BILL ANALYSIS                                                                                                                                                                                                    




                                                                  SB 1368
                                                                  Page A

          SENATE THIRD READING
          SB 1368 (Perata)
          As Amended August 30, 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
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            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 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 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 (ESP) 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  
            greenhouse gases (GHG) emissions registry.  The legislation  









                                                                  SB 1368
                                                                  Page D

            required the California Energy Commission (CEC) to qualify  
            third-party organizations to provide certification services  
            and technical assistance to Registry participants.  CEC is  
            required to provide technical guidance to the Registry on  
            protocol development.  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.  

          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.   









                                                                  SB 1368
                                                                  Page E

          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 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. 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, Senate Bill  
          1368 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 5  
          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 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. 

          For more information on Global Warming and opposition concern,  









                                                                  SB 1368
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          refer to the June 22, 2006, Utilities and Commerce Committee  
          analysis. 


           Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  
          319-2083


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