BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Bob Wieckowski, Chair
                                  2015 - 2016  Regular 

          Bill No:           SB 180           Hearing Date:     4/29/15
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          |Author:   |Jackson                                               |
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          |Version:  |4/20/2015                                             |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Rebecca Newhouse                                      |
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          Subject:  Electricity:  emissions of greenhouse gases

            ANALYSIS:                                                     
          
          Existing law: 

          1. Requires California Public Utilities Commission (PUC), by  
             February 1, 2007, in consultation with CEC and the California Air  
             Resources Board (ARB), to establish a GHG emission performance  
             standard for all baseload generation of load-serving entities at  
             a rate of emissions of GHG that is no higher than the rate of  
             emissions of GHGs for combined-cycle natural gas baseload  
             generation. 

          2. Requires CEC, by June 30, 2007, in consultation with PUC and the  
             ARB, to establish a GHG emission performance standard for all  
             baseload generation of publicly owned utilities (POU) at a rate  
             of emissions of GHG that is no higher than the rate of emissions  
             of GHGs for combined-cycle natural gas baseload generation.  

          3. Prohibits a load-serving entity, or a POU, from entering into a  
             long-term financial commitment for baseload electricity  
             generation unless that generation complies with the GHG emission  
             performance standard.  

          4. Specifies that CO2 that is permanently disposed of in geological  
             formations, in compliance with applicable laws and regulations,  
             does not count toward emissions of the powerplant in determining  
             compliance with the GHG emission performance standard. 

          5. Requires PUC to consider net emissions from the process of  







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             growing, processing, and generating the electricity from the fuel  
             source when calculating GHG emission by facilities generating  
             electricity from biomass, biogas, or landfill gas energy.

          This bill:  

          1.Redefines "GHG emission performance standard" to mean permissible  
            levels of emissions of GHG for peaking and nonpeaking generation  
            of electricity.

          2.Defines "nonpeaking generation" to mean electricity generation  
            from a powerplant that is designed and intended to provide  
            electricity at an annualized plant capacity factor to be  
            determined by PUC and CEC, in consultation with California  
            Independent System Operator (CAISO), considering both current  
            energy generation needs, as well as energy generation needs as the  
            GHG emission performance standards for nonpeaking generation are  
            implemented. 

          3.Defines "peaking generation" as electricity generation from a  
            powerplant that is designed and intended to provide electricity at  
            an annualized plant capacity factor to be determined by PUC and  
            CEC, in consultation with CAISO, considering both current energy  
            generation needs, as well as energy generation needs as the GHG  
            emission performance standards for peaking generation are  
            implemented. 

          4.Directs PUC and CEC each, but in consultation with one another and  
            ARB, by June 30, 2017, to adopt a GHG emission performance  
            standard for nonpeaking generation and for peaking generation of  
            load-serving entities and POUs, respectively, to be updated every  
            five years based on new technology.

          5.Directs PUC and CEC to establish its initial GHG performance  
            standard for nonpeaking and peaking generation at the lowest level  
            each agency determines to be technologically feasible without  
            risking the reliability of the electrical grid and of electric  
            service, or hampering further deployment of renewable generation  
            resources or reductions of greenhouse gas emissions, and taking  
            into consideration siting factors such as altitude, regional  
            climate, and operating capacity.

          6.Prohibits, as of July 1, 2017, a load-serving entity or a POU from  
            entering into a new long-term financial commitment for peaking or  
            nonpeaking generation unless the source of the generation complies  








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            with the applicable GHG emission performance standard.

          7.Specifies that nonpeaking emissions performance standard applies  
            only to nonpeaking powerplants and the peaking emissions  
            performance standard applies only to peaking powerplants. 

          8.Requires PUC, in calculating GHG emissions by facilities  
            generating electricity from biomass, biogas, or landfill gas  
            energy to reconsider and modify its prior decisions implementing  
            this section in light of the best and most recent scientific  
            information available.

          9.Defines carbon capture and storage (CCS) as any method that  
            prevents the release of GHGs into the atmosphere.

          10.Specifies that GHGs that are prevented from being released into  
            the atmosphere as a result of carbon capture and storage or carbon  
            capture and sequestration, in compliance with applicable laws and  
            regulations, do not count as emissions of the powerplant in  
            determining compliance with the GHG emission performance standard.  


          11.Declares any CCS project associated with an application for  
            certification by CEC as a related facility for permitting  
            purposes.

          12.Specifies that the provisions of the bill become operative on  
            January 1, 2017.  

          Background

           1. SB 1368 and Coal-Generated Electricity.  

             In the early 2000's, coal-fired powerplants supplied about  
             one-fifth of the electricity consumed in California, with about  
             half of that from coal imports. 
              
             From 2007 to 2012, coal energy imports declined by 18%, and  
             energy from in-state coal and petroleum (pet) coke plants  
             declined by 62%.

             According to a CEC report on current and expected coal use  
             updated last November, "Coal-based energy supplies totaled 23,323  
             gigawatt hours (GWh) in 2012, equal to about 8% of the statewide  
             energy requirements to serve California loads.  Nearly all these  








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             energy imports are tied to long-term utility power purchase  
             agreements, ownership interests or procurement contracts, some of  
             which have been in place for decades. Publicly owned utilities in  
             Southern California have most of the long-term contracts with  
             out-of-state coal plants."  Specifically, of the coal energy  
             imports in 2012, the largest share, 44 percent went to LA  
             Department of Water and Power, followed by 24% to Southern  
             California Edison, 7% to Anaheim, and 5 percent to California  
             Department of Water Resources. 

             "The supply of coal-fired energy procured by California utilities  
             from out-of-state plants or generated in California by coal and  
             pet coke plants is expected to decline by 38% between 2012 and  
             2022. In these years, associated greenhouse gas emissions are  
             expected to drop from about 23.8 million metric tons (MMT) of  
             carbon dioxide equivalent (CO2e) to 14.8 million metric tons."

             According to CEC, this decline in coal contract deliveries in due  
             in large part to the constraints imposed by the EPS created by  
             Senate Bill SB 1368 (Perata) Chapter 598, Statutes of 2006. 

             Specifically, SB 1368 (Perata), Chapter 598, Statutes of 2006,  
             required CEC and PUC to adopt a greenhouse gas emission  
             performance standard (EPS) for baseload electricity generation  
             and prohibits the state's utilities from entering into long-term  
             financial commitments unless any baseload generation supplied  
             under the long-term financial commitment complies with the GHG  
             emission performance standard. SB 1368 required the EPS to be  
             capped at a rate of GHG emissions that did not exceed the rate of  
             GHG emitted by a natural gas-fired combined-cycle powerplant used  
             for baseload generation. 

             Pursuant to SB 1368, the GHG emission performance standard was  
             set at 1,100 pounds of carbon dioxide (CO2) per megawatt-hour  
             (MWh) by PUC and CEC.  Since all existing contracts with  
             coal-fired generating facilities provide baseload energy supplies  
             that exceed emissions limits defined by the EPS (On average, coal  
             combustion releases approximately 2,250 pounds of carbon dioxide  
             into the atmosphere for each MWh generated), as these contracts  
             expire, they cannot be renewed or extended with another long-term  
             contract.

           2. Peaking and Baseload Plants.

             Baseload power is defined as electricity generation from a  








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             powerplant that is designed to provide electricity at least 60%  
             of the total hours in a year (a 60% capacity factor).  Baseload  
             power contracts are for power that is intended to be operating to  
             meet demand night and day and throughout the year. 

             This is different from peak power, which is intended to be  
             available only at those times of the day and year when demand  
             spikes. Baseload power generally comes from more efficient power  
             plants and tends to be cleaner and cheaper than peak power. One  
             reason is due to inherent inefficiencies with starting and  
             stopping electricity generation. Another reason is, because  
             peaking plants run inconsistently and usually for short periods  
             of time due to high electricity demand, it is less cost effective  
             for powerplant operators to finance upgrades for those plants.

             Another type of generation, load-following generation, is  
             becoming increasingly important with implementation of the  
             Renewable Portfolio Standard, which requires utilities meet 33%  
             of their retail sales of electricity with renewable resources by  
             2020.

             Load-following generation is usually powered through natural gas  
             powerplants, and is necessary to match the increases and  
             decreases in electricity demand throughout the day.  As more  
             renewables are integrated into the grid, baseload power  
             generation will likely decline, and faster ramping load-following  
             generation, used to balance the electricity supply from  
             intermittent renewable resources, will likely increase. 

             SB 1368 required an EPS for baseload power, defined in the  
             initial legislation as plants running at 60% capacity annually,  
             but did not specify an EPS for peak power, or "peaking  
             generation."

             SB 180 sunsets existing provisions for the determination of an  
             EPS for baseload generation, and instead, directs CEC and PUC to  
             set a "peaking" and "nonpeaking" or baseload-type, emission  
             performance standard.  SB 180 also requires PUC and CEC to  
             determine what annualized plant capacity factor qualifies  
             electricity generation for "peaking" and "nonpeaking" generation.  


           3. Carbon Capture and Sequestration.

             Studies by a broad range of governmental and non-governmental  








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             organizations on the international, federal and state level  
             report that carbon capture and storage (CCS) is a critical  
             component of an effective strategy for achieving stringent global  
             greenhouse gas (GHG) emission reductions.  CCS in most cases  
             refers to technologies that capture CO2 emissions from  
             powerplants and other large industrial sources and the subsequent  
             compression, transport, and injection of the carbon into a  
             geological formation that prevents its release to the atmosphere.  
              

             The "storage" aspect of CCS can be accomplished by the injection  
             of CO2 into large, deep underground porous reservoir rock  
             saturated with brackish water.  These formations are estimated by  
             a joint CEC and Department of Conservation report to have a  
             capacity of tens to hundreds of metric gigaton of CO2.  As a  
             reference, statewide GHG emissions are approximately half a  
             gigaton.  Some proponents of CCS also contend that carbon can be  
             "stored" in another way, specifically during a process known as  
             enhanced oil recovery (EOR). 

             EOR is a process that injects a fluid, such as steam or CO2, into  
             an oil or gas well with declining reserves in order to pressurize  
             the well and increase oil and gas production (and mobility, in  
             the case of oil) from those reserves.  During CO2 EOR, some of  
             the CO2 partially dissolves in the oil, and is retrieved with  
             recovered oil, while the remaining CO2 presumably remains trapped  
             underground.

             Recently, there have been reports on alternatives to geologic  
             sequestration, or EOR CO2 storage.  Specifically, mineral  
             carbonation is emerging as an area of interest and potential  
             alternative to geologic injection of CO2.  Mineral carbonation  
             involves the reaction of CO2 with magnesium and calcium oxides to  
             produce inert carbonite materials, which then may be used to  
             generate commercially viable byproducts for various applications.  


             In California due to the fact that fossil fuels, including oil  
             for transportation and natural gas for electricity production,  
             will constitute a substantial component of California's emissions  
             for some time to come, CCS is viewed by some as a technology with  
             great potential to reduce the carbon footprint of new and  
             existing powerplants burning natural gas in order to meet  
             California's GHG goals.  According to ARB's 2008 Scoping Plan,  
             CCS within California and the Western region could help achieve  








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             the GHG goals for 2050.  An ARB resolution in December 2010  
             directed the executive officer to initiate a public process to  
             establish a protocol to account for geologic sequestration and  
             provide recommendations on how such sequestration should be  
             addressed in the cap and trade program.

             In the United States, there are two large scale CCS projects that  
             are capturing CO2 from coal-fired powerplants.  One of these is a  
             582 MW project in Mississippi and the other is a 250 MW  
             powerplant in Texas.  One CCS project that is currently in the  
             planning phase is the Hydrogen Energy California (HECA) project. 

             The HECA project would construct an integrated gasification  
             combined cycle powerplant that also plans to manufacture hydrogen  
             from coal and petroleum coke to generate 300 megawatts of  
             electricity, produce nitrogen-based fertilizers and capture 90%  
             of CO2 produced from the gasification process.  The project would  
             be located on a 453-acre site in Kern County currently used for  
             agricultural purposes about seven miles west of Bakersfield.  The  
             HECA project plans to transport the CO2 by pipeline to Occidental  
             of Elk Hills, Inc. (OEHI) for use at the adjacent Elk Hills Oil  
             Field for enhanced oil recovery.  

             Although there have been a handful of nonpower plant CCS projects  
             in operation for over two decades, the first large-scale  
             powerplant CCS project on the globe became operational last  
             October.  The Boundary Dam project in Saskatchewan, Canada uses  
             coal as a feedstock and produces about 110 MW, and sells the  
             captured CO2 projects for EOR.   

             CCS projects are very expensive.  The Boundary Dam project  
             produces a relatively small amount of power (110 MW) and costs  
             $1.3 billion.  It received $240 million from the Canadian  
             Government.  The Kemper County project in Mississippi now under  
             construction is now projected to cost almost $5.6 billion, and  
             the HECA project in Kern County is expected to cost over $4  
             billion.  The federal Department of Energy is contributing $408  
             million and $437 million in tax credits. 

             CEC reports that the HECA project application review process has  
             had serious delays because the HECA applicant has not provided  
             information required by CEC staff to complete their environmental  
             impact statement. 

             In March, a motion was filed by interveners to terminate the  








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             application process.  HECA responded that they are no longer  
             certain about the viability of the carbon capture and  
             sequestration site proposed for the project and they are pursuing  
             alternative plans for how they would use and store the captured  
             CO2. 

             SB 1368 specifies that CO2 captured from a powerplant and  
             permanently sequestered in geological formations does not count  
             toward the powerplant's emissions under EPS.  CEC's EPS  
             regulations do not count CO2 projected to be successfully  
             sequestered and considers CO2 successfully sequestered if the  
             project includes the capture, transportation, and geologic  
             formation injection of CO2 emissions, complies with all  
             applicable laws and regulations, and has an economically and  
             technically feasible plan that will result in the permanent  
             sequestration of CO2 once the sequestration project is  
             operational.

             SB 180 amends statute by deleting references to geologic  
             formations, and instead specifies that GHGs that are prevented  
             from being released into the atmosphere as a result of carbon  
             captures and storage or carbon capture and sequestration, in  
             compliance with applicable laws and regulations, does not count  
             toward determining compliance with the GHG emission performance  
             standard.

           4. CEC's Licensing and Siting Powerplants.

             The California Energy Commission is the lead agency for licensing  
             thermal powerplants 50 megawatts and larger and the plants  
             related facilities, including transmission lines, fuel supply  
             lines, water pipelines, under the California Environmental  
             Quality Act (CEQA) and has a certified regulatory program under  
             CEQA.  Under its certified program, CEC is exempt from having to  
             prepare an environmental impact report.  Its certified program,  
             however, does require environmental analysis of the project,  
             including an analysis of alternatives and mitigation measures to  
             minimize any significant adverse effect the project may have on  
             the environment.

             According to CEC's website, "The Energy Commission's  
             license/certification subsumes all requirements of state, local,  
             or regional agencies otherwise required before a new plant is  
             constructed.  The Energy Commission coordinates its review of the  
             facility with the federal agencies that will be issuing permits  








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             to ensure that the Energy Commission certification incorporates  
             conditions of certification that would be required by various  
             federal agencies."

             Two different review processes that are available for powerplants  
             at CEC are the 12-month review (also called "Application for  
             Certification") and the Small Power Plant Exemption (SPPE).  The  
             SPPE is available for projects between 50 MW and 100 MW, provided  
             the proposed project does not create an unmitigated significant  
             impact on environmental resources.  

           5. PUC's Decision D.07-01-039 and Biomass Powerplants.

             PUC's 2007 decision 07-01-039 adopted an interim GHG emissions  
             performance standard for new long-term financial commitments to  
             baseload generation undertaken by all load-serving entities,  
             consistent with the requirements and definitions of SB 1368 

             In this decision, PUC classified bioenergy generation as  
             compliant with the GHG emission performance standard of 1,100 lbs  
             CO2/MWh emissions performance standard, even though out of the  
             stack often times carbon emission can be much higher than the  
             standard, based on the conclusion that bioenergy generation  
             avoided GHGs that would have otherwise occurred in the disposal  
             of the biomass materials.

             According to PUC, "In particular, the record shows that electric  
             generation using biomass (e.g., agricultural and wood waste,  
             landfill gas) that would otherwise be disposed of under a variety  
             of conventional methods (such as open burning, forest  
             accumulation, landfills, composting) results in a substantial net  
             reduction in GHG emissions.  This is because the usual disposal  
             options for biomass wastes emit large quantities of methane gas,  
             whereas the energy alternatives either burn the wastes that would  
             become methane or burn the methane itself, generating CO2   .   
             Since methane gas is on the order of twenty to twenty-five times  
             more potent as a GHG than CO2, and since methane has an  
             atmospheric residence time of twelve years, after which it is  
             converted to atmospheric CO2, trading off methane for CO2  
             emissions from energy recovery operations leads to a net  
             reduction of the greenhouse effect."
          
            Comments
          
          1. Purpose of Bill.  








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             According to the author, "In recognizing the changing landscape  
             of electricity generation in California, SB 180 creates two new  
             Emissions Performance Standards-one for "nonpeaking generation"  
             and another for "peaking generation"-that will limit the amount  
             of carbon dioxide power plants may emit. SB 180 requires that the  
             state adopt the lowest EPSs that are technologically feasible  
             without putting the reliability of the electrical grid and  
             electric service at risk, and requires the EPSs to be revised  
             downward every five years based on technological advances. This  
             will force California to phase out its dirtiest power plants,  
             which are typically located in disadvantaged communities with  
             high levels of pollution, and will eventually lead California  
             toward a fossil-fuel free future for energy generation."

          2. CEC and Lowering the EPS.

             In 2012, the Natural Resources Defense Council (NRDC) and the  
             Sierra Club formally proposed CEC consider revising the EPS to a  
             level lower than the 1,100 pound standard, contending an EPS of  
             825-850 pounds was economic and feasible. NRDC and Sierra Club  
             stated that they did not believe the EPS was sufficiently  
             stringent to require the use of the most efficient and least  
             polluting baseload fossil-fueled technology commercially  
             available in 2012.  

             CEC considered the proposal and, in the end, concluded "that the  
             current EPS for POUs should not be lowered at this time for  
             several reasons."  In explaining its reasoning, CEC stated that  
             the current EPS had: 

                       Successfully prevented new long-term investments by  
                  California utilities in high-emitting baseload resources,  
                  such as coal facilities. 

                       Encouraged the early divestiture of existing high-GHG  
                  emitting baseload resources.

             More generally, CEC expressed concern that lowering the EPS for  
             baseload power could impede California utilities' ability to  
             provide the operational flexibility necessary to cost-effectively  
             integrate renewables resources. They note that "if the EPS  
             standard is set so low that it precludes powerplants with fast  
             start capabilities, which are inherently less efficient, carbon  
             emissions could increase." 








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             However, SB 180 directs PUC and CEC to establish its initial GHG  
             performance standard for nonpeaking and peaking generation at the  
             lowest level each agency determines to be technologically  
             feasible without risking the reliability of the electrical grid  
             and of electric service, or hampering further deployment of  
             renewable generation resources or reductions of greenhouse gas  
             emissions. 

             The bill also requires PUC and CEC to take into consideration,  
             when setting the EPS altitude, regional climate and operating  
             capacity.  

             For nonpeaking generation, SB 180 does not ensure PUC and CEC  
             will set a lower EPS.  In fact, SB 180 gives PUC and CEC the  
             discretion to set EPS standards that are lower, identical, or  
             even higher, than the current EPS based on their determinations  
             of what standard will ensure grid reliability and operational  
             flexibility necessary for renewable integration, as well as  
             ensuring a standard that does not impede GHG emissions  
             reductions.  

             However, SB 180 does ensure that PUC and CEC set an EPS for  
             "peaking generation," which is a type of generation that is not  
             currently captured under the EPS requirements of SB 1368.

          1. Reconsider and Modify. 

             SB 180 requires that PUC reconsider and modify its previous  
             decision on EPS compliance for biomass facilities. Their decision  
             determined that although biomass facilities typically had higher  
             GHG emissions rates than natural gas powerplants, they prevent  
             the release of methane, a much more potent GHG.  Additionally,  
             carbon from biomass was recently pulled out of the atmosphere.  

             Decision making at PUC is a long and costly process.

             The author may wish to consider if there is a less formal,  
             time-consuming and costly way to have PUC revisit this issue in  
             order to provide guidance on whether the science indicates a  
             change from the previous decision is necessary.  

             Additionally, since a reconsideration of this decision based on  
             best available science does not necessarily mean that a different  
             finding will be made, an amendment is needed to strike "and  








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             modify" from the bill, so as not to presuppose the outcome of  
             this reevaluation by PUC. 

          2. Carbon Capture and Sequestration.

             SB 180 attempts to accomplish two goals regarding carbon capture  
             and storage/sequestration: (1) Clarification that any CCS project  
             associated with an application for certification of an electrical  
             generating facility is a related facility for purposes of CEC's  
             parallel process for siting and licensing powerplants under the  
             California Environmental Quality Act (CEQA), and (2) Creating a  
             technology neutral definition of CCS for purposes of the emission  
             performance standard in the bill. 

             The former aim is an attempt to preempt CEQA litigation  
             surrounding potential CCS projects that would be used to  
             sequester GHGs from powerplants, but that are not physically  
             connected or close to the powerplants, by providing in the bill  
             that these CCS projects associated with powerplants are  
             considered related facilities, and therefore one project, for  
             purposes of CEC's CEQA regulatory process.  

             The latter goal comes from recent research suggesting that other  
             forms of storing or sequestering carbon besides injecting into  
             geologic formations, such as mineral absorption, can be used to  
             prevent the release of the GHGs into the atmosphere. 

             However, SB 180 deletes language relating to CO2 being  
             "permanently sequestered" in an effort to make the statute  
             technology neutral.  To more closely mirror the original language  
             of SB 1368, while still not prescribing which technology should  
             be used, an amendment is needed to specify that for carbon  
             capture and storage associated with EPS compliance, GHGs must be  
             permanently sequestered, so as to prevent them from being  
             released into the atmosphere.

            Related/Prior Legislation
          
          SB 1368 (Perata), Chapter 598, Statutes of 2006, prohibited POUs and  
          load-serving entities from entering into long-term financial  
          commitments for generation unless the baseload power complied with  
          an emissions performance standard, established by PUC and CEC.  
            
          SOURCE:                    Author  









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           SUPPORT:               
          American Lung Association, California 
          Asian Pacific Environmental Network  
           Breathe CA
          California Black Health Network
          California League of Conservation Voters 
          Clean Power Campaign
          Climate Parents
          Coalition for Clean Air
          Coastal Environmental Right Foundation
          Environment California
          Environmental Action Committee of West Marin
          Environmental Defense Fund
          National Parks Conservation Association
          Sierra Club California
           
           OPPOSITION:    
          California Manufacturers and Technology Association
          California Municipal Utilities Association
          M-S-R Public Power Agency
          Northern California Power Agency
          Pacific Gas and Electric Company
          Southern California Edison
           
           ARGUMENTS IN SUPPORT:    

          Supporters state that that the state must reduce our emission rates  
          substantially below those specified by SB 1368.  They also state  
          that creating the new designation for peaker plants is critical  
          since they will be relied on for grid resiliency, renewable  
          integration and to meet peak demand, and that current law  
          effectively exempts all peaking plants from the EPS.  They also note  
          that the bill will ensure that new power plants meets the highest  
          level of emissions standards possible, and that SB 180 will strongly  
          incentivize renewable technologies which produce less toxic air  
          pollution then the fossil fuel plants they will replace. 
          
          ARGUMENTS IN OPPOSITION:    

          Opponents state the SB 180 is an unnecessary approach that may place  
          reliability, affordability and carbon reductions at risk, as the  
          state continues to transition to more renewable energy generation.   
          They note that the purpose of establishing an EPS under SB 1368 was  
          to prohibit long term contracts with coal-fired generation  
          facilities and that SB 1368 is achieving those objectives.  They  








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          also oppose SB 180 as a piecemeal mandate that increases costs and  
          further constrains an already complex system. They note there are  
          multiple energy and emission reduction policies that are already  
          cost-effectively reducing GHG emissions by electric utilities.
           
           DOUBLE REFERRAL:
          
          This measure was heard in Senate Energy, Utilities and  
          Communications Committee on April 7, 2015, and passed out of  
          committee with a vote of 8-3.

                                            
                                        -- END --