BILL ANALYSIS
AB 1318
Page 1
Date of Hearing: May 11, 2009
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Nancy Skinner, Chair
AB 1318 (V. Perez) - As Amended: May 4, 2009
SUBJECT : South Coast Air Quality Management District (SCAQMD):
emission reduction credits for electrical generating facilities
SUMMARY : Establishes special air pollution permitting and
mitigation procedures, which are applicable to one power plant,
in order to circumvent an unfavorable court ruling and
facilitate construction of the power plant.
EXISTING LAW :
1)Under the federal Clean Air Act:
a) Requires each major new and modified source of air
pollution to undergo "new source review" to ensure that
facilities install the best available control equipment,
obtain emission reduction credits, or "offsets," for any
new emissions, and comply with any other requirement to
ensure that the new and modified sources do not adversely
affect air quality.
b) Provides that, except as otherwise stated, the Act does
not preclude a state or any political subdivision from
adopting standards or requirements for the reduction of air
pollution.
2)Designates the state Air Resources Board (ARB) as the air
pollution control agency responsible for the coordination of
the activities of air pollution control districts and air
quality management districts for the purposes of the federal
Clean Air Act.
3)Subject to the powers of the ARB, requires air districts to
adopt and enforce rules and regulations to achieve and
maintain the state and federal ambient air quality standards
in all areas affected by non-vehicular emission sources under
their jurisdiction.
4)Authorizes each air district to establish a permit system that
requires, except as specified, that before any person builds,
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erects, alters, replaces, operates, or uses any article,
machine, equipment, or other contrivance that may cause the
issuance of air contaminants, the person obtain a permit from
the air pollution control officer of the district.
5)Authorizes air districts, among their general powers, to
establish offset systems, by which reductions in air pollution
at one source may be used to offset certain future increases
in air pollution at another source. The SCAQMD requires
sources to obtain offsets for increased emissions of
nonattainment pollutants, including sulfur oxides (SOx) and
fine particulate matter (PM10), in excess of 0.5 pounds per
day. The SCAQMD has adopted rules creating internal offset
accounts, including a "priority reserve" account to provide
offsets for essential public services and other priority
sources, including power plants under certain circumstances
(SCAQMD Rule 1309.1).
6)Pursuant to the California Environmental Quality Act (CEQA),
requires a lead agency with the principal responsibility for
carrying out or approving a proposed discretionary project to
evaluate the environmental effects of its action and prepare a
negative declaration, mitigated negative declaration, or
environmental impact report (EIR). If an initial study shows
that the project may have a significant effect on the
environment, the lead agency must prepare an EIR. Generally,
an EIR must accurately describe the proposed project, identify
and analyze each significant environmental effect expected to
result from the proposed project, identify mitigation measures
to reduce those impacts to the extent feasible, and evaluate a
range of reasonable alternatives to the proposed project. If
mitigation measures are required or incorporated into a
project, the agency must adopt a reporting or monitoring
program to ensure compliance with those measures.
7)Grants the California Energy Commission (CEC) exclusive
authority to license thermal power plants 50 megawatts and
larger and requires consultation with specified agencies,
including the applicable air district.
8)Requires the CEC to find that a proposed power plant conforms
to a variety of standards, including applicable air quality
standards. The CEC may not find that a power plant conforms
to applicable air quality standards unless the applicable air
district certifies that complete emissions offsets for the
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proposed plant have been identified and will be obtained by
the applicant within the time required by the district's
rules. The applicant must obtain any required emission
offsets within the time required by the applicable district
rules, consistent with any applicable federal and state laws
and regulations, and prior to the commencement of the
operation of the power plant.
9)The CEC process is a certified regulatory program under CEQA,
meaning the CEC staff report on an application for
certification of a power plant serves in lieu of an EIR. In
approving a power plant, the CEC has the authority to override
any contrary state or local decision if it makes specified
findings. Judicial review of a CEC power plant license
decision is limited to the state Supreme Court.
THIS BILL :
1)Includes extensive findings and declarations to support the
argument that new fossil power plants are urgently needed to
serve the Los Angeles region.
2)Requires the SCAQMD's executive officer, in cooperation with
the CEC, to transfer from the SCAQMD's internal offset
accounts to "eligible electrical generation facilities"
offsets up to the following amounts:
a) 0.1 tons (200 pounds) per day of SOx.
b) 0.6 tons (1200 pounds) per day of PM10.
3)Establishes the following eligibility criteria for electrical
generation facilities, which limit the application of the bill
to the proposed CPV Sentinel power plant in Riverside County:
a) Have a purchase agreement, executed on or before
December 31, 2008, to provide electricity to a public
utility (i.e. Southern California Edison) for use within
the Los Angeles Basin Local Reliability Area.
b) Be under the jurisdiction of the SCAQMD, but not within
the South Coast Air Basin.
4)Permits the SCAQMD to rely on existing rules for tracking
offsets (Rule 1315), making priority reserve offsets available
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to power plants (Rule 1309.1), and establishing offset prices
in the form of mitigation fees (Rule 1309.1) (notwithstanding
the fact that the ruling in NRDC, et al v. SCAQMD has
enjoined the implementation of these rules).
5)Provides that offsets issued pursuant to the bill shall
satisfy all state and district requirements related to the
provision of offsets for new power plants.
6)Requires payment for offsets according to a schedule of
mitigation fees included in Rule 1309.1. Requires fees to be
used for emission reduction purposes, at least 30 percent in
areas within close proximity to the power plant and at least
30 percent in areas designated by the SCAQMD as "environmental
justice areas."
7)Provides the CEC exclusive authority to review the
environmental impact of, and impose mitigation for, the
executive officer's acts related to transferring offsets to
the power plant, overriding CEQA and related laws governing
air district authority over air quality standards. Requires
the CEC to complete its review within 60 days of the effective
date of this bill.
8)Permits the CEC to find that offsets transferred pursuant to
this bill conform to air quality standards without
certification by the SCAQMD.
9)Provides the actions of the CEC shall be subject to judicial
review only by the State Supreme Court.
10)Requires the bill to be implemented in a manner consistent
with the federal Clean Air Act.
11)Provides that the bill shall remain in effect until January
1, 2013.
12)Contains an urgency clause.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background. Emission reduction credit banking is defined as
"a system? by which reductions in emissions may be banked or
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otherwise credited to offset future increases?or a calculation
method which enables internal emission reductions to be
credited against increases" (Health and Safety Code Section
40709.5). Once created, emission reduction credits may be
banked with the district for future use by the source that
generated them, used concurrently to offset new projects, or
sold to other sources for use as mitigation.
The most common method of creating emission reduction credits
is to control or curtail the emissions from an existing
stationary source. Control of emissions is generally from the
application of emission control technology beyond that which
is required by any regulation or rule. Curtailment could be
from a change in operating hours of a source, or through the
shutdown of a source. Credits must be generated pursuant to
district rules and regulations, and must be reviewed and
certified by the district.
The SCAQMD has adopted a variety of rules to govern the use of
offsets in the district, including Rule 1309.1, which
establishes a "priority reserve" account for essential public
services, and Rule 1315, which governs the tracking of offsets
used within the district.
In 2007, SCAQMD adopted changes to these rules to permit the
transfer of offsets to power plants in exchange for mitigation
fees at prices set in the rules. A group of environmental and
environmental justice groups (NRDC, et al) sued SCAQMD,
alleging violations of CEQA, including failure to analyze or
mitigate the significant environmental effects of the rules.
In NRDC, et al v. SCAQMD (Los Angeles Superior Court, 2007,
No. BS 110792), the court sided with the plaintiffs, finding
the SCAQMD's rule changes are subject to CEQA and enjoining
the distribution of offsets from the priority reserve account
until SCAQMD prepares the appropriate CEQA documentation.
SCAQMD has appealed the Superior Court ruling and begun
preparing an EIR for its rule changes. The plaintiffs have
filed a separate suit in federal court alleging the offsets
held in SCAQMD's internal accounts are not valid under the
Clean Air Act. The federal suit is pending.
According to the CEC:
The CPV Sentinel Energy Project is a proposed
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nominally rated 850-megawatt electrical generating
facility. The power plant site encompasses 37 acres
of land situated within unincorporated Riverside
County, California.
The proposed project consists of eight natural
gas-fired General Electric LMS100 combustion turbine
generators operating in simple cycle mode. The
project will supply quick-start peaking capacity,
energy, and ancillary services into the California
Independent System Operator's Los Angeles Basin Local
Capacity Requirement Area, which has been identified
as an area in need of additional peaking capacity to
meet resource adequacy requirements and ensure grid
reliability.
The proposed project will be constructed,
commissioned, owned, and operated by CPV Sentinel.
CPV Sentinel anticipates selling the capacity, energy,
and ancillary services under long-term contract to one
or more load serving entities. CPV Sentinel has a
power purchase agreement with Southern California
Edison for five of the units and anticipates securing
an agreement to sell the capacity, energy, and
ancillary services under long-term contract to one or
more load-serving entities for the remaining three
units.
The CPV Sentinel power plant is under review by the CEC, but
cannot be approved until CPV obtains the offsets necessary to
mitigate its emissions. According to CPV, it must obtain 173
tons/year of PM10 offsets and 16.4 tons/year of SOx offsets to
satisfy SCAQMD (and therefore CEC) permit conditions, obtain
financing, and commence construction. Until the ruling in
NRDC, et al v. SCAQMD, CPV had been depending on obtaining
offsets from the SCAQMD's priority reserve accounts. The
SCAQMD planned to provide offsets from the priority reserve to
power plants in exchange for mitigation fees at prices
significantly lower than limited offsets available in private
markets. Recent trades of PM10 offsets in private markets
have been reported at over six times the fees SCAQMD planned
to collect from CPV Sentinel for offsets from its internal
accounts.
At the prices set in Rule 1309.1, it appears CPV would pay
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SCAQMD mitigation fees of approximately $48 million for PM10
and $1.4 million for SOx. The bill requires these fees to be
used for unspecified emission reduction purposes, at least 30
percent in areas within close proximity to the power plant and
at least 30 percent in areas designated by the SCAQMD as
"environmental justice areas." SCAQMD rules permit the
district to spend 10 percent of the fees for its
administrative costs.
2)Is it necessary for the Legislature to intervene in the
litigation? There is a clear administrative remedy under
existing law to permit the SCAQMD to resume issuing offsets
from its internal accounts - the certification of an EIR for
the rule changes. The preparation of an EIR which meets the
requirements of CEQA, which is already underway and could be
completed by the end of 2009, will permit the SCAQMD to resume
transferring any valid offsets it holds in its accounts to
eligible sources. There are also the potential judicial
remedies of settlement or reversing the Superior Court ruling
on appeal.
3)Should the interests of one power plant be placed above all
other sources? This bill commits a significant share of
offsets in the SCAQMD's internal accounts to a single power
plant, even though there are hundreds, if not thousands, of
other sources within the district, including essential public
services and other power plants, that may need offsets to
operate and there may not be sufficient valid offsets to go
around.
4)Should the permitting process be altered to favor quick
approval of one power plant? Essentially, this bill asks the
Legislature to set aside a court ruling and the normal
permitting process for the sake of approving the CPV Sentinel
power plant. To accomplish this, the bill alters the process
for reviewing two distinct projects. One project is the power
plant, which is subject to CEQA-equivalent environmental
review by the CEC in a process where the determination of
compliance with air quality standards is made by the air
district. The other project is the SCAQMD rule changes that
affect the way that offsets are used in the district, which
requires environmental review by the district pursuant to
CEQA.
This bill proposes to lump both projects together and give CEC
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exclusive authority and 60 days to approve both, withdrawing
the SCAQMD's authority to determine the power plant's
compliance with air quality standards, as well as the SCAQMD's
obligation to review its rule changes under CEQA, at least for
purposes to transferring offsets to this power plant.
The new process proposed by the bill (subdivision (g) on page
5, line 26 through page 6, line 17), appears to be designed to
circumvent the injunction in NRDC, et al v. SCAQMD, facilitate
quick approval of the power plant, and insulate the applicant
from future lawsuits.
Subdivision (g):
Overrides CEQA by giving the CEC exclusive authority
to review the environmental impacts of the SCAQMD's
actions.
Overrides the CEC process with regard to air quality
by authorizing the CEC to find the project conforms to
air quality standards without the approval of the SCAQMD.
Requires the CEC to complete its review within 60
days of the bill's enactment.
Provides that the above actions by the CEC may only
be reviewed by the state Supreme Court under a limited
scope of review prescribed by statute.
REGISTERED SUPPORT / OPPOSITION :
Support
Building Industry Association, Desert Chapter
Coachella Valley Economic Partnership
Competitive Power Ventures, Inc. (co-sponsor)
Councilman Scott Matas, City of Desert Hot Springs
Desert Water Agency
Environmental Service Professionals
GE Energy Financial Services
Mayor Kathleen DeRosa, City of Cathedral City
Mayor Stephen Pougnet, City of Palm Springs
Mayor Yvonne Parks, City of Desert Hot Springs
Palm Springs Economic Development Corporation
State Building and Construction Trades Council (co-sponsor)
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Southern California Edison
Supervisor Marion Ashley, 5th District, Riverside County
Supervisor Roy Wilson, 4th District, Riverside County
Opposition
Breath California (unless amended)
California Communities Against Toxics (unless amended
California Environmental Rights Alliance (unless amended)
California League of Conservation Voters (unless amended)
Natural Resources Defense Council (unless amended)
Sierra Club California (unless amended)
Union of Concerned Scientists (unless amended)
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092