BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 650 (Nazarian) - Natural Gas Services Program.
Amended: June 19, 2013 Policy Vote: GO 11-0
Urgency: No Mandate: No
Hearing Date: July 1, 2013 Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 650 would require the Department of General
Services (DGS) to operate the Natural Gas Services (NGS) Program
and require all executive branch state agencies, except the
Department of Water Resources, to use the program for the
purchase of all non-core natural gas.
Fiscal Impact: No new costs or savings are expected, as this
bill codifies an existing procurement program operated by DGS.
DGS indicates that the bill ensures continued annual savings of
approximately $7.5 million for numerous state and local entities
that participate in the program (General Fund, various special
funds, local funds). These savings are primarily derived from
bulk purchase opportunities, as well as consolidated bidding and
contract administration through DGS.
Background: DGS has operated the NGS program for 25 years under
general statutory procurement and contracting authority that
authorizes the department to contract with suppliers for the
purchase of goods and services. Currently, 181 public agency
customers contract with DGS for provision of non-core natural
gas purchases (open market bulk, as opposed to core purchases
directly through a utility). The estimated value of the natural
gas purchased through the program in 2011-12 was $182 million.
Nine executive agency departments, eight University of
California (UC) campuses, and 21 California State University
(CSU) campuses are among the public agency program participants,
which accounts for about two-thirds of the total volume of
purchases. The only executive agency that does not utilize the
program is the Department of Water Resources (DWR). All NGS
program revenues and expenses are processed through the DGS
Service Revolving Fund.
The NGS program operates like a cooperative, allowing DGS to
AB 650 (Nazarian)
Page 1
pool public agency resources to purchase large volumes in
consolidated purchases of gas on behalf of its customers. This
structure provides administrative efficiencies by pooling
numerous contracts into a single procurement, as well as
advantages related to economies of scale and mitigation of risk
related to price volatility. The program is fully
self-supporting; DGS recovers all administrative operating costs
through fees charge to public agency customers.
Proposed Law: AB 650 would require the director of DGS to
operate the NGS program for public agency non-core purchases of
natural gas. Specifically, this bill would:
Define "natural gas" as natural gas, methane,
biomethane, compressed natural gas, liquefied natural gas,
and similar energy commodities, and related services such
as gas storage, transportation, and forward purchases.
Authorize DGS to buy, sell, exchange, transfer, or
otherwise dispose of natural gas through the program and
authorize DGS to recover acquisition and operational costs
through fees charged to customers.
Require executive branch agencies, except DWR, to use
the NGS program for non-core purchases of natural gas and
authorizes DGS to enter into interagency agreements with
local government entities, nonprofit hospitals, and public
education institutions for the acquisition of natural gas
and related services.
Authorize DGS to enter into gas purchase transactions
for a term longer than five years.
Authorizs DGS to hire and appoint employees, as
specified, and requires the director, prior to hiring
someone at a salary in excess of a salary approved by the
Department of Human Resources, to submit the salary to the
Department of Finance for submission to the Legislature
consistent with the annual Budget Act.
Establish the continuously appropriated Department of
General Services Natural Gas Services Program Fund in the
State Treasury for purposes of operating the NGS program,
and prohibits the shifting of customer fee revenues from
the fund.
Staff Comments: This bill would ensure the continued operation
of the NGS program within DGS by codifying activities undertaken
up to this time under general procurement authority. While the
bill would not result in any new costs or savings, it would
AB 650 (Nazarian)
Page 2
provide public agency customers with continued savings. DGS
indicates that its existing customers experience annual savings
of approximately $1.7 million from collective bulk purchases,
$5.3 million from consolidated procurement bidding and contract
administration, and $400,000 to $800,000 from purchases of
intrastate pipeline capacity. Nine executive branch agencies
currently utilize the program for non-core gas purchases, and
the bill would not compel participation by state agencies that
are not current participants.
AB 650 establishes a continuously appropriated fund for the NGS
program, which provides certainty for natural gas purchases and
the operation of the program, but removes a level of legislative
and budgetary oversight.
Recommended Amendments: Staff recommends that the bill be
amended to ensure budgetary oversight related to the
administration of the program:
Page 4, after line 21, insert:
(i) The administrative costs of the department incurred in
administering this section shall be provided in the annual
Budget Act.