BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 650
                                                                  Page  1

          AB 650 (Nazarian)
          As Amended  May 1, 2013
          2/3 vote

           ADMINISTRATIVE REVIEW         12-1                   
          APPROPRIATIONS      16-0        
          |Ayes:|Frazier, Achadjian,        |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Buchanan,                  |     |Bocanegra, Bradford, Ian  |
          |     |Ian Calderon, Cooley,      |     |Calderon, Campos, Eggman, |
          |     |Gorell, Hagman, Nazarian,  |     |Gomez, Hall, Ammiano,     |
          |     |Medina, Olsen,             |     |Linder, Pan, Quirk,       |
          |     |Quirk-Silva,               |     |Wagner, Weber             |
          |     |Salas                      |     |                          |
          |     |                           |     |                          |
          |Nays:|Allen                      |     |                          |
          |     |                           |     |                          |
           SUMMARY  :  Sets parameters for the Natural Gas Services (NGS)  
          Program and requires executive branch agencies to purchase  
          through the program.  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 DGS Natural  
            Gas Services Program Fund.

           EXISTING LAW  authorizes the DGS to contract with suppliers for  
          the purchase of goods and services.  This is the general  


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          authority in which the program has been operating.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, the consolidated purchasing program provides  
          significant ongoing savings (General Fund, numerous special  
          funds, and to local agency funds) of at least several million  
          dollars annually in reduced natural gas contract costs and  
          streamlined administrative costs.  In addition, providing  
          continuous appropriation authority for the funds used to pay  
          natural gas purchasing contracts provides more certainty to  
          vendors and helps to minimize contract costs.

           COMMENTS  :  The DGS has operated the NGS Program for 25 years  
          under the general authority granted to DGS.  The NGS program  
          currently provides natural gas delivery to nine executive agency  
          departments, eight 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  
          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  


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          largest executive branch purchaser of gas through the program.

          According to the 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% 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 the 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  
          called the "Department of General Services Natural Gas Services  
          Program Fund" 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 NGS 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. 

           Analysis Prepared by  :    Scott Herbstman / A. & A.R. / (916)  

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