BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2196
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          Date of Hearing:   May 9, 2012

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                AB 2196 (Chesbro) - As Introduced:  February 23, 2012 

          Policy Committee:                              Utilities and 
          Commerce     Vote:                            10-0
                        Natural Resources                     6-1

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              No

           SUMMARY  

          As proposed to be amended, this bill affirms the eligibility as 
          a "renewable electricity generating facility" an electricity 
          generating facility that uses landfill gas, digester gas or 
          another renewable fuel delivered to the facility through a 
          common carrier pipeline.  The bill conditions this eligibility 
          upon the transaction meeting eligibility and verification 
          criteria comparable to those criteria statutorily applicable to 
          other renewable energy sources.  The author has offered 
          amendments that will qualify for RPS eligibility pipeline 
          biomethane contracts executed prior to January 1, 2012 and 
          condition enrollment upon enactment of AB 1900 (Gatto).

           FISCAL EFFECT  

          Minor costs in 2012-13 in the tens of thousands of dollars to 
          the California Public Utilities Commission (PUC) to consider the 
          bill's refinement of pipeline biogas eligibility for Renewable 
          Portfolio Standard (RPS) purposes and to consider application of 
          that refined eligibility to the state's investor owned 
          utilities. (PUC Utilities Reimbursement Account.)

          (PUC reports it will need the efforts of an administrative law 
          judge, equivalent to half of a PY, to oversee a formal 
          proceeding to determine how statutory balanced-portfolio 
          electricity procurement requirements should be applied to 
          procurement of biogas delivered via common carrier gas pipeline. 
           The PUC's workload claim is reasonable.  However, the author's 









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          office protests, somewhat convincingly, that the pipeline biogas 
          controversy was not created by this bill, as evidenced by the 
          California Energy Commission's recent decision to suspended its 
          RPS certification of pipeline biomethane contracts, and that 
          PUC, therefore, would still need a proceeding to consider 
          pipeline biomethane RPS eligibility, absent this bill.)     

           COMMENTS  

           1)Rationale  .  The author intends to ensure that electricity 
            utilities and certain electricity providers meet their 
            renewable energy procurement obligations by using fuel sources 
            that comply with statutory requirement.  These requirements, 
            the author notes, place the highest value on renewable energy 
            delivered directly into California because, the author 
            contends, such energy provides the greatest economic, 
            environmental and energy reliability benefits. 

           2)Background.   Current statute requires the state's electricity 
            utilities and certain electricity providers to procure at 
            least 33% of each of their electricity from renewable energy 
            resources by 2020 and establishes obligatory renewable energy 
            procurement milestones prior to this date.  This requirement 
            is known as the RPS.  

            Statute defines, for RPS purposes, eligible renewable energy 
            sources to include, among other sources, biogas, landfill gas 
            and digester gas, often collectively referred to as 
            biomethane, which are methane and other gases produced by the 
            breakdown of organic substances.  Statute also establishes a 
            "balanced portfolio" requirement, classifying renewable energy 
            products based upon their location and other characteristics, 
            eventually requiring that 75% of renewable energy products be 
            directly connected or scheduled into the California 
            electricity grid.

            The RPS statute tasks the California Energy Commission (CEC) 
            with certifying renewable energy resources as eligible for RPS 
            credit.  In the past, CEC has certified as RPS eligible 
            renewable energy contracts between out-of-state facilities 
            that produce biomethane and California-based electricity 
            generating facilities that receive the biomethane via pipeline 
            and burn it, along with natural gas, to produce electricity.  









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            Several major electric utilities, including the Los Angeles 
            Department of Water and Power and the Sacramento Municipal 
            Utilities District, among others, have signed contracts with 
            pipeline biomethane suppliers.

            There has been growing concern with the RPS eligibility of 
            some pipeline biomethane contracts.  This is because, in many 
            instances, the pipeline biomethane for which an electricity 
            generating facility receives RPS credit never physically 
            receives the biomethane.  Rather, the facility receives gas 
            from a pipeline interconnected to the biomethane facility. But 
            the pipeline interconnection may be very indirect, cover a 
            distance of thousands of miles, and carry gas that flows away 
            from California, west to east.  CEC has assumed the biomethane 
            displaces an equivalent amount of natural gas in the pipeline 
            so that gas removed by the electricity facility from the other 
            end of the pipeline, regardless of it physical composition or 
            source, may be considered biomethane for RPS compliance 
            purposes.

            Earlier this year, in response to these concerns, CEC 
            suspended its RPS certification of pipeline biomethane 
            contracts to allow time to consider the appropriateness of 
            pipeline biomethane's RPS eligibility.  CEC, however, granted 
            RPS eligibility to previously certified biomethane pipeline 
            contracts.  

            Some electric utilities and other interested parties express 
            concern over CEC's action and the effect disqualification of 
            pipeline biomethane from RPS eligibility will have on electric 
            utilities' ability to meet RPS obligations and the cost to 
            Californians of doing so.

           3)Support.   This bill is supported by several labor groups whose 
            members would benefit from more projects located in 
            California, the Utility Reform Network (TURN) and others.

          4)Opposition.   There is no opposition listed in the policy 
            committee analysis, and, at the time this analysis was 
            prepared, no parties had contacted this committee to formally 
            register their opposition to the bill.  However, some 
            utilities that have entered into pipeline biomethane 
            contracts, or that plan to do so, may contend the bill would 









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            make compliance with the RPS requirements more costly and more 
            difficult.  In addition, utilities with preexisting pipeline 
            biomethane contracts may complain the bill unfairly 
            invalidates contacts that were entered into according to 
            existing law and regulation. 

           Analysis Prepared by  :    Jay Dickenson / APPR. / (916) 319-2081