BILL ANALYSIS
AB 1318
Page 1
Date of Hearing: May 18, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 1318 (Perez) - As Amended: May 14, 2009
SUBJECT : South Coast Air Quality Management District: emission
reduction credits for electrical generating facilities.
SUMMARY : Requires the executive officer of the South Coast Air
Quality Management District (SCAQMD) to transfer emission
reduction credits from its internal emission credit accounts to
eligible electrical generating facilities, and establishes
eligibility criteria which results in only one facility
qualifying.
EXISTING LAW :
1)Provides the California Energy Commission (CEC) the exclusive
power to certify all sites for electrical generating
facilities using any source of thermal energy, with a
generating capacity of 50 megawatts (MW) or more.
2)Provides that the issuance of a certificate by the CEC shall
be in lieu of any permit, certificate, or similar document
required by any state, local or regional agency, or federal
agency to the extent permitted by federal law, for such use of
the site and related facilities, and shall supersede any
applicable statute, ordinance, or regulation of any state,
local, or regional agency, or federal agency to the extent
permitted by federal law.
3)Requires the CEC to be the lead agency for all projects that
require certification and provides that if the CEC prepares a
document in the place of an environmental impact report (EIR)
under the California Environmental Quality Act (CEQA), any
other public agency that must make a decision that is subject
to CEQA, shall use the document or documents prepared by the
CEC in the same manner as they would use an EIR or negative
declaration prepared by a lead agency.
4)Exempts from CEQA actions undertaken by a public agency
relating to any thermal powerplant site or facility, if the
powerplant site and related facility is the subject of a CEC
EIR and includes the environmental impact of the proposed
AB 1318
Page 2
action.
5)Permits the applicant to ask the Office of Planning and
Research (OPR) to designate the lead agency in the event a
dispute arises as to which is the lead agency when there are
two or more public agencies, giving due consideration to the
capacity of that agency to adequately fulfill the requirements
of CEQA.
6)Requires every air pollution control district to establish a
system to bank all reductions in the emission of air
contaminants that are to be used to offset certain future
increases in the air contaminant emissions, to provide a
mechanism to recognize reductions that can be used as offsets,
and to provide greater certainty that the offsets shall be
available for emitting industries.
7)The California Code of Regulations requires the local air
pollution control officer to conduct, for the CEC's
certification process, a determination of compliance review of
the application in order to determine whether the proposed
facility meets the requirements of the applicable new source
review rule and all other applicable district regulations.
THIS BILL :
1)Includes findings and declarations that sufficient rotating
electrical generation capacity is required within the Los
Angeles Basin Local Reliability Area to ensure stable
operation of the power grid.
2)Requires the SCAQMD executive officer to transfer air credits
from SCAQMD's internal offset accounts to eligible electrical
generating facilities up to specified amounts when a facility
proposed for certification by the CEC meets the new source
review rule and all other applicable district regulations.
3)Permits the SCAQMD to rely on its Rule 1315, as adopted on
August 3, 2007, to credit the emission credits to its internal
emission credit accounts.
4)Provides that the emission reduction credits shall satisfy all
state and SCAQMD requirements related to the provision of
credits or offsets for new electrical generating facilities.
AB 1318
Page 3
5)Establishes the following eligibility criteria for eligible
electrical generation facilities:
a) Be subject to the permitting jurisdiction of the CEC.
b) Have a purchase agreement, executed on or before
December 31, 2008, to provide electricity to a public
utility for use within the Los Angeles Basin Local
Reliability Area.
c) Be under the jurisdiction of the SCAQMD, but not within
the South Coast Air Basin.
6)Precludes the executive officer from transferring emission
reduction credits until it receives mitigation fees, and
requires the mitigation fees to only be used for emission
reduction purposes.
7)Sunsets on January 1, 2013.
8)Contains an urgency clause.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to require the SCAQMD to issue priority air credits to a
specific project that qualified for the credits prior to a
lawsuit. The author states that this project is needed to
provide reliable and secure sources of electricity for the
entire Los Angeles region.
1) Background : The California Independent System Operator
(CAISO) has identified the Los Angeles Basin as an area in need
of additional peaking capacity to meet resource adequacy
requirements and ensure grid reliability. In 2007, the
California Public Utilities Commission (PUC) ordered Southern
California Edison (SCE) to secure supplies of peaking power in
Southern California. After about 4 to 5 years of planning and
design development, the Competitive Power Venture's (CPV)
Sentinel Energy Project's bid was accepted and CPV entered into
10-year power purchase agreements with SCE for the entire output
of the CPV project. SCE contracted with the plant to meet its
resource adequacy requirements. The PUC has approved the
agreements, finding that the CPV peaking power is needed and
will be purchased by SCE at a PUC-approved price.
AB 1318
Page 4
On June 29, 2007, CPV filed an Application for Certification
with the CEC.
On October 10, 2008, the CEC issued its final staff assessment
and concluded that the CPV project can assist with filling Los
Angeles Basin's need because the project is designed with
quick-start peaking capacity and it is within about 700 feet of
the Devers substation, which minimizes the need for extensive
transmission. The surrounding area is primarily industrial use
with extensive development of wind energy, which is
intermittent. This project is intended to supplement the
intermittent wind energy and provide reliability to the Southern
California region. The developers secured site control and the
CEC staff concluded that the proposed site will not cause a
disproportional impact to an environmental justice population.
There was only one outstanding issue, CPV needs air credits.
Even though the CPV project is not located in the South Coast
Air Basin, which is considered a "non-attainment" area, it is
subject to air emission regulations and needs offsets because it
is within the SCAQMD. (The CPV project is located in a different
air basin in an unincorporated portion of Riverside County.)
2) What's the hang-up : The CEC staff noted that the air
credits issue is "undetermined" because CPV could not get
emission offsets, as required by the federal Clean Air Act. Air
emission offsets are required for permitting new facilities,
relocating facilities, installing new equipment, replacing
existing equipment, and for modifying or modernizing any
equipment.
The SCAQMD provides offsets for the exempt sources from its
Offset Credit Bank for public benefit projects, such as sewage
treatment plants, prisons, police and fire protection
facilities, schools, and hospitals. The SCAQMD proposed three
facilities with long-term contracts to provide priority air
credits: Walnut Creek (500 MWs), CPV Sentinel (850 MWs), and NRG
EI Segundo (573 MWs). According to the SCAQMD Deputy Executive
Officer, the credits allocated for these plants account for only
14% of the emission credit balance.
The CPV project could not get air credits on the open market
because there aren't enough available, and of the available
credits, they are cost prohibitive. In 2000, the average price
AB 1318
Page 5
for a PM10 credit was $3,859 per pound/day. In 2008, the
average price jumped to $146,751, with the highest price at
$247,000 per pound/day.
To address this problem of insufficient credits for needed power
plants, the SCAQMD amended Rule 1309.1, which governs the
emission credit Priority Reserve Account. The amendment allowed
the SCAQMD to transfer air emission reduction credits from the
Account to power plants in exchange for payment of mitigation
fees that the SCAQMD would use to finance programs to improve
air quality.
As part of the rule-amendment process, the SCAQMD repromulgated
Rule 1315, which governs how the district tracks and accounts
for air emission reduction credits transferred from the Priority
Reserve Account, as well as from other sources.
3) Are the air credits legitimate: This bill permits the
SCAQMD to rely on its Rule 1315 to credit the emission credits.
Rule 1315 is one of the two rules that is the subject of the
pending state court challenge, represented the work product of
lengthy discussions between the U.S. EPA and the SCAQMD. Rule
1315 is the rule that provides for how the South Coast maintains
its New Source Review (NSR) accounting methodology and all
aspects of the NSR Offset Tracking System. Rule 1315 sets up
the basic accounting methodology for how credits are counted in
the District's internal accounts.
A SCAQMD agenda notes that after several months of discussions
between SCAQMD staff and U.S. EPA staff, SCAQMD staff developed
Proposed Rule 1315 to formalize SCAQMD's NSR accounting
methodology and to address the issues and questions raised by
U.S. EPA regarding all aspects of SCAQMD's NSR Offset Tracking
System. The proposed revisions to SCAQMD's NSR Offset Tracking
System are primarily intended to facilitate U.S. EPA's state
implementation plan approval of SCAQMD's past and
presently-proposed NSR rule amendments. Proposed Rule 1315
includes specific changes to SCAQMD's existing NSR offset
tracking procedures and addresses all issues raised by U.S. EPA.
4) The dog caught the car : The Natural Resources Defense
Council (NRDC) and other groups challenged the district rule
amendments in the Superior Court of Los Angeles alleging that
the SCAQMD violated the requirements of CEQA in its analysis and
AB 1318
Page 6
mitigation of the potential environmental impacts of the rule
changes (the environmental impact of the power plant projects
are done in compliance with CEQA by the CEC). The original
intent of NRDC and others was to ensure the SCAQMD did not
provide priority reserve air credits to an electric generating
facility in the City of Vernon (CEC Docket Number 06-AFC-4).
Regardless of whether credits were issued or not, the Vernon
project would have failed certification on two other district
requirements: it exceeded the city's future projected native
load, and it had not entered into a long-term contract with a
utility or the State. According to the CEC, the Vernon project
is dead.
The Superior Court decision imposed overarching remedies. The
superior court held that the SCAQMD's EIR required under CEQA of
the rule change was inadequate and prohibits the district from
using its amended rules until there is a new review of the rules
under CEQA. As a result of the decision, the SCAQMD decided it
would not make emission reduction credits in the Priority
Reserve Account available to power plants.
NRDC and others had also brought a citizen suit against the
SCAQMD under the federal Clean Air Act in the U.S. District
Court for the Central District of California. This suit alleges
that emission reduction credits in the Priority Reserve Account
are invalid under federal law.
As a result, the SCAQMD had to set aside several thousand
permits that were previously issued in reliance on the
district's internal offset bank to offset emissions (these
permits have been subject to analysis performed pursuant to CEQA
that the lead agency has deemed appropriate). Affected projects
include equipment replacement to reduce air emissions, plus
projects for essential public services such as hospitals,
schools, landfills, sewage treatment plants, and water
districts. The municipalities include the cities of Los
Angeles, Irvine, Banning, Coachella, Torrance, Yucaipa,
Monrovia, among others, and the counties of San Bernardino,
Riverside, Orange, and Los Angeles. The Superior Court decision
has adversely affected some of these businesses in the district.
For example, one company that forges steel for airplane
manufacturers has permits pending for 20 new furnaces that emit
far less pollutants than the 60 older and inefficient furnaces
it would like to replace, but can't because it needs emission
reduction credits.
AB 1318
Page 7
5) Is eliminating power plants from eligibility the right
answer : The CAISO is statutorily responsible for short-term and
long-term reliability of the electricity grid. The CAISO is
obligated to ensure that federally-enforced national reliability
requirements are met. It states, "Because of these
requirements, a certain amount of the total electricity used in
the Los Angeles Basin local area must come from local
generation?. There is other evidence in the record that
additional generation will be needed in the Los Angeles Basin
local area because of the fact that some of the existing local
generation will be lost in the next few years due to retirement
of older, inefficient thermal plants that are disproportionately
polluting." The CAISO notes that 50% of available total power
in the region is generated from powerplants that are 40 years or
older.
For local, zonal, and system reliability requirements, the CAISO
supports the SCAQMD's decision to open the Priority Reserve
Account, on a temporary basis, to new, clean, and efficient
generation resources. It notes that 12,143 MW of generating
capacity is at risk of retirement in the Southern California
region, and nearly 50% of the "at risk" capacity is located
within the South Coast Area.
The CAISO concludes that the loss of these units increases the
probability of calling a Stage-3 emergency in the South Coast
region, which triggers rotating outages, from 7% in 2008 to 13%
in 2012. During a Stage 3 emergency, the CAISO requires load
curtailments and can impose rolling blackouts until such time as
sufficient operating reserves are available. This can occur
when the older, dirtier burning plants can ramp up, or until the
weather cools off and demand decreases.
SB 107 (Simitian) Chapter 464, Statutes of 2006, requires the
state's utilities to achieve a 20% renewable portfolio standard
(RPS) by 2010. Efforts are underway to increase it to 33% by
2020. Renewable resources necessitate peaking plants and
reliable baseload generation due to the intermittency of wind
and solar. If newer and cleaner plants can't come on line to
"shape" or compensate for the intermittency of renewables, the
state may not attain its RPS nor greenhouse gas reduction goals.
(AB 1348, Blakeslee, includes "least-emissions, best-fit"
language for the utilities' procurement of non-renewable
generation.)
AB 1318
Page 8
At least 10 of Southern California's power plants use a
water-intake cooling system called once-through cooling. The
Porter Cologne Water Quality Control Act requires that new and
expanded coastal power plants using seawater for cooling utilize
the best available site, design, technology, and mitigation
measures feasible to minimize the intake and mortality of all
forms of marine life. In 2006, State Water Resources Control
Board (Water Board) staff issued a draft policy and recommended
shutting down all of the state's 21 power plants at different
times, depending on the plants' contributions to reliability.
According to the Water Board, many of the power plants are old
and inefficient power plants. As such, it is likely that many
generators will opt to shut down instead of making costly
upgrades to comply with the federal Clean Water Act and the
Porter Cologne Water Quality Control Act. Without air credits,
these plants cannot re-power using a less-invasive cooling
process, nor can they shut down due to federal and state
reliability requirements.
Importing electricity from out-of-basin may not be an option.
Building transmission takes about 7 to 10 years, depending on
the length and complexity of the transmission lines. Most
utilities take years just planning the route and getting the
necessary permits. In addition, many communities are averse to
new or even expanded transmission on existing rights of way. AB
1333 (Hagman) would prohibit an electrical corporation from
reconstructing an electrical transmission line that runs through
a residential community unless it undertakes several
requirements.
6) The opposition: The NRDC opposes this bill for two reasons.
First, this bill is intervening in a pending lawsuit and the
court froze the air credits that the bill would require the
executive director to issue. The NRDC states that the SCAQMD's
air credits may not be legitimate. Second, this bill would
require the SCAQMD to prioritize this project ahead of all of
the other small businesses and essential public services.
7) The "Do Nothing" option: For now, the court requires a hold
on all permits until it can reconcile the creation of all
credits in the Priority Reserve Account and until the SCQAMD
prepares an EIR for the rule changes. The preparation of an EIR
which meets the requirements of CEQA, which is already underway
could be completed by the end of 2009. After it's approved by
AB 1318
Page 9
the court (and possibly subject to challenge), the SCAQMD may
resume transferring any valid offsets it holds in its accounts
to eligible sources.
This bill addresses only one power plant and will not fix the
overall problem in the south coast region. Regardless of the
bill, the current freeze on all credits will continue until at
least the end of the year, or until the SCAQMD's EIR is deemed
complete and unchallenged. In addition, municipalities and
businesses that are planning on taking advantage of federal
economic stimulus funds will be unable to renovate or construct
anything in the district. (Most of the stimulus funds must be
expended within one year or the funds revert.)
AB 1318 will affect the CEC siting certification by settling the
final outstanding issue of whether the project has enough air
credits. This may provide some assurance to SCE that CPV will
be able to deliver electricity when plant construction is
complete.
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)
Southern California Edison
Supervisor Marion Ashley, 5th District, Riverside County
Supervisor Roy Wilson, 4th District, Riverside County
Opposition
Breath California (unless amended)
Communities Against Toxics (unless amended)
AB 1318
Page 10
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 : Gina Adams / U. & C. / (916) 319-2083