BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE ALEX PADILLA, CHAIR AB 2037 - V. Manuel Perez - Hearing Date: June 15, 2010 A As Amended: April 13, 2010 FISCAL B 2 0 3 7 DESCRIPTION Existing law prohibits a load-serving entity or local publicly owned electric utility from entering into a long-term financial commitment with or for a new electrical generating facility unless it meets the state's greenhouse gas emissions performance standard. Existing law requires air districts to adopt and implement local and regional programs to reduce air pollution and to achieve state and federal ambient air standards. These responsibilities include the adoption and enforcement of requirements for new and modified power plants to ensure that emissions from such facilities are mitigated and are in compliance with federal and state law. Air district standards may include requiring power plants to install "best available control technology" (BACT) to control emissions and to obtain emission reduction credits, or "offsets" to mitigate emissions. This bill requires new electrical generation facilities, within or outside of California, which enter into long-term financial commitments with a California utility to meet BACT requirements and to obtain offsets to mitigate air pollution for air pollutants within a shared pollution area, as defined, in California. This bill requires the California Public Utilities Commission, California Energy Commission, the Air Resources Board (ARB), local air pollution control districts, and air quality management districts, to explore with federal agencies and with other governments, methods to encourage the recognition by all relevant agencies of offsets achieved anywhere in a shared pollution area. BACKGROUND Power Plants Beyond California - Currently, two electrical 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 facility located on 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. While both of these facilities were eventually retrofitted to meet BACT standards, current law does not require new facilities to follow BACT standards or procure regional air emission offsets that would be required if those facilities were built in California. Specifically, if the facilities were built in California in 'non-attainment' areas, the offset program would require the facilities to offset criteria pollutants produced on-site by mitigating production of those pollutants off-site. Imperial County, immediately north of the Mexicali power plants is currently classified as a moderate non-attainment area and is the recipient of transported pollution plants in Mexicali. Non-attainment areas and criteria pollutants - The federal Clean Air Act requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards for six common air pollutants. These commonly found air pollutants (also known as "criteria pollutants") are found all over the United States. They are particle pollution (often referred to as particulate matter), ground-level ozone, carbon monoxide, sulfur oxides, nitrogen oxides, and lead. EPA designates these pollutants as "criteria" air pollutants because they regulate them by developing science-based guidelines for setting permissible levels. A "non-attainment area" is defined as an area where air pollution levels persistently exceed National Ambient Air Quality Standards, or an area that contributes to ambient air quality in a nearby area that fails to meet standards. Designating an area as a non-attainment area requires a formal rulemaking process, and EPA normally takes this action only after air quality standards have been exceeded for several consecutive years. Non-attainment areas are given a classification based on the severity of the violation and the type of air quality standard they exceed. Much of southern California and the central valley of California are in non-attainment areas for at least one criteria pollutant. The North America Free Trade Agreement (NAFTA) - NAFTA allows free trade area between the United States, Canada, and Mexico to facilitate trade and the cross-border movement of resources and services and to increase investment opportunities in the territories of the parties. NAFTA provisions address energy regulatory measures by stating that each party shall seek to ensure that in the application of any energy regulatory measure, energy regulatory 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." While this passage suggests that California, and U.S., policy should not "disrupt" energy exchange within the NAFTA members, it does provide a "practicable" clause. In this case, the failure of California to meet federal and state ambient air quality standards and the ARB's jurisdiction in this regard may allow California to implement restrictions in order to meet its state and federal requirements. COMMENTS 1) Author's Purpose . The siting of new power plants located just outside of California which deliver electricity to the state can contribute to air pollution in California air basins. Specifically, there is concern that California's growing demand for electricity will encourage more power-plants to be built in Mexico, where the regulations including the air emissions standards are less stringent. Emissions from some power plants located in Mexico impact air basins within the State. As a result, the adverse air emissions generated from the Mexico-based power plants can affect California residents and increase the state's air quality mitigation requirements. The author's intent is to ensure that those power plants serving California's electrical load and that share an air basin with the state, meet the same air quality emissions requirements as California-based plants. 2) Shared Air Basins . The net effect of the this bill would be to compel energy producers to follow BACT and offset protocols for facilities built across the border that both export electricity to California and have a "shared pollution area" with the state. As California's population and electrical demands grow, more power plants may be built on the Mexican side of the California-Mexico border which has shared basins with California's Imperial and San Bernardino Valleys. Many of these areas on the U.S. side of the border are already considered "non-attainment" areas for multiple criteria air pollutants. Although the bill technically affects all of California's border regions, from a practical perspective the border regions encompassing the Imperial and San Bernardino border areas would most likely be the primary areas affected. This bill relies on the EPA to determine the shared pollution areas to which this bill would apply. It is not apparent why the state needs to rely on a federal agency for this determination. It may be more expedient for that determination to be made at the state level such as by the ARB. This bill has been double-referred to the Senate Environmental Quality Committee where the author may wish to address this issue. 3) What Happens When a Contract is Renewed ? This bill only applies to new financial commitments for electricity at facilities outside of the state by a California utility. The author has identified two specific plants that cause adverse emissions for California's air basins. The author may wish to consider amending this bill so that its provisions also apply upon renewal of a contract for electrical generation. 4) Double Referral . This bill has been double-referred to the Senate Committee on Environmental Quality. ASSEMBLY VOTES Assembly Utilities & Commerce (10-4) Assembly Natural Resources (6-3) Assembly Appropriations (10-5) Assembly Floor (44-26) POSITIONS Sponsors: County of Imperial Comite Civico Del Valle, Inc Support: County of Imperial (Co-Sponsors) Comite Civico (Co-Sponsors) American Lung Association Breathe California California Air Pollution Control Officers Association (CAPCOA) California Rural Legal Assistance Foundation Economic Research Institute-Imperial Valley/CEESEM Imperial Irrigation District Imperial Valley Clean Air Initiative Institute for Socio-Economic Justice and Progressive Community Development, Inc San Joaquin Valley Latino Environmental Advancement Project Seeley Citizens United The Sierra Club South Coast Air Quality Management District Union of Concerned Scientists Oppose: None on file Maurice Pitesky AB 2037 Analysis Hearing Date: June 15, 2010