BILL ANALYSIS Ó
AB 1900
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Date of Hearing: April 26, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 1900 (Gatto) - As Amended: April 19, 2012
SUBJECT : Renewable energy resources: biomethane
SUMMARY : Revises toxic compound standards and testing
requirements for landfill gas to be sold to a gas utility for
transportation in a common carrier pipeline. Validates
Renewable Portfolio Standard (RPS) eligibility for natural gas
power plants based on "pipeline biomethane" contracts executed
prior to January 1, 2013.
EXISTING LAW :
1)The RPS requires investor-owned utilities (IOUs),
publicly-owned utilities (POUs) and certain other retail
sellers of electricity, in order to fulfill unmet long-term
resource needs, to procure eligible renewable energy resources
to meet the following portfolio targets:
a) 20 percent on average from January 1, 2011 to December
31, 2013.
b) 25 percent by December 31, 2016.
c) 33 percent by December 31, 2020 and each year
thereafter.
2)Provides that eligible renewable generation facilities must
"use" biomass, solar thermal, photovoltaic, wind, geothermal,
renewable fuel cells, small hydroelectric, digester gas,
limited non-combustion municipal solid waste conversion,
landfill gas, ocean wave, ocean thermal or tidal current.
3)Establishes "balanced portfolio" requirements for procurement
based on the following three categories (or "buckets") of
renewable energy products:
a) Bucket 1 - Renewable energy interconnected to the grid
within, scheduled for direct delivery into, or dynamically
transferred to, a California balancing authority (i.e.,
real renewable energy supplied to the California grid,
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located within or directly proximate to the state). Of the
total renewable energy contracts executed after June 1,
2010, the following percentages must fall into this
category:
i) At least 50 percent for the 2011-2013 compliance
period.
ii) At least 65 percent for the 2014-2016 compliance
period.
iii) At least 75 percent thereafter.
b) Bucket 2 - Renewable energy where substitute
non-renewable energy is used to provide a reliable delivery
schedule into a California balancing authority (i.e.,
firmed and shaped energy where substitute energy is used to
compensate for delivery problems due to intermittent
generation or inadequate transmission capacity from a
remote renewable resource).
c) Bucket 3 - Renewable energy products not meeting either
condition above, including unbundled renewable energy
credits (RECs) (i.e., the original source of renewable
energy must be located within the western grid, but
otherwise need not have a physical connection to
California). Of the total renewable energy contracts
executed after June 1, 2010, the following percentages may
fall into this category:
i) Not more than 25 percent for the 2011-2013
compliance period.
ii) Not more than 15 percent for the 2014-2016
compliance period.
iii) Not more than 10 percent thereafter.
4)Requires the California Energy Commission (CEC) to:
a) Certify eligible renewable energy resources according to
the criteria in the statute.
b) Design and implement an accounting system to verify
compliance, to ensure that electricity generated by an
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eligible renewable energy resource is counted only once for
the purpose of meeting the RPS of this state or any other
state, to certify renewable energy credits produced by
eligible renewable energy resources, and to verify retail
product claims in this state or any other state.
c) Establish a system for tracking and verifying RECs that,
through the use of independently audited data, verifies the
generation of electricity associated with each REC and
protects against multiple counting of the same REC.
5)Requires the CEC, in consultation with the Air Resources Board
(ARB), to adopt regulations for enforcement of the RPS on
POUs, including providing for the imposition of penalties by
ARB pursuant to AB 32, upon referral by the CEC, for failure
to comply with the RPS. Requires penalties imposed on POUs to
be comparable to penalties imposed by the Public Utilities
Commission (PUC) on IOUs and other retail sellers.
6)Excuses retailer sellers and POUs from enforcement for failure
to meet targets if the retail seller or POU demonstrates that
any of the following conditions are beyond its control and
will prevent compliance:
a) Inadequate transmission capacity for delivery of
sufficient renewable energy.
b) Permitting, interconnection or other delays for
renewable energy projects, or an insufficient supply of
available renewable energy.
c) Unanticipated curtailment of renewable energy necessary
to address the needs of a balancing authority (e.g., the
Independent System Operator).
7)Requires the PUC to establish a cost limit for each IOU
according to specified criteria, requires the PUC to report to
the Legislature by 2016 regarding whether IOUs can achieve 33
percent within the adopted cost limit, authorizes the PUC to
revise the cost limit once after 2016 if necessary, and
authorizes IOUs to stop procuring renewable energy beyond the
cost limit, unless additional renewable energy can be procured
without exceeding a de minimis increase in rates. Authorizes
POU governing boards to adopt consistent cost limits.
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8)Prohibits the sale, supply or use of landfill gas by a gas
corporation unless the gas meets a "no significant risk" level
for vinyl chloride established by the PUC, which corresponds
to the daily exposure level for vinyl chloride set by the
Office of Environmental Health Hazard Assessment (OEHHA)
pursuant to the Safe Drinking Water and Toxic Enforcement Act
of 1986 (Proposition 65).
9)Requires that landfill gas sold to a gas corporation be tested
twice a month to determine that no identified reproductive
toxin or cancer-causing chemicals are present in the gas.
Requires the local air district to review the results of these
tests.
10)Prohibits gas corporations from exposing a person to landfill
gas that has been found to contain chemicals known to the
State of California to cause cancer or reproductive toxicity
without providing a clear warning of the hazards of exposure
to these chemicals.
THIS BILL :
Utility Pipeline/Landfill Gas Provisions (Sections 1, 2, 9, 11
and 12)
1)Expands scope of landfill gas chemical standards beyond vinyl
chloride to require the PUC to identify all constituents that
may be found in landfill gas that is to be injected into a
common carrier pipeline and that could adversely impact public
health and safety. For these constituents, requires the PUC
to specify the maximum allowable amount for gas to be injected
into a common carrier pipeline, which may not exceed the
equivalent of the "no significant risk" daily exposure level
set for toxic chemicals by OEHHA pursuant to Proposition 65.
2)Provides that the PUC is not required to revise any standard
currently in effect (i.e., the 1170 parts per billion vinyl
chloride standard established by the PUC in 1992).
3)Requires the PUC to find that its landfill gas standards do
not expose pipelines to an unreasonable risk of harm to
pipeline integrity.
4)Revises existing landfill gas testing protocols to eliminate
air district review, eliminate independent analysis, and add
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consideration of "environmental co-benefits." (The tests are
intended to determine if the gas contains any constituents in
amounts that exceed the maximum amount set by the PUC.)
5)Prohibits the purchase of landfill gas from a hazardous waste
landfill.
6)Requires the PUC, by January 1, 2014, to consider adopting
landfill gas pilot projects to demonstrate gas quality and
accuracy of testing protocols.
7)Requires the PUC to adopt policies and programs that promote
the development, production and distribution of a variety of
sources of in-state biomethane.
8)Requires the PUC to specify minimum targets for electric IOUs
to procure electricity of landfill gas.
9)Requires the PUC to adopt pipeline access rules for each gas
IOU that are the substantial equivalent of San Diego Gas and
Electric's Rule 39, to ensure non-discriminatory open access
for gas suppliers. ÝExisting gas tariffs of Pacific Gas and
Electric (Rule 21) and Southern California Gas (Rule 30)
provide that "gas from landfills will not be accepted or
transported" - without regard to the actual composition of the
gas.]|
Biomethane RPS Eligibility Provisions (Section 10)
1)Locks in RPS eligibility for all facilities with any
biomethane contract executed prior to January 1, 2013, as
follows:
a) Requires the CEC to establish new pre-certification and
certification procedures for planned RPS facilities (i.e.,
power plants).
b) Requires the CEC to certify as RPS-eligible a facility
that meets the pre-certification conditions.
c) Prohibits the CEC retroactively altering certification
conditions established in pre-certification, unless
necessary for reasons specific to public health and safety.
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d) Applies these conditions retroactively to facilities
claiming RPS eligibility based on contracting for landfill
or digester gas delivered via a common carrier pipeline.
e) Defines eligibility for these existing biomethane
contracts to explicitly permit "directed biomethane" (i.e.,
where biomethane injected into a pipeline in Texas and
points east is exchanged for natural gas extracted in
California, rather than providing for physical delivery of
the biomethane to the power plant), provided all
environmental attributes are attached to the commodity
exchanged.
f) Requires the CEC to review facilities applying for RPS
eligibility under the CEC's existing eligibility rules if
the facility executed a biomethane contract and applied for
certification before January 1, 2013
2)For new certifications and pre-certifications of facilities
that are based on biomethane contracts executed on or after
January 1, 2013, requires the CEC to determine which of the
following source categories applies:
a) A source of biomethane that results in new displacement
of fossil fuels and directly achieves air quality
improvements in an air basin in or affecting California.
b) A source of biomethane that results in new displacement
of fossil fuels but does not directly achieve air quality
improvements in an air basin in or affecting California.
c) A source of biomethane that neither results in new
displacement of fossil fuels nor directly achieves air
quality improvements in an air basin in or affecting
California.
Provides that a source in category (a) may be used to meet
Bucket 1, 2 or 3. Provides that a source in category (b) or
(c) may be used to meet Bucket 3.
3)Requires the CEC to ensure that the operator of the facility
seeking certification demonstrates that the biomethane is
injected into a pipeline that is directly connected to an
interstate pipeline system that, at the time of the execution
of the biomethane procurement contract, regularly provides
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natural gas to the facility.
4)Requires the CEC to design and implement an accounting system
to ensure that consumption of biomethane and the resulting
electrical products are counted a total of one time for the
purpose of the RPS and receiving greenhouse gas benefits.
5)Defines "biomethane" as methane not derived, in whole or in
part, from fossil fuels, including landfill gas, digester gas
derived from digestion of organic material, including
wastewater treatment plant gas, and municipal solid waste
conversion.
FISCAL EFFECT : Unknown
COMMENTS :
1)Background. The RPS is the centerpiece of California's effort
to develop a clean energy system and reduce pollution and
greenhouse gas emissions associated with electricity
consumption. Over the past 10 years, the RPS statutes have
evolved to include very specific eligibility conditions and
limits for various renewable electricity technologies and
products. Under the RPS, renewable fuels (which include
landfill and digester gas) must be "used" to generate
electricity to be eligible for the RPS.
The anaerobic digestion of biodegradable organic matter
produces biogas, which consists of methane, carbon dioxide,
and other trace amounts of gases. Depending on where it is
produced, biogas can be categorized as landfill gas or
digester gas. Landfill gas is produced by decomposition of
organic waste in a municipal solid waste landfill. Digester
gas is typically produced from livestock manure, sewage
treatment or food waste.
In 2007, PG&E (the same utility that does not accept landfill
gas in its own pipelines because of health and safety
concerns) initiated, with PUC approval, the practice of
claiming natural gas power plants are "renewable" on the basis
of purchasing biomethane from distant landfill and digester
sources. These pipeline biomethane transactions were then
used to obtain ratepayer subsidies and RPS eligibility that
would otherwise support investment in renewable energy
generation in California.
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The practice remained fairly limited until 2009, when the PUC
approved a Bloom Energy petition to permit fuel cell projects
to claim a $2/watt bonus from the Self-Generation Incentive
Program (SGIP) by purchasing off-site (including out-of-state)
biomethane through a contract for 75 percent of fuel
requirement of the project for five years. Until the PUC
ended the practice in late 2010, fuel cell projects claimed
approximately $100 million in extra SGIP funds by claiming to
"use" biomethane, even though the PUC didn't require the
projects to deliver and use any biomethane, and in practice
the rules encouraged the opposite. As the SGIP "directed
biogas" rules were applied by Bloom and others, a recipient
needed only to commit to purchase less than 20 percent
biomethane over the project's life to get 100 percent of the
payment up front.
Around the same time, POUs began entering large contracts for
biomethane sourced from landfills in Texas and points east to
obtain RPS credit for their existing natural gas power plants.
In total, these existing contracts represent commitments to
biomethane that obligate the ratepayers of POUs in Los
Angeles, Sacramento, Burbank, Pasadena, Anaheim, Vernon and
Imperial County to pay hundreds of millions of dollars over
the contracts' duration to suppliers such as Shell, Element
Markets, Clean Energy and Waste Management for various
landfill sources in Arkansas, Georgia, Kansas, Louisiana,
Michigan, Mississippi, Ohio, Pennsylvania, Tennessee and
Texas. By volume, most of the contracts were executed within
the past six months.
The 2011 legislation which codified the current 33 percent by
2020 RPS goal (SBX1 2) also established product content
categories (or "buckets"), which place the highest value
(Bucket 1) on renewable energy that is directly delivered into
California because it has the greatest economic, environmental
and reliability benefits.
Under the RPS statutes, the eligibility of "pipeline
biomethane," where landfill gas or digester gas from a distant
source is claimed as the fuel source for a natural gas power
plant, but is not physically delivered to and used by the
power plant to generate electricity and renewable energy
credits, is unclear.
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Citing a variety of concerns regarding consistency with the
RPS, the CEC suspended eligibility for pipeline biomethane on
March 28, 2012. Under the CEC suspension, no new
certifications, fuel sources, or contracts for pipeline
biomethane will be permitted. All existing certified
facilities/contracts are "grandfathered" under the existing
rules. The CEC deferred action on a handful of pending
certifications, indicating they want to collect data and
reconsider at a future meeting.
2)Author's statement :
Several forms of biomethane have been treated to date as
renewable fuels under the RPS, and power plants which burn
this biomethane to produce electricity are thus eligible
for RPS credit. However, there has been debate about what
truly constitutes "use" of biomethane under RPS. As
biomethane is generally transported through natural gas
pipelines, utilities currently contract for the biomethane
at its point of entry into the pipeline system, wherever
that may be, and claim credit for burning the gas at their
facility. This process displaces fossil fuel natural gas
in the pipeline system, but critics have raised concerns
that the biomethane may not be physically burned at the
RPS-eligible facility.
Despite the growing market for biomethane as a reliable
source of cleaner energy, which can help stabilize variable
energy sources such as wind and solar, barriers to entry
within the state have resulted in a shifting of the market
to almost completely out of state. Barriers to putting
biomethane into natural gas pipelines in California include
(1) legislation from 1988 which set testing requirements
for all landfill gas for vinyl chloride, effectively
banning biomethane even though vinyl chloride has been
found to exist in harmful levels only in hazardous waste
landfills, and (2) tariffs adopted by (PG&E and SoCalGas)
which ban all landfill gas from pipelines and subject all
other forms of biomethane to extreme testing requirements.
Several other states allow pipeline biomethane, including
New York, Michigan, Pennsylvania, Ohio, Kansas, Tennessee,
Louisiana and Texas.
Several parties, including gas utilities and landfill
operators have commissioned the Gas Technology Institute
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(GTI) to conduct a scientific study to sample and test
various sources of processed landfill gas which are
currently being placed in our nation's natural gas pipeline
system (in other states). This study will document the
content and constituents of the various samples taken. GTI
has collected all samples, and finalized results and
analysis. Nothing unexpected has been found, and the final
report is scheduled to be published soon.
Under existing law, the CEC certifies facilities as
eligible to generate RPS credits (i.e. RECs). For
facilities which use biomethane to generate credits,
however, the source of fuel is never officially certified
as RPS eligible by the CEC. It is conceivable under the
current process, therefore, that a facility could be
certified as RPS eligible with the understanding they would
use biomethane as fuel, and the rules for RPS credits could
be changed after contracts for biomethane were entered
into, committing consumers to paying a premium for a fuel
source that does not satisfy RPS requirements. This
reality has led to calls for process improvements which
will lead to the identification of "up front" conditions on
future contractual agreements.
3)Permanent eligibility lock seems ill-suited for pipeline
biomethane. Unlike other renewable energy facilities, such as
wind, solar, geothermal and biomass, which are inherently
renewable, a natural gas power plant can claim RPS eligibility
only to the extent it uses a renewable fuel - it is not a
permanent characteristic of the power plant. In the pipeline
biomethane case, the "renewability" of a facility is entirely
dependent on the source of fuel, which can change at any point
in the future. For the CEC to validate the generation of
renewable energy from a natural gas power plant, the CEC must
verify fuel contracts and deliveries on an ongoing basis, and
must have the authority to decertify a facility if it is not
using an eligible renewable fuel. POUs are paying nearly
$11/mmBTU for biomethane for RPS purposes. The current spot
price of natural gas with the same fuel value is less than
$3/mmBTU. This price differential creates an enormous
incentive to cheat, which argues for ongoing regulatory
oversight by the CEC.
4)January 1, 2013 date creates additional "gold rush" incentive.
As referenced above, the volume of biomethane under contracts
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with POUs for RPS purposes has increased dramatically in the
past several months since questions were publicly raised at
the CEC about the legitimacy of the current rules.
Notwithstanding the CEC's action to suspend eligibility, this
bill indicates that any contract entered before the end of the
year would be "grandfathered" under the old rules.
5)Going forward conditions are unpredictable. Beginning January
1, 2013, this bill would require the CEC to determine, for new
certifications, whether a source of biomethane results in "new
displacement of fossil fuels" and "directly achieves air
quality improvements in an air basin in or affecting
California." These standards could be more or less stringent
than the current rules, depending on how the CEC interprets
"displacement" and the degree to which distant air quality
improvements "affect" California. More specificity would be
required to get a predictable result, and it may be preferable
to require confirmation of physical delivery to the eligible
facility and direct reliability and air quality benefits.
That would be more consistent with the standards for Bucket 1
resources enacted by SBX1 2.
6)Bill could create new barriers to in-state pipeline access for
landfill gas. While the bill is clearly intended to ease PG&E
and SoCalGas into the practice of accepting landfill gas in
their pipelines, whether this ever happens depends on the
utilities' cooperation, which has been somewhat lacking in the
past. In addition, the bill could create new barriers by
expanding the scope of the current vinyl chloride standards to
include any compound that might be detected in landfill gas
that might (1) create a health or safety hazard for utility
employees or the public, (2) damage pipeline facilities, or
(3) inhibit the marketability of the gas.
Following passage of AB 4037 (Hayden) in 1988, it took the
PUC three years to issue an order which essentially translated
the three micrograms/day daily exposure level for vinyl
chloride set by OEHHA into an 1170ppb maximum contaminant
level for landfill gas at the point of injection. This bill
could require a similar process for an unknown and unlimited
number of compounds. The list could start with compounds that
USEPA has indicated may be present in landfill gas: nitrogen,
oxygen, ammonia, sulfides, hydrogen, carbon monoxide, and
non-methane organic compounds commonly found in landfills
including acrylonitrile, benzene, 1,1-dichloroethane, 1,2-cis
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dichloroethylene, dichloromethane, carbonyl sulfide,
ethyl-benzene, hexane, methyl ethyl ketone,
tetrachloroethylene, toluene, trichloroethylene and xylenes.
It could also include any number of the 75 or so toxic
compounds for which OEHHA has established a daily exposure
level or the hundreds more on the Proposition 65 list.
7)Related legislation. AB 2196 (Chesbro), approved by this
committee on April 16 and pending in the Assembly
Appropriations Committee, clarifies eligibility under RPS for
pipeline biomethane and applies eligibility and verification
conditions comparable to conditions applied to other eligible
renewable energy sources such as solar, wind and geothermal.
8)Suggested amendments. To address opposition concerns
regarding overbroad eligibility for biomethane and resolve the
policy conflict with AB 2196, the author and the committee may
wish to consider striking the RPS eligibility provisions from
this bill (Section 10 and conforming amendments in Sections
3-8).
REGISTERED SUPPORT / OPPOSITION :
Support
Bloom Energy
Cambrian Energy
Clean Energy Renewable Fuels
Coalition for Renewable Natural Gas
FirstSouthwest Company
Landfill Energy Systems
Montauk Energy
Regional Council of Rural Counties
River Birch Inc.
SCS Energy
Terracastus Technologies
V Core Corporation
Opposition
California State Association of Electrical Workers
Californians Against Waste
California Wind Energy Association
Coalition of California Utility Employees
Independent Energy Producers
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Large-scale Solar Association
The Utility Reform Network
Union of Concerned Scientists
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092