BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 726 (Lara) - California Global Warming Solutions Act of 2006: Western Climate Initiative, Incorporated. Amended: April 8, 2013 Policy Vote: EQ 9-0 Urgency: No Mandate: No Hearing Date: May 13, 2013 Consultant: Marie Liu This bill may meet the criteria for referral to the Suspense File. Bill Summary: SB 726 would make several new requirements of the Western Climate Initiative, Inc. (WCI), including requiring WCI to comply with the Bagley-Keen Open Meeting Act, comply with the California Public Records Act, report to the Legislature regarding emission reductions achieved, and cease further work on behalf of the state until its California voting board members are confirmed by the Senate. This bill would also require that expenditures and allocations of monies to WCI be included in the Governor's budget for ARB. Fiscal Impact: Minor costs to comply with the Bagley-Keene Open Meeting Act. Potential costs in the tens of thousands of dollars from the Cost of Implementation (COI) Account (special) to comply with the Public Records Act, depending on the number and complexity of actual requests. Possible, but unlikely, costs in the tens of thousands of dollars to low hundreds of thousands from the COI Account for temporary cessation of work by the WCI on behalf of the state, depending on the length of the cessation. Background: The California Global Warming Solutions Act of 2006 (AB 32 (Nunez/Pavley) Chapter 488/2006) requires the state's greenhouse gas (GHG) emissions to be reduced to 1990 levels by 2020. One of the actions to achieve the required GHG reductions is through a "cap and trade" market-based compliance mechanism where permits to emit GHG emissions can be purchased and sold on the open market with the goal that the overall emission reduction is reached at the least cost. The first auction for credits was on November 2013 and will continue quarterly. SB 726 (Lara) Page 1 Revenues are deposited in the GHG Reduction Fund (fund). WCI, Inc. is an independent nonprofit corporation formed to develop compliance, tracking, and market monitoring functions for jurisdictions participating in the auctions. The Board of Directors includes officials from California and the Canadian provinces of Quebec and British Columbia. The Californian members are the Secretary for Environmental Protection (EPA) or his/her designee, the Chairperson of the Air Resources Board (ARB) or his/her designee, an ex officio member appointed by the Assembly, and an ex officio member appointed by the Senate. Proposed Law: This bill would require WCI to cease all work on behalf of the state commencing January 1, 2014 until the Chair of ARB and the Secretary of CalEPA are confirmed by the Senate. This bill would require WCI to annually report to the Governor and the Legislature on the GHG reductions achieved and general plans to foster relationships with other localities. This bill would subject WCI to the Bagley-Keene Open Meeting Act and the California Public Records Act and would require that expenditures to WCI be included in the Governor's budget for ARB. Staff Comments: This bill potentially results in a temporary halt of services that WCI provides for the state. The length of this hold is completely dependent on Senate action to confirm the CA members of the WCI board. Should there be no halt in services or a very brief one (on the order of days or maybe weeks), there will likely be minimal or no cost to the state. However, if the hold continues, the state will need to replace the credit tracking and market monitoring services that is currently provided by WCI and is integral to the state's cap and trade program. ARB estimates that this could cost in the tens of thousands to low hundreds of thousands of dollars to contract out for these services. Because it will take approximately six months to secure such contracts such contract costs won't be incurred unless the hold is for a long period of time, however staff work to begin soliciting such contracts will begin immediately. If the hold continues on the order of months, there would be additional, but speculative, costs for the delay of a credit auction. Staff believes the Senate is likely to have timely confirmation hearings so that costs due to the SB 726 (Lara) Page 2 confirmation requirement of this bill are possible, but unlikely. Staff notes that several clarifications are needed regarding the confirmation requirement in the bill. First, this bill requires that the Senate confirm the voting CA members of the WCI. However the voting members of WCI are the Chair of the ARB and the Secretary of EPA. Both these people have technically been confirmed already by the Senate for their existing position. Presumably the bill intends that they be subject to Senate confirmation separately for their role on WCI. Additionally, it is unclear what would occur if either the chair or secretary were denied confirmation and whether confirmation would be required every time a new chair or secretary was appointed. This bill also requires WCI to report to the Legislature annually on the emission reductions achieved pursuant to the Western Climate Initiative and on their general plans to partner with other localities, states, and nations in order to reduce GHG emissions in California. Staff notes that these reporting responsibilities might be more appropriate to ask of the ARB as WCI does not track GHG emission reductions nor does it reach out to other localities to foster relations. The cost to comply with the California Public Records Act (PRA) will vary depending on the scope of the request. Cost recovery for PRA requests also vary depending on the request as statute allows agencies to recover copy costs in all cases and research costs in some cases. Noting this variability, costs are likely in the low tens of thousands for a conservative number of requests annually.