Commission (PUC) or California Energy Commission (CEC). 4)Prohibits PUC from approving a long-term financial commitment by an electrical corporation, unless any baseload generation supplied under the long-term commitment complies with GHG emission performance standards established by CEC. 5)Authorizes PUC to review any proposal for a long-term financial commitment by an electric service provider or a community choice aggregator, in order to enforce the requirements relating to GHG emission performance standards. 6)Requires 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 GHG emission performance standard in order to ensure compliance. 7)Authorizes CEC to adopt regulations to enforce this act with respect to a local publicly owned electric utility. 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. SB 1368 Page C 8)Requires PUC to establish a GHG emission performance standard for all baseload generation of load-serving entities 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 CEC to establish a GHG emission performance standard for all baseload generation of municipal utilities at an emission rate of GHG that is not higher than the emission rate of GHG for combined-cycle natural gas baseload generation. 10) Requires 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. 11) Requires 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. 12) 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. 13) Requires CEC to consider the effects of the standard on system reliability and overall costs to electricity customers. 14) Requires CEC to re-evaluate the GHG gas emission standard when and if an enforceable greenhouse gas emission 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 GHG emissions registry. Requires CEC to qualify third-party organizations to provide certification services and technical assistance to Registry participants. Requires CEC to provide technical guidance to the Registry on protocol development and SB 1368 Page D to periodically update the state's inventory of GHG emissions and serve as an information clearinghouse for information on climate change issues. [SB 1771 (Sher), 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 (Sher), 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 (Pavley), 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. 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, CEC recommended setting a GHG standard for utility procurement at level no higher than emission levels from new combined-cycle natural gas turbines. PUC has already begun the process of introducing GHG factors into utility procurement and place a cap on utility GHG emissions. PUC directed the IOUs to employ a GHG adder when evaluating fossil and renewable bids for long-term procurement. GHG adder requires the utilities to account for the financial risk associated with GHG emissions when evaluating fossil fuel generation bids. GHG value is to be calculated on top of the actual prices of bids to help develop a more accurate price SB 1368 Page E comparison between and among fossil, renewable and demand-side bids. 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 change which bids and resources are selected. On October 6, 2005, 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, this bill and the PUC Policy Statement mirror each other. What is a long-term contract?: This bill currently applies to all contracts for baseload power that are at least five years in length. PUC's procurement planning process currently defines "long-term" as five years or longer. Under PUC rules, long-term contracts require PUC approval. IOU's currently plan their procurement activities based on this five-year period. 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 five years. These contracts would not be subject to this bill. 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% 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. For more information on global warming and opposition concern, refer to the policy committee analysis. Analysis Prepared by : Edward Randolph / U. & C. / (916) SB 1368 Page F 319-208 FN: 0016681