BILL ANALYSIS                                                                                                                                                                                                    

                                                       Bill No:  AB  
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis

          AB 2738  Author:  Niello
          As Introduced:  February 19, 2010
          Hearing Date:  June 22, 2010
          Consultant:  Art Terzakis

                    Regulations: agency statement of reasons

          AB 2738 establishes a performance standards preference in  
          the rulemaking process (Administrative Procedure Act) and  
          requires justification for a technology-specific  
          regulation.   Specifically, this measure:
          1)Requires a state agency, when submitting proposed  
            regulations to the Office of Administrative Law (OAL),  

             a)   Acknowledge that the imposition of a performance  
               standard is generally the preferred alternative to  
               mandating specific methods of compliance;

             b)   Identify and describe the elements of a regulation  
               that require, or may require through at least one  
               alternative method of compliance, the use of specific  
               technologies, equipment, actions, or procedures, or  
               other potentially proprietary compliance scheme,  
               methodology, or process; and,

             c)   Provide a justification for departing from the  
               acknowledged preference of imposing performance  
               standards and a detailed specification as to why  
               certain technologies, equipment, actions, or  
               procedures are required to meet the goals of the  
               regulation, instead of imposing a performance  


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          Page 2


          2)  Deletes an existing provision of law that stipulates,  
            in the case of a regulation that would mandate the use of  
            specific technologies or equipment or prescribe specific  
            actions or procedures, the performance standards must be  
            considered as an alternative.
                                  EXISTING LAW

           Existing law, the Administrative Procedure Act, governs the  
          procedure for the adoption, amendment, or repeal of  
          regulations by state agencies and for the review of those  
          regulatory actions by the Office of Administrative Law  
          Existing law requires an agency to submit to the office,  
          among other things, an initial statement of reasons for  
          proposing the adoption, amendment, or repeal of a  
          regulation that includes, among other things, a description  
          of reasonable alternatives to the regulation. Existing law  
          requires, for a regulation that would mandate the use of  
          technologies or equipment or prescribe specific actions or  
          procedures, that the imposition of performance standards be  
          considered as an alternative.

           Administrative Procedures Act (APA):   The APA governs the  
          adoption of regulations by state agencies for purposes of  
          ensuring that they are clear, necessary, legally valid, and  
          available to the public.  In seeking adoption of a proposed  
          regulation, state agencies must  comply with procedural  
          requirements that include publishing the proposed  
          regulation along with supporting statement of reasons;  
          mailing and publishing a notice of the proposed action 45  
          days before a hearing or before the close of the public  
          comment period; and submitting a final statement to the  
          Office of Administrative Law (OAL) which summarizes and  
          responds to all objections, recommendations, and proposed  
          alternatives that were raised during the public comment  
          period.  The OAL is then required to approve or reject the  
          proposed regulation within 30 days.

          More specifically related to this measure, the APA  
          requires, for a regulation that would mandate the use of  


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          Page 3

          specific technologies or equipment or prescribe specific  
          actions or procedures, that the imposition of performance  
          standards be considered as an alternative. 

          According to the author's office, "AB 2738 would improve on  
          current law by requiring greater justification,  
          transparency, and specificity when an agency promulgates  
          regulations that mandate the use of a specific technology."
          During the rulemaking process, a state agency is required  
          to prepare an Initial Statement of Reasons (ISOR) whenever  
          it proposes to create, repeal or amend a regulation.   
          [Government Code Section 11346.2(b)]  An ISOR describes the  
          basis of the regulation, the purpose of the rule, how it is  
          intended to be implemented and the data on which the public  
          agency relied to develop the proposed regulatory change.   
          An ISOR must also provide a description of reasonable  
          alternatives to the rule being proposed.
          This measure would retain the requirements for an agency to  
          review reasonable alternatives, but it would delete the  
          language regarding the consideration of a performance  
          standard as an alternative and instead, would: (a) require  
          an agency to acknowledge that a performance standard is  
          generally a preferred alternative to a specific technology  
          mandate; (b) specify all ways in which specific technology  
          may be mandated; and, (c) provide a detailed justification  
          of why a specific technology is being proposed over the  
          preferred alternative.  The author's office notes that as  
          the statutorily defined preferred alternative, a  
          performance standard would still be included in any  
          agency's review of reasonable alternatives, as under  
          current law.

           Arguments in Support:   The sponsor of this measure, the  
          Pacific Merchant Shipping Association (PMSA), contends that  
          the pressure to regulate to technology specification is  
          acknowledged and discouraged in the APA Act which requires  
          the consideration of a performance standard as an  
          alternative to specific technology.  PMSA writes, "There is  
          always the temptation to become overly prescriptive, and  
          regulators often find themselves becoming an arbiter of  
          which specific technologies can achieve some of the goals  
          of the rulemaking.  However, by not setting rules based on  
          performance standards, regulators can undervalue the  
          incentive of the regulated communities to comply in the  


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          most cost-effective, innovative, competitive and,  
          ironically, technologically-friendly manner possible."   
          PMSA states that this measure "simply seeks to strengthen  
          existing law with the promotion of rulemaking based on  
          performance standards and requiring agencies to justify any  
          departure from this preference."

           Arguments in Opposition:   The California Department of  
          Insurance is opposed to this measure in its current form.   
          The department notes that all the regulations it  
          promulgates require specific actions and procedures.  For  
          example, something as simple as a licensing application  
          regulation necessarily requires applicants to follow a  
          certain procedure.  The department states that it  
          promulgates approximately 10-20 sets of regulations  
          annually, some of which are quite lengthy and highly  
          complex.  [For example, the department's regulations for  
          prior approval of insurance rates under Proposition 103 can  
          run to hundreds and even thousands of pages of actuarial  

          Currently, the APA requires the department to state in the  
          ISOR that the agency has considered performance standards  
          as an alternative and explain why a performance standard in  
          the particular context at hand would be impracticable.  The  
          department claims that AB 2738 would double, at minimum,  
          the work it has to do in the ISOR, and thus would have a  
          significant fiscal impact on the department.  The  
          department believes this measure has value in other  
          regulatory contexts but it does not add much to benefit the  
          public if applied as is to the department's regulations.

          The department has offered suggested amendments to the  
          author's office to resolve this problem - but that language  
          has been rejected.       

                            PRIOR/RELATED LEGISLATION
           SB 1351 (Wright) 2009-10 Session.   Would require agencies  
          when adopting regulations to affirm the availability of  
          required new technologies and to include implementation  
          schedules, procedures, and forms, necessary for compliance  
          in the proposed regulation.  If this is not possible at the  
          time of the adoption of the regulation than enforcement of  
          the regulation will be delayed for six months following  
          notice of the availability of the new technology or other  


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          Page 5

          implementation tools.  (Pending in Assembly policy  
          AB 2118 (Villines) 2007-08 Session.   Would have prohibited  
          state agencies from adopting regulations requiring the use  
          of a specific technology unless it has been             
          operational and proven effective for more than two years,  
          or would place an undue burden on business on an annual  
          basis and result in a significant loss of jobs.  (Failed  
          passage in Assembly policy committee)
           SUPPORT:   As of June 18, 2010:

          Pacific Merchant Shipping Association (sponsor)
          American Council of Engineering Companies of California
          California Board of Accountancy
           SUPPORT:   (continued)

          California Business Properties Association
          California Chamber of Commerce
          California Manufacturers & Technology Association
          California Retailers Association
          Western Propane Gas Association

           OPPOSE:   As of June 18, 2010:

          California Department of Insurance

           DUAL REFERRAL:   Senate Committee on Rules 
          FISCAL COMMITTEE:   Senate Appropriations Committee