BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2037
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           REPLACE  -5/10/10 Changes per consultant.
          
          ASSEMBLY THIRD READING
          AB 2037 (V. Manuel Perez)
          As Amended  April 13, 2010
          Majority vote 

           UTILITIES & COMMERCE           10-4                 NATURAL  
          RESOURCES            6-3                            
           
           ----------------------------------------------------------------- 
          |Ayes:|Bradford, Buchanan,       |Ayes:|Chesbro, Brownley, De     |
          |     |Carter, Fong, Fuentes,    |     |Leon, Hill, Huffman,      |
          |     |Furutani, Huffman, Ma,    |     |Skinner                   |
          |     |Skinner, Swanson          |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Knight, Tom Berryhill,    |Nays:|Gilmore, Knight, Logue    |
          |     |Fuller, Villines          |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           APROPRIATIONS       10-5                                        
               
           ----------------------------------------------------------------- 
          |Ayes:|Fuentes, Ammiano, Coto,   |     |                          |
          |     |Davis, Bonnie Lowenthal,  |     |                          |
          |     |Hall, Skinner, Solorio,   |     |                          |
          |     |Torlakson, Hill           |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Conway, Harkey, Miller,   |     |                          |
          |     |Nielsen, Norby            |     |                          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :   Prohibits utilities from entering into a long-term  
          financial commitment with a new electric generating facility  
          that does not meet best available control technology (BACT)  
          standards, and has not obtained air pollution offsets in the  
          California air basin if the facility was constructed outside of  
          California in a shared pollution area.  Specifically,  this bill  :

          1)Prohibits a load-serving entity or local publicly owned  
            electric utility from entering into, and prohibits the  
            California Public Utilities Commission (PUC) from approving, a  








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            long-term financial commitment with or for a new electrical  
            generating facility constructed in California or in a shared  
            pollution area if that facility does not meet the following  
            criteria:

             a)   If the facility was constructed in California, the  
               facility was constructed to meet BACT standards, and  
               offsets to mitigate air pollution from operation of the  
               facility were obtained by the U.S. Environmental Protection  
               Agency (EPA) in the air basin in which the facility was  
               constructed.  

             b)   If the facility was constructed outside of California in  
               a shared pollution area, the facility was constructed to  
               meet BACT standards, and offsets to mitigate air pollution  
               from operation of the facility were obtained by the U.S.  
               EPA in the air basin  in California  adjacent to the  
               facility.

          2)Requires the PUC, California Energy Commission, local air  
            pollution control districts and air quality management  
            districts, and the State Air Resources Board to explore with  
            federal agencies and with other governments, methods to  
            encourage the recognition by all relevant agencies of offsets  
            achieved anywhere in a shared pollution area, and the use of  
            cross-border trading of offsets, emission reduction credits,  
            and available mitigation funds.

           EXISTING LAW  :

          1)Requires air districts to adopt and implement local and  
            regional programs to reduce air pollution and to achieve state  
            and federal ambient air standards.

          2)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 CEC's  
            greenhouse gas emission performance standards. 

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1)Minor ongoing costs to PUC, in the range tens of thousands of  
            dollars, to review proposed long-term financial commitments  








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            between public utilities and generating facilities to ensure  
            compliance with BACT standards or possession of sufficient  
            offsets.  Actual costs will depend upon the number of  
            facilities proposed to be built that fall under PUC  
            jurisdiction and that require additional review, a number  
            likely to be very small. In any case, PUC already reviews  
            proposed contracts between public utilities and generating  
            facilities, so any additional workload should be minor.

          2)Minor, absorbable costs to PUC, CEC and ARB to explore with  
            federal agencies and other governments methods to encourage  
            recognition of offsets in a shared pollution area.

           COMMENTS  :  According to the author, the purpose of this bill is  
          to deter the building of powerplants that do not comply with  
          California's air pollution standards, when the powerplant shares  
          an air basin with Californians.  Mexico has more lenient  
          building and air-emission standards than California.  There is  
          concern that California's growing demand for electricity will  
          encourage more powerplants to be built in Mexico, where the  
          regulations are less stringent. 

          Some power plants located in Mexico reside in the same air basin  
          as California's border region. As a result, the adverse air  
          emissions generated from the Mexico-based power plants affect  
          California residents.  By disallowing a California utility from  
          engaging in a long-term contract with dirty-burning power  
          plants, it might provide an incentive for any new powerplants on  
          the Mexico side of the border to comply with California's BACT  
          and air pollution control standards.  

          Three electricity generation facilities are located near  
          Mexicali, about 3 miles south of the international border and  
          about 12 miles southwest of Calexico, California.  The  
          Termoelectrica de Mexicali plant, owned by Sempra Energy, is a  
          500-megawatt (MW) facility that produces electricity for export  
          into U.S. InterGen owns and operates the La Rosita 750 MW plant  
          and Energia de Baja California, which are located on a common  
          site and referred to as the InterGen Complex.  Half of the  
          electricity from the InterGen Complex is generated for use  
          within Mexico and the remaining half is produced for export into  
          the U.S. InterGen contracted with the Mexican utility to produce  
          electricity for Mexico for a guaranteed fixed price for 25  
          years.  The InterGen Complex producing this power meets Mexican,  








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          but not California, clean air requirements. 

          InterGen's Complex emits about 1,900 tons of nitrous oxide  
          annually, but the Sempra plant in Mexicali produces only 190  
          tons annually.  InterGen counters that its bid on a contract to  
          supply power to Mexico was based on the requirement that bidders  
          must comply with Mexican air regulations, and now that the  
          contract has been awarded, no changes are allowed to the  
          contract except as specifically provided in the contract.  Thus,  
          the company claims that it would be difficult to shut down its  
          operation to install BACT, and it would be cost prohibitive  
          given the circumstances under which the contract was bid.   
          InterGen further contends that its Mexicali plant is one of the  
          cleanest in Mexico and is cleaner than more than 50% of the  
          plants currently operating in the U.S. and California.  As such,  
          this bill does not apply to existing power plants and only to  
          new plants constructed after January 1, 2011, or plants that add  
          incremental capacity after January 1, 2011.  


           Analysis Prepared by :    Gina Adams / U. & C. / (916) 319-2083 

                                                               FN:  0004304