BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2196 - Chesbro Hearing Date:
June 25, 2012 A
As Amended: June 20, 2012 FISCAL B
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DESCRIPTION
Current law requires investor-owned utilities, community choice
aggregators, and electric service providers (collectively
referred to as retail sellers) and local publicly owned
utilities (POUs), to increase purchases of renewable energy such
that at least 33% of total retail sales are procured from
renewable energy resources by December 31, 2020. In the interim
each entity is be required to procure an average of 20% of
renewable energy for the period of January 1, 2011 through
December 31, 2013 and 25% by December 31, 2016. This is known as
the Renewables Portfolio Standard (RPS).
Current law requires all renewable electricity products to meet
the requirements of a "loading order" that mandates minimum and
maximum quantities of three product categories (or "buckets")
which includes renewable resources directly connected to a
California balancing authority or provided in real time without
substitution from another energy source, energy not connected or
delivered in real time yet still delivering electricity, and
unbundled renewable energy credits.
Current law requires the California Energy Commission (CEC) to
certify generating facilities for purposes of establishing
eligibility under the RPS and to design and implement an
accounting system to verify compliance with the RPS by retail
sellers and POUs.
Current law defines a renewable electrical generation facility
and includes in that definition a facility that uses landfill
gas or digester gas (biomethane).
This bill clarifies the definition of an eligible renewable
electrical generation facility to include a facility that
generates electricity utilizing biomethane delivered through a
common carrier pipeline if the source and delivery of the fuel
can be verified by the CEC. For facilities that rely on the
procurement of biomethane delivered through a common carrier
pipeline based on contracts executed or amended after January 1,
2012, the CEC must certify that the fuel source:
is injected into a pipeline that physically flows toward
the generating facility that will use the fuel;
the source was newly developed after January 1, 2012 or
increased deliveries after January 1, 2012 to meet the new
contract;
renewable and environmental attributes are transferred
to the retail seller or POU that uses the biomethane for
compliance with the RPS to ensure that the electric
generation is carbon neutral;
the seller and purchaser comply with a tracking system
to verify deliveries of biomethane; and
the source of the biomethane causes a direct reduction
of air or water pollution in the state or alleviates a
local nuisance related to the emission of odors.
Current law permits procurement from contracts for renewable
generation executed prior to June 1, 2010 to "count in full"
toward a retail seller's or POU's RPS requirements and further
exempts those contracts from the three product categories or
"bucket" requirements.
This bill counts in full, as eligible generation for purpose of
complying with the RPS, electric generation that relies on
procurement of biomethane from a contract executed prior to
January 1, 2012.
BACKGROUND
Eligible Renewable Generation - Procurement from a renewable
facility cannot be counted for purposes of complying with the
RPS unless that facility has been certified as RPS-eligible by
the CEC. Facilities interested in obtaining a bilateral contract
or competing in a load-serving entity's RPS solicitation
generally certify the facility with the CEC.
There are two types of certification: (1) RPS Certification,
and, (2) RPS Pre-Certification. Renewable facilities that are
under development may seek "pre-certification," with the
understanding that the CEC will verify the information submitted
in the pre-certification application once the facility has been
completed and is delivering electricity. All certified and
pre-certified facilities are subject to audit. The Western
Renewable Energy Generation Information System (WREGIS) has been
developed to satisfy current RPS tracking requirements. All
RPS-certified facilities must register with WREGIS.
The fourth edition of the CEC's RPS eligibility guidebook,
released in January 2011, introduced a number of changes to the
treatment of biomethane injected into the natural gas pipeline
system. Some of the more noteworthy changes were the creation of
the biogas section as a stand-alone section, the introduction of
the term "pipeline biomethane," and clarifying the delivery
requirements for delivering biogas (now called pipeline
biomethane, or biomethane) for use in an RPS-eligible electric
generating facility.
The CEC certifies an "eligible renewable facility." In the case
of pipeline biomethane, the CEC will certify a natural gas plant
that will receive pipeline biomethane. The CEC does not and has
not considered the execution date of a contract in its
certification process.
Pipeline biomethane stands out in the portfolio of eligible RPS
resources because it is transported to a natural gas facility
and it is the natural gas facility that gets certified as
RPS-eligible because some portion of the generation from the
facility is considered renewable based on the fuel source.
Other RPS-eligible facilities have the fuel source and
generating facility at the same site. Consequently, in trying
to define as eligible pipeline biomethane, the CEC had to try
and fit a square peg into a round hole and in so doing may have
not acted consistent with the purposes of the RPS program
particularly as it was amended by SB x1 2 (Simitian, 2011).
Pipeline Biomethane Suspension - After the release of the 2011
eligibility guidebook by the CEC, controversy ensued over the
new classification of "pipeline biomethane." The adoption of SB
x1 2 (Simitian, 2011) with its product categories, delivery
requirements, and environmental objectives raised further
question as to whether pipeline biomethane as defined as
eligible in the guidebook was consistent with the RPS program.
The guidelines for pipeline landfill and digester gas do not
require displacement of fossil fuel consumption, the reduction
of air pollution, or other environmental benefits to California.
Additionally the contracts being signed by some California
retail sellers and POUs were with landfills from as far away as
Pennsylvania, Ohio and Tennessee - locales which make it
physically impossible to verify delivery of the fuel to
California particularly because the flow of those pipelines
passes through pipelines flowing in the opposite direction of
California. The RPS also intends that the program achieve
"additionality" - that new development of renewables occurs -
but in the case of many of the contracts, the biomethane had
been flowing for quite some time so that there appears to be no
new capture or incremental capture occurring. Additionally, the
current guidebook lacks vigorous requirements to verify that the
claimed quantity of biomethane was actually used by the
designated power plant or that the necessary biomethane
attributes were transferred to the power plant operator for
purposes of the RPS and not double-counted for other purposes.
The CEC recognized that its guidebook was inconsistent with the
requirements of SB x1 2 and on March 28, 2012, voted to suspend
the RPS eligibility guidelines relative to biomethane with
specified conditions. The resolution adopted by the CEC
provided that it would not accept applications for
pre-certification of facilities after 5:00 p.m. on that date.
The existence or execution of a contract was irrelevant to that
action. Power plants that were pre-certified for the RPS by the
CEC will remain pre-certified. Complete applications for RPS
certification and RPS pre-certification for power plants seeking
to use biomethane that were received by the CEC prior to the
deadline "will be processed in accordance with the eligibility
guidelines in effect on that date."
Contract Eligibility under Suspension - As a result of the
suspension, some POUs and retail sellers have executed contracts
for which they are not certain that they will be able to obtain
certification of the generating facility. The CEC did not and
does not consider the execution of contracts in their
certification process and the suspension did not consider
contract execution either. As a result, if there is a contract
for the purchase of biomethane and the facility has been
certified as eligible then the generation will be RPS eligible.
If a facility that planned to receive biomethane filed for final
or pre-certification with the CEC by March 28th at 5:00 p.m. the
CEC indicates that those applications will be processed in
accordance 2011 RPS guidebook. If a facility did not file a
pre-certification with the CEC before the deadline, regardless
of a contract, that generation and contract has no legal status
before the CEC at this time.
Grandfathered Contracts - To finesse the transition from the 20%
by 2010 RPS program to the 33% by 2020 program, SB x1 2
grandfathered all RPS contracts entered into prior to June 1,
2010 and provided that those contracts will "count in full"
under the new program requirements. Under rules adopted by the
California Public Utilities Commission, this means that
generation from contracts executed prior to June 1, 2010 will be
netted out from the total RPS obligation; the remaining retail
sales requirement under the RPS will be required to meet the new
product content categories, commonly referred to as buckets,
under the new program. Buckets are a critical new feature
required for compliance in the RPS program. Retail sellers and
POUs have interim procurement obligations leading up to 33% by
2020. The program defines three product categories, the
"buckets", and sets limitations on the quantity of electricity
products for each of the three buckets in each compliance period
with an emphasis on electric generation delivered directly to a
California balancing authority. Because the biomethane and the
generating facility are geographically separate, usually by
thousands of miles, it is not clear under the law or CEC or CPUC
policy into which bucket the resulting generation would be
eligible.
COMMENTS
1. Author's Purpose . According to the author, the RPS is
the centerpiece of the state's effort to develop a clean
energy system and reduce pollution and greenhouse gas
emissions associated with electricity consumption. Over
the past ten 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 must be "used" to generate
electricity to be eligible for the RPS. The 2011
legislation which codified the current 33 percent by 2020
RPS goal (SBX1 2) also established very carefully
negotiated product content categories (or "buckets"), which
place the highest value on renewable energy that is
directly delivered into California because it has the
greatest economic, environmental and reliability benefits.
Under the RPS, the eligibility of "pipeline biomethane,"
where landfill gas or digester gas is claimed as the fuel
source for a natural gas power plant, but is not literally
"used" by the power plant to generate electricity and
renewable energy credits, is unclear. Under a suspension
order adopted by the California Energy Commission on March
28, 2012, 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.
AB 2196 would override the CEC suspension and reinstate RPS
eligibility for pipeline biomethane going forward, under
conditions comparable to other renewable energy sources.
In particular, the fuel source and delivery method would be
(1) considered in determining the appropriate product
content category under the RPS (Section 399.16) and (2)
subject to verification by WREGIS or a comparable
independent tracking system.
2. Going Forward . This bill aligns the RPS program
statutory structure which relies on and assumes that fuel
supplies and the generation facilities are coincidental,
with the growth potential and delivery characteristics of
the development of pipeline biomethane where the fuel
source and generation facility are disconnected. This bill
would override the CEC suspension and reinstate RPS
eligibility for pipeline biomethane for contracts entered
into after January 1, 2012, under conditions comparable to
other renewable energy sources. In particular, the
biomethane fuel source and pipeline delivery method would
be (1) considered in determining the appropriate product
content category or "bucket" and (2) subject to
verification by an independent tracking system.
There has been little controversy concerning these
provisions but there may be an unintended consequence from
the requirement that the biomethane "physically flows
toward the generating that contracted for the biomethane."
In effect this would require that all generating facilities
be downstream of the fuel source. To clarify this
provision, the committee may wish to consider amendments
that require the flow within the state or toward the
generating facility.
3. Looking Back . This bill will override the suspension of
pipeline biomethane and the associated generation
facilities as eligible renewable resources by the CEC and
count as eligible under the RPS program any procurement of
pipeline biomethane under a contract executed prior to
January 1, 2012. It is important to distinguish this bill
from the CEC's suspension because the CEC determined
eligibility based on the certification status of a facility
and not on contracts for the fuel supply. Consequently,
this bill will grandfather an unknown number of contracts
that never filed for a certification or pre-certification
of the facility with the CEC.
Some parties argue that the bill should be amended to
change the grandfather date to coincide with the CEC
suspension but the additional contracts that would be
brought in as a result of the date change were not likely
eligible for continued processing under the conditions of
the CEC suspension because they never filed an application
for certification or pre-certification of the facility.
Nevertheless parties continue to argue for consistency
between this bill and the CEC suspension which is apples
and oranges and not possible since the bill concerns
contract execution date and the CEC suspension was based on
the certification status of a generating facility.
4. Caught Betwixt & Between ? Regardless of the grandfather
date for the contracts, the remaining issue for those
contracts is product content eligibility or what bucket
into which the generation would count. Because the product
categories took effect in the spring of 2011, the CEC has
yet to consider into which bucket this generation would
count for POUs. The bill currently provides that those
contracts will "count in full" for purposes of the RPS but
does not specify a product content category or bucket. The
author's intent appears to be that these contracts will be
treated the same as other grandfathered contracts under the
RPS and that the total electric generation resulting from
the pipeline biomethane will be netted out from the total
RPS obligation in future compliance periods. The remainder
of the RPS compliance obligation for retail sellers and the
POUs would have to meet the product compliance categories
or buckets associated with the new RPS program.
Some parties argue for amendments to this bill which would
count these contracts as specifically eligible under bucket
1. There is no precedent for this in the RPS program.
Additionally, the effect of grandfathering these contracts
as bucket 1 would likely be to eliminate any future
procurement obligations for generation in bucket 1 and
allow any remaining generation necessary for RPS compliance
to be achieved by the purchase of RECs further avoiding the
purpose of the program to develop new renewable generation.
To ensure clarity of the author's intent and consistency
with the treatment of other grandfathered contracts in the
RPS program, the committee may wish to consider
cross-referencing the treatment of biomethane for contracts
executed prior to January 1, 2012 with current law for
contracts grandfathered prior to June 1, 2010 as provided
for in Public Utilities Code Section 399.16 (d).
5. Double Referral . Should this bill be approved by the
committee, it should be re-referred to the Senate Committee
on Environmental Quality for its consideration as "Do
Pass." In the interest of time, amendments taken in this
committee will be accepted and processed by the
Environmental Quality Committee.
ASSEMBLY VOTES
Assembly Floor (66-1)
Assembly Appropriations Committee (12-0)
Assembly Natural Resources Committee
(6-1)
Assembly Utilities and Commerce Committee
(10-0)
POSITIONS
Sponsor:
Author
Support:
California State Association of Electrical Workers
California State Pipe Trades Council
Californians Against Waste
Clean Power Campaign
Coalition of California Utility Employees
The Utility Reform Network
Union of Concerned Scientists
Western States Council of Sheet Metal Workers
Support, if amended:
Ameresco
Burbank Water and Power
California Association of Sanitation Agencies
California Municipal Utilities Association
California Wind Energy Association
Large-Scale Solar Association
City of Los Angeles (LADWP)
Sacramento Municipal Utility District
Waste Management
Oppose, unless amended:
California Public Utilities Commission
Clean Energy
Coalition For Renewable Natural Gas
Shell Energy North America
Southern California Edison
Kellie Smith
AB 2196 Analysis
Hearing Date: June 25, 2012