BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1368| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1368 Author: Perata (D), et al Amended: 8/30/06 Vote: 21 SENATE ENERGY, U.&C. COMMITTEE : 6-1, 4/4/06 AYES: Escutia, Alarcon, Dunn, Kehoe, Murray, Simitian NOES: Cox NO VOTE RECORDED: Battin, Bowen, Dutton SENATE ENV. QUALITY COMMITTEE : 5-1, 4/24/06 AYES: Simitian, Chesbro, Escutia, Kuehl, Lowenthal NOES: Runner NO VOTE RECORDED: Cox SENATE APPROPRIATIONS COMMITTEE : 8-5, 5/25/06 AYES: Murray, Alarcon, Alquist, Escutia, Florez, Ortiz, Romero, Torlakson NOES: Aanestad, Ashburn, Battin, Dutton, Poochigian SENATE FLOOR : 21-13, 6/1/06 AYES: Alarcon, Alquist, Cedillo, Chesbro, Dunn, Escutia, Florez, Kehoe, Kuehl, Lowenthal, Migden, Murray, Ortiz, Perata, Romero, Scott, Simitian, Soto, Speier, Torlakson, Vincent NOES: Aanestad, Ackerman, Ashburn, Battin, Cox, Denham, Dutton, Hollingsworth, Maldonado, Margett, McClintock, Poochigian, Runner NO VOTE RECORDED: Bowen, Ducheny, Figueroa, Machado, Morrow, Vacancy ASSEMBLY FLOOR : Not available CONTINUED SB 1368 Page 2 SUBJECT : Electricity: emissions of greenhouse gases SOURCE : Author DIGEST : This bill requires the State Energy Conservation and Development Commission to set emission (e.g., pollution) standards for those entities providing electricity in the state. The bill requires the Public Utilities Commission to prohibit electricity providers and corporations from entering long-term contracts which do not meet the State Energy Conservation and Development Commission's standard. Assembly Amendments further clarify requirements for the State Energy Conservation and Development Commission and the Public Utilities Commission and make technical adjustments. ANALYSIS : Existing law provides that the Public Utilities Commission (PUC) has regulatory authority over public utilities. Existing law provides for the State Energy Conservation and Development Commission, referred to as the California Energy Commission (CEC). This bill creates a Greenhouse Gas (GHG) performance standard for baseload generation. 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 by electricity of load serving entities. 2.Provides various definitions, including "load serving entity," which refers to every electrical corporation, community choice aggregator, and electric service SB 1368 Page 3 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 PUC or CEC. 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 GHG emission performance standards established by CEC. 5.Authorizes the PUC to review any proposal for a long-term financial commitment by an electrical service provider or a community choice aggregator, in order to enforce the 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 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 PUC to establish a GHG emission performance standard for all baseload generation of load-serving SB 1368 Page 4 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 the 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 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. 11.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. 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 the CEC to consider the effects of the standard on system reliability and overall costs to electricity customers. 14.Requires the 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. Background 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, hydrofluorocarbons, perfluorocarbons and SB 1368 Page 5 sulfur hexafluoride. While the political debate over the existence, cause, and effects of global warming, and what to do about it, continues, the prevailing wisdom among climate scientists is that global warming is occurring and that measures should be taken to address its effects. SB 1771 (Sher), Chapter 1018, Statutes of 2000, required the CEC, in consultation with other state agencies, to update California's inventory of GHG emissions in January 2002 and every five years thereafter. The inventory is to include all emission sources in the state that were identified in the CEC's 1998 report, "Historical and Forecasted Greenhouse Gas Emissions Inventories for California," including power plants. According to the CEC's 2002 report, "Inventory of California Greenhouse Gas Emissions and Sinks: 1990-1999," current research has largely supported earlier scientific findings that GHG emissions from human activities have been steadily increasing since the industrial revolution. In addition, the United Nations-sanctions 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 has seen a modest increase in GHG emissions over the last decade. This increase is in the consequence of several divergent forces within California, some leading to increases in GHG emissions, and others negating those increases. Several key California industries emit only moderate amounts of CO2. With a relatively temperate climate, California uses relatively less heating and cooling energy than other states. As a leader in implementing aggressive efficiency and environmental programs, California has been able to reduce CO2 emission rates in all sectors, as well as reducing energy demand and air pollution emissions. However, California leads the nation in vehicle miles traveled. As a result, CO2 emissions from the transportation sector are increasing. SB 1368 Page 6 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. This lower reliance on fossil fuels is due to the availability of hydroelectric and nuclear power, and the continuing and growing use of renewable energy. The predominant fossil fuel for electricity generation in California is natural gas, which emits relatively less GHG than oil or coal, the predominant fuel in many other parts of the country. As a fraction of its total fossil fuel use, California uses more fossil fuels (primarily gasoline) in the transportation sector. 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 CPUC has also indicated its intention to introduce GHG factors into utility procurement and place a cap on utility GHG emissions. 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes Fiscal Impact (in thousands) Major Provisions 2006-07 2007-08 2008-09 Fund Electricity costs -- Unknown, see below -- GF & SF* Develop & pro- mulgate regulations $50 Special** SB 1368 Page 7 *The costs paid by departments would be financed with the General Fund and all special funds which are used to finance operations within buildings. **These costs are likely financed by the Energy Resources Products Account 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. These costs would likely be borne by special funds, primarily the Energy Resources Products Account. The PUC says it will incur no new net costs to monitor or enforce the bill's provisions. In addition, to the extent the regulations limit the number of suppliers who may provide power to the California market, the bill could increase wholesale electricity costs. If these costs are reflected in the electricity rates the state pays, then the state's long-term utility costs would rise, potentially beginning in the budget year. These costs, potentially major, could be charged to the General Fund and most special funds. SUPPORT : (Unable to verify at time of writing) E2 (Environmental Entrepreneurs) Natural Resources Defense Council Pacific Gas and Electric Company, if amended Sacramento Metropolitan Air Quality Management District Sempra Energy, if amended Sierra Club California The Utility Reform Network Union of Concerned Scientists OPPOSITION : (Unable to verify at time of writing) California Municipal Utilities Association Center for Energy and Economic Development Southern California Edison Sustainable Environment and Economy for California Western States Petroleum Association NC:cm 8/30/06 Senate Floor Analyses SB 1368 Page 8 SUPPORT/OPPOSITION: SEE ABOVE **** END ****