BILL ANALYSIS                                                                                                                                                                                                              1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          AB 1257 -  Bocanegra                                   Hearing  
          Date:  July 2, 2013             A
          As Amended:         June 25, 2013            FISCAL       B

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                                      DESCRIPTION
           
           Current law  requires the California Energy Commission (CEC) to  
          conduct assessments and forecasts of all aspects of energy  
          industry supply, production, transportation, delivery and  
          distribution, demand, and prices. The CEC uses these assessments  
          and forecasts to develop energy policies that conserve  
          resources, protect the environment, ensure energy reliability,  
          enhance the state's economy, and protect public health and  
          safety. The CEC is required to adopt and publish a comprehensive  
          assessment of energy markets, trends, forecasts, and impacts on  
          the public and the environment every two years in the Integrated  
          Energy Policy Report (IEPR). (PRC 25301-25302)

           Current law  requires the CEC to develop and adopt a state plan  
          to increase the use of alternative transportation fuels,  
          including natural gas. (HSC 43866)

           This bill  directs the CEC to conduct an analysis every four  
          years of natural gas use and consider its potential in regards  
          to various aspects of the energy industry and including an  
          analysis of economic and environmental costs and impacts. The  
          report will identify both near- and long-term policy strategies  
          to maximize the benefits of natural gas. 

                                      BACKGROUND
           
          A study by Massachusetts Institute of Technology from June 2011  














          examined the natural gas market in the U.S.<1> Unlike other  
          fossil fuels, natural gas plays a significant role in most  
          sectors of the modern economy, including power generation,  
          industrial, commercial, and residential. The report found that  
          natural gas can play a significant role in supporting efforts to  
          reduce greenhouse gasses nation-wide. This conclusion should be  
          modified slightly for the case of California, because as  
          explained below, California has a different power mix and energy  
          use profile from the U.S. as a whole.

          CEC Assessments - The CEC conducts regular assessments of energy  
          markets and issues, including natural gas, which are adopted and  
          published every two years as part of the IEPR. In May 2012, the  
          CEC published a supplemental report specifically on natural gas  
          market trends<2> in which it examined trends related to natural  
          gas supply, pricing, demand, and infrastructure. 

          Supply has increased in recent years, driving prices lower.  
          Natural gas production in the lower 48 United States has  
          increased from 50 billion cubic feet per day in 2005 to 63  
          billion cubic feet per day in 2011, as production has shifted  
          from conventional sandstone basins to shale and tight sandstone  
          formations. The monthly spot-price for natural gas increased by  
          an average of 29 percent per year between 2000 and 2008.  
          However, from January 2009 to April 2012, spot prices decreased  
          at an average annual rate of 19 percent. 

          Demand, however, has remained relatively constant over the last  
          10 years. Demand in the commercial sector increased, while  
          decreasing in the industrial sector. There is also an emerging  
          issue in California related to natural gas demand in the  
          transportation sector. Natural gas continues to be a major  
          contributor to electricity generation, but varies from year to  
          year depending on the availability of hydroelectric resources  
          and weather.

          Natural Gas Electric Generation - Natural gas has significant  
          benefits over coal in terms of its emissions profile when  
          combusted. While coal combustion releases large amounts of black  
          carbon (ash), particulate matter, and other toxins into the  
          atmosphere, natural gas is primarily composed of methane.  
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          <1> The Future of Natural Gas: An Interdisciplinary MIT Study.  
          June, 2011. 
          <2> 2012 Natural Gas Market Trends, CEC-200-2012-004









          Natural gas produces far fewer pollutants than coal when burned.  
          California has largely removed coal from its generation  
          portfolio. Current law prohibits long term contracts for power  
          from plants with emissions profiles worse than combined cycle  
          natural gas power plants (PUC 8340-8341). This statute  
          effectively prohibits future contracts with coal plants. The CEC  
          reports that in 2011, coal made up 8.2% of the California power  
          mix, while natural gas contributed 35.6%. 

          The Renewables Portfolio Standard is also having a significant  
          impact on natural gas powered electric generation. Major  
          renewable sources (e.g., wind, solar) are intermittent in  
          nature, and the power output depends on season, weather, and  
          time of day. Modern natural gas plants have quick start times,  
          and can be ready to deliver power in as little as 15 minutes.  
          This makes them an attractive resource to balance the needs of  
          renewables as they come online. Additionally, the recent closure  
          of the San Onofre Nuclear Generation Station leaves a 2200  
          megawatt deficit in power capacity. While some of this power  
          deficit may be filled by renewable energy, quick-start natural  
          gas plants are another option for providing baseload generation  
          in the region.

                                       COMMENTS
           
              1.   Author's Intent  . The author argues that natural gas  
               holds a great deal of potential for use in multiple sectors  
               and that the current IEPR from the CEC does not  
               sufficiently consider this potential. The author notes that  
               California lacks a long-term strategy to maximize the  
               benefits of natural gas as part of its portfolio of energy  
               sources in a low-carbon future. As a result, no agency is  
               pursuing a clear set of actions to optimize those benefits,  
               and state agencies are not collaborating to ensure  
               consistency on a natural gas policy. 

              2.   Cleaner than coal, not exactly spotless  . It is important  
               to reiterate that natural gas is not a renewable resource.  
               It is still a fossil fuel, and using it as a power source  
               emits greenhouse gasses to the atmosphere, a significant  
               cause of global climate change. This bill proposes to study  
               the best uses of natural gas as a compliment to other  
               resources within California, and to develop a policy to  
               inform the state-wide usage of natural gas. As part of this  










               study, the CEC is directed to consider the environmental  
               and economic impacts of natural gas use using a lifecycle  
               perspective. Thus, the CEC should consider natural gas  
               production methods, including hydraulic fracturing,  
               distribution methods, and greenhouse gas emissions of  
               natural gas combustion and their effects on the environment  
               and economy. 

                                    ASSEMBLY VOTES
           
          Assembly Floor                     (77-0)
          Assembly Appropriations Committee  (17-0)
          Assembly Natural Resources Committee                            
          (9-0)

                                       POSITIONS
           
           Sponsor:
           
          Author

           Support:
           
          American Handforge
          American Lung Association, California
          Antelope Valley Board of Trade
          Association of California Cities, Orange County
          Breathe California
          Breathe California of Los Angeles County
          California Asian Pacific Chamber of Commerce
          California Chamber of Commerce
          California Contract Cities Association
          California Die Casting
          California Manufacturers & Technology Association
          California Municipal Utilities Association
          California Natural Gas Vehicle Coalition
          Calpine
          CALSTART
          City of Beaumont
          City of Murrieta
          Coachella Valley Association of Governments
          Coachella Valley Economic Partnership
          Congress of California Seniors
          David Couch, 4th District Kern County Supervisor










          Economic Development Collaborative-Ventura County
           Support: (Cont.)
           
          Environmental Defense Fund
          Fontana Wood Preserving Inc
          Foothill Transit
          Glendale Chamber of Commerce
          Industry Manufacturers Council
          Inland Empire Economic Partnership
          John C. Zaragoza, 5th District Ventura County Supervisor
          Kern Economic Development Corporation
          Kings County Economic Development Corporation
          Latin Business Association
          Los Angeles Conservation Corps
          Los Angeles County Business Federation
          Miguel A. Pulido, City of Santa Ana Mayor
          Millennium Biltmore Hotel, Los Angeles
          Mojave Desert Air Quality Management District
          Mothers of East Los Angeles
          Natural Resources Defense Council
          Orange County Business Council
          Orange County Hispanic Chamber of Commerce
          San Diego Gas & Electric Company
          San Gabriel Valley Economic Partnership
          San Gabriel Valley Regional Chamber
          San Joaquin Valley Air Pollution Control District
          Santa Barbara Technology and Industry Association
          Southeast Community Development Corporation
          Southern California Gas Company
          Southern California Minority Supplier Development Council
          Southern California Public Power Authority
          Southwest Gas Corporation
          The Valley Economic Alliance
          United Chambers of Commerce
          Waste Management
          Western States Petroleum Association
          Zack Scrivner, 2nd District Kern County Supervisor
           
          Oppose:
           
          Sierra Club California














          Kyle Hiner 
          AB 1257 Analysis
          Hearing Date:  July 2, 2013