BILL ANALYSIS                                                                                                                                                                                                    


          |SENATE RULES COMMITTEE            |                  SB 1368|
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                              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,  
          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  :  45-32, 8/30/06 - See last page for vote


                                                               SB 1368

           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  

           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

             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  

           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  

           8.Requires the PUC to establish a GHG emission performance  
             standard for all baseload generation of load-serving  


                                                               SB 1368

             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  

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

          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.


           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

          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  
           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

          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                             


                                                               SB 1368

             *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  

          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

           ASSEMBLY FLOOR  :


                                                               SB 1368

          AYES:  Arambula, Baca, Bass, Berg, Bermudez, Chan, Chavez,  
            Chu, Cohn, Coto, De La Torre, Dymally, Evans, Frommer,  
            Goldberg, Hancock, Jerome Horton, Jones, Karnette, Klehs,  
            Koretz, Laird, Leno, Levine, Lieber, Lieu, Liu, Matthews,  
            Montanez, Mullin, Nation, Nava, Negrete McLeod, Oropeza,  
            Pavley, Ridley-Thomas, Ruskin, Saldana, Salinas, Torrico,  
            Umberg, Vargas, Wolk, Yee, Nunez
          NOES:  Aghazarian, Benoit, Blakeslee, Bogh, Canciamilla,  
            Cogdill, Daucher, DeVore, Emmerson, Garcia, Haynes,  
            Shirley Horton, Houston, Huff, Keene, La Malfa, La Suer,  
            Leslie, Maze, McCarthy, Mountjoy, Nakanishi, Niello,  
            Plescia, Richman, Sharon Runner, Spitzer, Strickland,  
            Tran, Villines, Walters, Wyland
          NO VOTE RECORDED:  Calderon, Parra, Vacancy

          NC:cm  8/31/06   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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