BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 650
                                                                  Page  1

          Date of Hearing:   April 17, 2013

                                 Jim Frazier, Chair
                   AB 650 (Nazarian) - As Amended:  March 20, 2013 
          SUBJECT  :   State Government: General Services

           SUMMARY  :   Sets parameters for the Natural Gas Services program  
          and requires executive branch agencies to purchase through the  

          Specifically,  this bill  :  
          1)Requires the Director of the Department of General Services  
            (DGS) to operate the Natural Gas Services Program to address  
            the needs of multiple state agencies for the procurement of  
            natural gas and related services.
          2)Requires executive branch agencies to purchase natural gas for  
            certain kinds of purchases through the Natural Gas Services  
          3)Authorizes DGS to buy and sell natural gas and related  
          4)Defines meaning of "natural gas" as related to the program. 
          5)Implements accounting changes by establishing the Department  
            of General Services Natural Gas Services Program Account.

           EXISTING LAW  Existing law authorizes the Department of General  
          Services to contract with suppliers for the purchase of goods  
          and services. This is the general authority in which the program  
          has been operating.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   The Department of General Services (DGS) has  
          operated the Natural Gas Services (NGS) Program for 25 years  
          under the general authority granted to DGS. The NGS program  
          currently provides natural gas delivery to 9 executive agency  
          departments, 8 University of California campuses, 21 California  
          State University campuses, 13 community college districts, 15  
          counties, 11 cities, and 16 special districts. Total gas  
          delivered through the program, which supplies state and local  
          government agencies, in Fiscal Year 2012/13 was valued at more  
          than $180 million. 

          While the NGS program has operated under DGS' general purchasing  


                                                                  AB 650
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          authority for more than two decades, DGS is seeking to clarify  
          in the Public Contract Code the authority and parameters of the  
          program. According to the department, doing so will help add  
          credibility and stability as NGS continues to purchase and sell  
          natural gas.            

          This bill would add a section to the Public Contract Code to set  
          the parameters for the program's operation. Specifically, it  
          would state that the aim of the program is to operate to address  
          the needs of multiple state agencies for the procurement of  
          natural gas. It would provide the program with the authority to  
          enter into agreements with agencies and suppliers for the  
          purchase, sale, and transfer of natural gas. Also, it would  
          provide DGS with the authority to hire employees for the program  
          as needed.    

          Additionally, the bill requires agencies in the executive branch  
          of state government to buy their noncore gas purchases through  
          the NGS program. Noncore customers are large gas buyers like  
          industrial customers or large-facility operators. The California  
          Department of Corrections and Rehabilitation is the largest  
          executive branch purchaser of gas through the program.

          According to DGS, all but one executive branch agency (the  
          Department of Water Resources) that are noncore gas purchasers  
          buy through the NGS program. However, the bill would allow the  
          Director of DGS to allow exemptions to the requirement.  
          Currently, approximately 16 percent of gas purchased through the  
          program is bought by state executive agencies. If the law  
          changed, as proposed, to mandate purchases by these agencies,  
          DGS explained that it would have more certainty when entering  
          into contracts for longer-term gas purchases. This certainty  
          could mean reduced costs.

          The bill also defines natural gas to include "natural gas,  
          methane, biomethane, compressed natural gas, liquefied natural  
          gas, and other energy commodity that is similar to natural gas"  
          and authorizes DGS to provide services related to the  
          environmental aspects of energy use. DGS is seeking such a  
          definition to provide flexibility under the program to help  
          customers meet greenhouse gas reduction requirements.

          Currently the NGS program's revenues and expenses are processed  
          through DGS' Service Revolving Fund. The bill would change the  
          accounting for the NGS program by establishing a separate fund  


                                                                  AB 650
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          called the "Department of General Services Natural Gas Services  
          Program Account" with the State Treasury. Revenues payable to  
          DGS for natural gas and related services would be deposited into  
          the account. Also, funds in the account would be continuously  
          appropriated regardless of fiscal year. The Program's customer  
          fee revenues in the account could not be shifted or borrowed  
          from and unexpended revenues at year end would be retained in  
          the account and be reserved for future NGS Program expenses. 


          None on file

          None on file
          Analysis Prepared by  :    Scott Herbstman / A. & A.R. / (916)