BILL ANALYSIS Ó
AB 2196
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 2196
AUTHOR: Chesbro
AMENDED: June 20, 2012
FISCAL: Yes HEARING DATE: July 2, 2012
URGENCY: No CONSULTANT: Rebecca
Newhouse
SUBJECT : BIOMETHANE: RPS ELIGIBILITY
SUMMARY :
Existing law :
1)Provides that eligible renewable electrical 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, and
tidal current to generate electricity, and requires that
renewable electrical generation facilities must meet certain
requirements, as specified. (Public Resources Code §25741).
2)Under the Renewable Portfolio Standard (RPS) (Public
Utilities Code §399.11 et seq.):
a) Requires investor-owned utilities (IOUs), publicly
owned utilities (POUs) and certain other retail sellers
of electricity to achieve 33% of their energy sales from
an eligible renewable electrical generation facility by
December 31, 2020, and establishes portfolio requirements
and a timeline for procurement quantities of three
product categories. By 2020, 75% of RPS compliance energy
must come from category one and includes renewable energy
interconnected to the grid within, scheduled for direct
delivery into, or dynamically transferred to, or in
relatively close proximity to, California.
b) Requires the California Energy Commission (CEC) to
certify eligible renewable electrical generation
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facilities according to the criteria in the statute and
design and implement an accounting system to verify
compliance, to ensure that electricity generated by an
eligible renewable energy resource is counted only once
for the purpose of meeting the renewables portfolio
standard 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) Requires the CEC, in consultation with the Air
Resources Board (ARB), to adopt regulations for
enforcement of the RPS on POUs and requires penalties
imposed on POUs to be comparable to penalties imposed by
the Public Utilities Commission (PUC) on IOUs and other
retail sellers.
This bill :
1) Requires, if eligibility of a renewable electrical
generation facility is based on the use of landfill gas,
digester gas, or another renewable fuel delivered to the
facility through a common carrier pipeline, that the CEC
verify the fuel and delivery method through an accounting
system to ensure compliance, as specified, and that the
following conditions be met:
a) That all quantities of biomethane delivered under the
terms of the original contract executed prior to January
1, 2012, and otherwise eligible under the rules in place
as of the date of contract execution, count in full
toward the procurement requirements, unless any
quantities of biomethane delivered under the terms of a
procurement contract are associated with an extension of
the term of the contract, an increased quantity of
biomethane, or any change in the source of the
biomethane specifically identified in the original
contract, and under those circumstances, eligibility is
subject to the requirements in b) below.
b) That, for quantities of biomethane delivered under
the terms of a contract executed on or after January 1,
2012, the use of biomethane shall not qualify as an
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eligible renewable resource, unless the CEC certifies
the following:
i) That the biomethane is injected into a
pipeline that physically flows toward the
generating facility that will use the fuel;
ii) That the source of the biomethane did not
inject biomethane into a common carrier pipeline
prior to January 1, 2012, or the source must have
increased deliveries after January 1, 2012, to meet
the new contract requirements;
iii) That sufficient 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;
iv) The seller and purchaser comply with a
tracking system to verify deliveries of biomethane,
as specified; and
v) That 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.
ÝNOTE: An amendment taken in the Senate Energy,
Utilities and Communications Committee to be adopted
in the Senate Environmental Quality Committee
changed the date from January 1, 2012, to March 28,
2012.]
2) Requires that, for contracts initially executed on or after
January 1, 2012, or with quantities associated with
contract amendments executed after January 1, 2012, the use
of biomethane must be assigned to the appropriate portfolio
content category, as specified.
3) Contains other clarifying provisions.
COMMENTS :
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1) Purpose of Bill . According to the author, "Under current
law (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. AB 2196 confirms
that pipeline biomethane is eligible under conditions
comparable to other eligible resources. Under a suspension
order adopted by the California Energy Commission (CEC) 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. If enacted, AB 2196 would
override the suspension and reinstate RPS eligibility for
pipeline biomethane going forward, under conditions
comparable to other renewable energy sources."
2) Background . Through a series of steps involving the
bacterial breakdown of organics, carbon-based material can
be converted to methane in an anaerobic atmosphere.
Anaerobic digesters, which operate with various
temperatures, pH and bacteria types, can break down organic
wastes, dramatically speeding up the natural decomposition
process, and produce primarily methane, significant
quantities of carbon dioxide and trace amounts of other
gasses including hydrogen, carbon monoxide, nitrogen,
oxygen, and hydrogen sulfide, which, all together, is
termed "biogas." The biogas can be processed further to
produce high purity, or "pipeline" quality methane, and is
termed biomethane to differentiate it from natural gas.
Common sources of biomethane are landfills, dairy farms,
and wastewater treatment plants. The burning of biomethane
is considered carbon neutral, in contrast to extracted
natural gas, since the carbon in biomethane was recently
removed from the atmosphere. According to the US EPA,
methane is over 20 times more effective than CO2 in
trapping heat in the atmosphere over a 100-year period.
3) Biomethane under RPS . Current law identifies electrical
generation facilities that use digester gas, municipal
solid waste conversion, or landfill gas, among other fuels,
as renewable electrical generation facilities and can be
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certified, if they meet specific requirements, by the CEC
as RPS-eligible, and therefore may be used by retail
sellers of electricity, and POUs to satisfy their renewable
portfolio standard (RPS) procurement goals. Changes to the
RPS law by SB 2X (Simitian) Chapter 1, Statutes of 2011,
established three portfolio content categories within which
new RPS procurement is classified and sets quantitative
procurement limits for each category and places the highest
value on renewable energy that is directly delivered into
California.
According to the CEC's 4th edition Renewable Portfolio
Standard Eligibility Guidebook, biomethane, upgraded from
landfill gas or digester gas, may be claimed as a fuel
source for a natural gas power plant near, or in California
in order to be certified by the CEC, and therefore be
RPS-eligible. However, because this gas is often delivered
from sources distant to California, it is not clear that
the biomethane injected into a natural gas pipeline system
for delivery to a designated power plant actually displaces
in-state fossil fuel consumption because the biomethane may
not be physically delivered to the purchasing electric
generation facility for a variety of reasons. These
reasons include the extensive commingling of the biomethane
with natural gas, inconsistent direction of gas flow and
multiple extraction points on the pipeline system before
the gas reaches the electric generation facility. This
issue is unique to biomethane as a renewable resource,
since other RPS-eligible facilities have the fuel source
and generating facility at the same site.
In a March 27, 2012, letter to the Legislature, the CEC
notes that their current RPS guidelines do not require that
the use of biomethane displace fossil fuel consumption or
reduce air pollution, do not require a showing that the use
of biomethane results in greenhouse gas reductions, and do
not establish rigorous requirements to verify that 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.
Consequently, on and after March 28, 2012, the CEC
suspended the RPS-eligibility guidelines related to
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biomethane, citing the concern that the current guidelines
of determining biomethane RPS eligibility may not advance
the environmental goals of SB 2X (Simitian) Chapter 1,
Statutes of 2011, which established a preference for
electricity generation that provides environmental benefits
to the state by displacing in-state fossil fuel
consumption, reducing air pollution within the state, and
helping the state meet its climate change goals by reducing
emissions of greenhouse gases associated with electrical
generation.
The March 28th CEC action suspended provisions in their
fourth edition guidebook that allowed for the certification
of facilities that use biomethane to be RPS-eligible, but
did not affect facilities that were already certified or
pre-certified (a process by which facilities can be
certified before they are operational but are subject to
full verification after the facility is delivering
electricity) as RPS-eligible. 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 does not consider the execution of contracts in
their certification process and the suspension did not
consider contract execution either.
AB 2196 would reinstate RPS eligibility for pipeline
biomethane with requirements comparable to other renewable
energy sources. Under AB 2196, in order to be
RPS-eligible, the source and delivery of the biomethane
must be considered in determining the appropriate product
content category and must also be verified by the CEC in
accordance with their accounting system. This bill would
also require that biomethane procurement contracts executed
after January 1, 2012 meet additional requirements to be
RPS-eligible, so that California achieves in-state
environmental benefits, pursuant to SB 2X. AB 2196
specifies that biomethane procurement contracts executed
before that date count in full towards RPS compliance.
ÝNOTE: An amendment was taken in the Senate Energy,
Utilities and Communications Committee to be adopted in the
Senate Environmental Quality Committee to change the
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effective date from January 1, 2012, to March 28, 2012.]
4) Compatible with a 75% solid waste diversion goal ? Renewable
energy interconnected to the grid within, scheduled for
direct delivery into, or dynamically transferred to a
California balancing authority, qualifies as category one
procurement, and is required to make 75% of the portfolio
in the 2017-2020 compliance period. If certain requirements
are met, California electricity generation from in-state
landfill biomethane would likely qualify as category one,
and might therefore be in high demand, as California's
retail seller of electricity and POUs work to meet their
RPS requirements.
One concern is that the passage of this bill could
incentivize the continued disposal of organic material to
landfills, especially if those landfills have negotiated
long-term contracts with IOUs or POUs, and potentially
stifle progress toward developing the necessary composting
infrastructure to achieve complete organic waste diversion.
Under AB 341 (Chesbro) Chapter 476, Statutes of 2011,
CalRecycle has a goal of source-reduction, recycling and
composting at least 75% of California's solid waste by
2020. Since organic matter makes up a large percentage of
the current waste stream in California, significant gains
in organic waste diversion are necessary for CalRecycle to
obtain that waste diversion goal.
5) Unresolved issues . The Senate Energy, Utilities and
Communications Committee analysis raises salient issues
that the Senate Environmental Quality Committee may wish to
address.
a) Biomethane flow . According to the Senate Energy,
Utilities and Communications Committee analysis on AB
2196, there may be unintended consequences resulting
from the language in AB 2196, which requires that
biomethane "physically flows toward the generating
facility that contracted for the biomethane" and might
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 to be within the state or toward the generating
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facility.
b) Which category ? According to the Senate Energy,
Utilities and Communications Committee analysis, "To
finesse the transition from the 20% by 2010 RPS program
to the 33% by 2020 program, ÝSB 2X] 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. " The Senate
Energy and Utilities Committee further notes that, "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)."
ÝNOTE: An amendment taken in the Senate Energy and
Utilities Committee to be adopted in the Senate
Environmental Quality Committee changed the above date
from January 1, 2012, to March 28, 2012.]
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6) Amendments taken in Senate Energy, Utilities and
Communications Committee . An amendment taken in the Senate
Energy, Utilities and Communications Committee, to be
adopted in the Senate Environmental Quality Committee,
changed the date after which additional requirements must
be met for biomethane procurement to be RPS eligible and
the date before which biomethane procurement contracts
count in full towards RPS compliance from January 1, 2012,
to March 28, 2012.
7) Related legislation . AB 1900 (Gatto) of 2012 requires PUC
to adopt new health and safety standards for landfill gas,
to hold public hearings to identify impediments to in-state
biomethane use, and develop policies and programs to
increase the in-state use of biomethane. AB 1900 is
currently in the Senate Environmental Quality Committee and
will be heard July 2, 2012.
SOURCE : Assemblymember Chesbro
The following list of support and opposition is
from the Senate Energy, Utilities and
Communication analysis for the June 20, 2012
version of AB 2196, and may not accurately
represent any potential position changes
resulting from the amendment taken in the
Senate Energy, Utilities and Communication
hearing, to be adopted in the Senate
Environmental Quality Committee (see comment
#6):
SUPPORT : Ameresco (if amended)
Burbank Water and Power (if amended)
California Association of Sanitation Agencies
(if amended)
California Municipal Utilities Association (if
amended)
California State Association of Electrical
Workers (if amended)
California State Pipe Trades Council
Californians Against Waste
California Wind Energy Association
Clean Power Campaign (if amended)
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Coalition of California Utility Employees
Large-Scale Solar Association (if amended)
City of Los Angeles (LADWP) (if amended)
Sacramento Municipal Utility District (if
amended)
The Utility Reform Network
Union of Concerned Scientists
Western States Council of Sheet Metal Workers
Waste Management (if amended)
OPPOSITION : California Public Utilities Commission (unless
amended)
Clean Energy (unless amended)
Coalition For Renewable Natural Gas (unless
amended)
Shell Energy North America (unless amended)
Southern California Edison (unless amended)