BILL ANALYSIS AB 2037 Page 1 Date of Hearing: April 5, 2010 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Steven Bradford, Chair AB 2037 (V. Manuel Perez) - As Introduced: February 17, 2010 SUBJECT : Electricity: air pollution. SUMMARY : Prohibits utilities from entering into a long-term financial commitment with a new electric generating facility that is not sited by the California Energy Commission (CEC), does not meet best available technology standards, and will cause air pollution in an in-state air basin. Specifically, this bill : 1)Prohibits a load-serving entity or local publicly owned electric utility from entering into, and prohibits the California Public Utilities Commission (CPUC) from approving, a long-term financial commitment with or for a new electrical generating facility that meets all of the following criteria: a) The new electrical generating facility is to be or was constructed without receiving certification from the CEC. b) The facility is to be or was constructed without meeting California air pollution regulations including best available control technology (BACT) and any offsets required to mitigate additional pollution. c) The facility will cause or contribute to nonattainment with state or federal ambient air quality standards due to emissions of air pollution within, or transported to, an air basin within this state. 2)Requires the local air pollution control district or air quality management district with jurisdiction over the air basin to make the determination on whether the facility meets the criteria. EXISTING LAW 1)Requires the state Air Resources Board (ARB) to adopt and enforce state ambient air standards for the control and reduction of air pollution, and to enforce federal ambient air standards for reduction of air pollution. AB 2037 Page 2 2)Requires air districts to adopt and implement local and regional programs to reduce air pollution and to achieve state and federal ambient air standards. 3)Prohibits the CPUC from approving a long-term financial commitment by an electrical corporation, unless any baseload generation supplied under the long-term commitment complies with the CEC's greenhouse gas emission performance standards. FISCAL EFFECT : Unknown. COMMENTS : According to the author, the purpose of this bill is to deter the building of powerplants that do not comply with California's air pollution standards, when the powerplant shares an air basin with Californians. Mexico has more lenient building and air-emission standards than California. There is concern that California's growing demand for electricity will encourage more powerplants to be built in Mexico, where the regulations are less stringent. Some power plants located in Mexico reside in the same air basin as California's border region. As a result, the adverse air emissions generated from the Mexico-based power plants affect California residents. By disallowing a California utility from engaging in a long-term contract with dirty-burning power plants, it might provide an incentive for any new powerplants on the Mexico side of the border to comply with California's BACT and air pollution control standards. 1) Background : Three electricity generation facilities are located near Mexicali, about 3 miles south of the international border and about 12 miles southwest of Calexico, California. The Termoelectrica de Mexicali plant, owned by Sempra Energy, is a 500-megawatt (MW) facility that produces electricity for export into the U.S. InterGen owns and operates the La Rosita 750 MW plant and Energia de Baja California, which are located on a common site and referred to as the InterGen Complex. Half of the electricity from the InterGen Complex is generated for use within Mexico and the remaining half is produced for export into the U.S. InterGen contracted with the Mexican utility to produce electricity for Mexico for a guaranteed fixed price for 25 years. The InterGen Complex producing this power meets Mexican, but not California, clean air requirements. AB 2037 Page 3 InterGen's Complex emits about 1,900 tons of nitrous oxide annually, but the Sempra plant in Mexicali produces only 190 tons annually. InterGen counters that its bid on a contract to supply power to Mexico was based on the requirement that bidders must comply with Mexican air regulations, and now that the contract has been awarded, no changes are allowed to the contract except as specifically provided in the contract. Thus, the company claims that it would be difficult to shut down its operation to install BACT, and it would be cost prohibitive given the circumstances under which the contract was bid. InterGen further contends that its Mexicali plant is one of the cleanest in Mexico and is cleaner than more than 50% of the plants currently operating in the U.S. and California. As such, this bill does not apply to existing power plants and only to new plants constructed after January 1, 2011, or plants that add incremental capacity after January 1, 2011. 2) The CEC siting process: Current law requires the CEC to certify sufficient sites and related facilities for the construction and operation of thermal powerplants of 50 MW and larger. Most renewable power plants, such as solar photovoltaic, wind, and biomass, are certified by the local agency, not the CEC. This bill might inadvertently disallow a utility to engage in a long-term contract with a renewable energy facility. The author has worked with the utilities and interested parties and has agreed to clarify that these provisions will not apply to contracts with certain renewable energy generation facilities; however, they have not ironed out final language yet. 3) The North American Free Trade Agreement (NAFTA) : NAFTA is a regional agreement to implement a free trade area between the U.S., Canada, and Mexico to: eliminate barriers to trade and facilitate the cross-border movement of goods and services, promote conditions of fair competition in the free trade area, and substantially increase investment opportunities in the territories of the parties. The NAFTA provisions that address energy regulatory measures may pre-empt the state's ability to impose trade restrictions. NAFTA requires that "Each party shall seek to ensure that in the application of any energy regulatory measure, energy regulatory AB 2037 Page 4 bodies within its territory avoid disruption of contractual relationships to the maximum extent practicable, and provide for orderly and equitable implementation appropriate to such measures." It is unclear whether this bill will challenge NAFTA provisions. RELATED LEGISLATION AB 1305 (V. Manuel Perez) requires any person importing electricity from a power plant generation unit located in Mexico, within 100 kilometers of the U.S. border, that is constructed after January 1, 2010, and that does not meet California air pollution standards, to pay to the ARB a mitigation fee of $0.001 per kilowatt hour of imported electricity, not to exceed the amount ARB determines necessary to mitigate the environmental or health impacts of the power plant and any associated administrative costs. AB 1305 was not heard and died in this committee. REGISTERED SUPPORT / OPPOSITION : Support American Lung Association in California Breathe California California Air Pollution Control Officers Association (CAPCOA) San Diego Gas & Electric (SDG&E) (if amended) Sempra Energy (if amended) Union of Concerned Scientist Opposition California Municipal Utilities Association (CMUA) (unless amended) Southern California Edison (SCE) Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083