BILL ANALYSIS                                                                                                                                                                                                    

                                                               AB 2738

                        Senator S. Joseph Simitian, Chairman
                              2009-2010 Regular Session
           BILL NO:    AB 2738
           AUTHOR:     Niello
           AMENDED:    August 2, 2010
           FISCAL:     Yes               HEARING DATE:     August 9, 2010
           URGENCY:    Yes               CONSULTANT:       Randy Pestor

            SUMMARY  :    
            Existing law  :

           1) Under the Administrative Procedure Act (APA) (Government  
              Code 11340 et seq.) establishes rulemaking procedures and  
              standards for state agencies.  State regulations must also  
              be adopted in compliance with regulations adopted by the  
              Office of Administrative Law (OAL).  The APA, among other  

              a)    Requires every agency to prepare and submit a  
                 specified notice of the proposed action and make certain  
                 information available to the public (e.g., draft  
                 regulation in "plain English"; statement of reasons for  
                 proposing the adoption, amendment, or repeal of a  
                 regulation; evidence to support a determination that the  
                 action will not have a significant adverse economic  
                 impact on business).  (11346.2).  The statement of  
                 reasons must identify each technical, theoretical, and  
                 empirical report upon which the agency relies in  
                 proposing the regulation.  (11346.2(b)(2)). 

              b)    Requires state agencies in proposing to adopt, amend,  
                 or repeal any regulation to assess the potential for  
                 adverse economic impact on California business  
                 enterprises and individuals.  In assessing the potential  
                 for adverse economic impact, state agencies must meet  
                 certain requirements (e.g., be based on adequate  
                 information concerning the need for, and consequences  
                 of, proposed action; consider industries affected  


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                 including the ability to compete with businesses in  
                 other states).  State agencies must also assess whether,  
                 and to what extent, regulations will affect certain  
                 matters (e.g., creation or elimination of jobs in the  
                 state, creation of new businesses or elimination of  
                 existing businesses in the state, expansion of  
                 businesses currently doing business in the state).   
                 (Government Code 11346.3).

              c)    Requires the notice of proposed adoption, amendment,  
                 or repeal of a regulation to include certain matters  
                 (e.g., include specified information if there may be a  
                 significant, statewide adverse economic impact;  
                 description of all cost impacts to be incurred by a  
                 private person or business; statement of the results of  
                 the economic impact assessment).  (11346.5). 

              d)    Contains various provisions relating to performance  
                 standards, including:  (i) legislative intent that  
                 agencies seek to substitute performance standards for  
                 prescriptive standards wherever performance standards  
                 can be reasonably expected to be as effective and less  
                 burdensome (11340.1), (ii) definitions for "performance  
                 standard" and "prescriptive standard" (11342.570 and  
                 11342.590), and notification to seek information on  
                 performance standards (11346.5(a)(7)(C)(iii)).  If the  
                 adoption or amendment of a regulation would require use  
                 of specific technologies or equipment, the statement of  
                 reasons for proposing the regulation must include a  
                 statement of reasons why the agency believes these  
                 "mandates or prescriptive standards are required" and  
                 the imposition of performance standards must be  
                 considered as an alternative (11346.2).

              e)    Requires OAL to either approve a submitted regulation  
                 and transmit it to the Secretary of State for filing, or  
                 disapprove it, within 30 working days.  If OAL fails to  
                 act within 30 days, the regulation is deemed approved  
                 and OAL must transmit it to the Secretary of State.   

           2) Provides the California Air Resources Board (ARB) with  


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              primary responsibility for control of mobile source air  
              pollution, including adoption of rules for reducing vehicle  
              emissions and the specification of vehicular fuel  
              composition.  (Health and Safety Code 39000 et seq. and  
              39500 et seq.).  When making information available to the  
              public under the APA relating to studies and reports that  
              ARB relied upon, ARB must also make information public that  
              is related to, but not limited to, air emissions, public  
              health impacts, and economic impacts before the comment  
              period for any regulation proposed for adoption by the ARB.  

            This bill  , under the Administrative Procedure Act:

           1) Revises 11346.2 "statement of reasons" requirements (1 d)  
              above), to require an agency, in the case of a regulation  
              that would require use of specific technologies or  
              equipment, or prescribe actions or procedures that would  
              require use of specific technologies or equipment, to:

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

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

              c)    Provide justification for departing from the  
                 acknowledged preference of imposing performance  
                 standards, and specify why certain technologies,  
                 equipment, actions or procedures requiring use of  
                 specific technologies or equipment, are necessary in  
                 order to meet the goals of the regulation, instead of  
                 imposing a performance standard. 

           2) Contains an urgency clause.


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            COMMENTS  :

            1) Purpose of Bill  .  According to the author, "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 . . . 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.  Importantly, an ISOR must provide a  
              description of reasonable alternatives to the rule being  

           The author notes that "AB 2738 would retain the requirements  
              for an agency to review reasonable alternatives, but it  
              would amend the language regarding the consideration of a  
              performance standard as an alternative.  AB 2738 would  
              instead require an agency to acknowledge that a performance  
              standard is generally a preferred alternative to a specific  
              technology mandate, specify all ways in which specific  
              technology may be mandated, and provide a detailed  
              justification of why a specific technology is being  
              proposed over the preferred alternative.  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."

           Under the APA, a "performance standard" means a regulation  
              that describes an objective with the criteria stated for  
              achieving the objective.  A "prescriptive standard" means a  
              regulation that specifies the sole means of compliance with  
              a performance standard by specific actions, measurements,  
              or other quantifiable means.

            2) AB 2738 conflicts with APA and agency implementation of  
              state law  .  According to the APA, "Each regulation adopted,  
              to be effective, shall be within the scope of authority  
              conferred and in accordance with standards prescribed by  
              other provisions of law."  Also, according to the APA,  
              "Whenever by the express or implied terms of any statute a  
              state agency has authority to adopt regulations to  
              implement, interpret, make specific or otherwise carry out  


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              the provisions of the statute, no regulation adopted is  
              valid or effective unless consistent and not in conflict  
              with the statute and reasonably necessary to effectuate the  
              purpose of the statute."

           By specifically requiring state agencies to acknowledge a  
              performance standard as the preferred alternative under the  
              APA, AB 2738 may have the effect of indirectly revising a  
              statute, or the intent of a statute - which is inconsistent  
              with the APA.

           It is noteworthy that the Pacific Merchant Shipping  
              Association (PMSA), sponsor of AB 2738, recently challenged  
              ARB over its Marine Vessel Rules regarding emissions of  
              particulate matter, nitrogen oxide, and sulfur oxide -  
              which can be considered performance standards.  The ARB may  
              also be required to obtain a waiver for emission standards  
              from the US Environmental Protection Agency under certain  
              conditions.  AB 2738 would thereby pressure ARB into  
              adopting performance standards that PMSA could challenge,  
              while also forcing ARB to seek a USEPA waiver.

            3) Deterrence to new and emerging technologies  ?  Potential  
              manufacturers of a technology may not proceed to more  
              aggressively develop and market a device until they are  
              assured that a requirement has been adopted and is  

           While there are many examples where new requirements drive new  
              and cleaner technologies, the premise of AB 2738 is that a  
              performance standard will achieve the requirement of a  
              statute.  Based on that premise, the state would not be  
              able to pursue, for example, certain emission reduction  
              measures (e.g., Phase II reformulated gasoline, on-board  
              diagnostics for heavy duty trucks, low emission vehicles).

            4) Current law already addresses performance standards and  
              requires justification for rejecting alternatives  .  Current  
              law contains several provisions relating to performance  
              standards and rejected alternatives.  For example, if a  
              regulation would mandate the use of specific technologies  
              or equipment, or prescribe specific actions or procedures,  


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              the imposition of performance standards must be considered  
              as an alternative.

           Furthermore, if the adoption or amendment of a regulation  
              would require use of specific technologies or equipment,  
              there must be a statement of reasons "why the agency  
              believes these mandates or prescriptive standards are  

           AB 2738, on the other hand, requires an agency to "Acknowledge  
              that the imposition of a performance standard is generally  
              the preferred alternative to mandating specific methods of  
              compliance" and to provide "justification for departing  
              from the acknowledged preference of imposing performance  
              standards . . ."  AB 2738 also contains additional  
              reporting requirements for a state agency if proposed  
              regulations deviate from what the sponsor wants to be the  
              acknowledged preferred alternative.

            5) Responding to concerns  .  As noted above, current law  
              requires:  a) consideration of performance standards as an  
              alternative, b) a statement of reasons for mandating  
              prescriptive standards, and c) justification for rejecting  
              reasonable alternatives.  A missing link is a requirement  
              to describe any performance standard or standards that were  
              considered as an alternative.  PMSA concerns could be  
              addressed by:  a) requiring agencies to describe  
              performance standards that were considered, and b) placing  
              current law in a clearer order.

            SOURCE  :        Pacific Merchant Shipping Association  

           SUPPORT  :       None on file  

           OPPOSITION  :    None on file