BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 2196|
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                                 THIRD READING


          Bill No:  AB 2196
          Author:   Chesbro (D), et al.
          Amended:  8/22/12 in Senate
          Vote:     21

           
           SENATE ENERGY, UTILITIES & COMMUNIC. COMM  :  11-1, 6/25/12
          AYES:  Padilla, Fuller, Berryhill, Corbett, De León, 
            DeSaulnier, Emmerson, Kehoe, Pavley, Rubio, Wright
          NOES:  Simitian
          NO VOTE RECORDED:  Strickland

           SENATE ENVIRONMENTAL QUALITY COMMITTEE  :  6-1, 7/2/12
          AYES:  Simitian, Blakeslee, Hancock, Kehoe, Lowenthal, 
            Pavley
          NOES:  Strickland

           SENATE APPROPRIATIONS COMMITTEE  :  4-1, 8/16/12
          AYES:  Kehoe, Alquist, Price, Steinberg
          NOES:  Lieu
          NO VOTE RECORDED:  Walters, Dutton

           ASSEMBLY FLOOR  :  66-1, 5/25/12 - See last page for vote


           SUBJECT  :    Renewable energy resources

           SOURCE  :     Author


           DIGEST  :    This bill clarifies the definition of an 
          eligible renewable electrical generation facility to 
          include a facility that generates electricity utilizing 
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          biomethane delivered through a common carrier pipeline if 
          the source and delivery of the fuel can be verified by the 
          State Energy Resources Conservation and Development 
          Commission (Energy Commission). This bill counts in full, 
          as eligible generation for purpose of complying with the 
          Renewable Portfolio Standard (RPS), electric generation 
          that relies on procurement of biomethane from a contract 
          executed, by a retail seller or local publicly owned 
          utility and reported to the Public Utilities Commission 
          (PUC) or the Energy Commission, prior to March 29, 2012.

           ANALYSIS  :    Existing law:

          1.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 RPS.

          2.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.

          3.Requires the 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. 

          4.Defines a renewable electrical generation facility and 
            includes in that definition a facility that uses landfill 
            gas or digester gas (biomethane).

          5.Permits procurement from contracts for renewable 

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            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 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 Energy 
          Commission.  This bill counts in full, as eligible 
          generation for purpose of complying with RPS, electric 
          generation that relies on procurement of biomethane from a 
          contract executed, by a retail seller or local publicly 
          owned utility and reported to the PUC or the Energy 
          Commission, prior to March 29, 2012, the CEC must certify 
          that the fuel source:

          1.Is injected into a pipeline that physically flows toward 
            the generating facility that will use the fuel;

          2.The source was newly developed after March 29, 2012 or 
            increased deliveries after March 29, 2012 to meet the new 
            contract;

          3.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;

          4.The seller and purchaser comply with a tracking system to 
            verify deliveries of biomethane; and

          5.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.

           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 

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          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 has been 
          developed to satisfy current RPS tracking requirements.  
          All RPS-certified facilities must register with the System. 


          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 

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          amended by SB x1 2 (Simitian), Chapter 1, Statutes of 
          2011-12 First Extraordinary Session

           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 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 

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          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 28 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 the Public Utilities Commission 
          policy into which bucket the resulting generation would be 

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          eligible.  

           Comments
           
          According to the author's office, 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 (SB x1 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.

           Related Legislation
           
          AB 1900 (Gatto), 2012, would require the Office of Health 
          Hazard Assessment, the California Energy Commission and the 
          Public Utilities Commission to take actions related to the 
          delivery of biomethane gas within the state for the 
          purposes of electricity generation.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee:

           $75,000 from the Public Utilities Reimbursement Account 
            in 2012-12 and 2013-14 for the partial cost of a 
            proceeding to modify existing Public Utilities Commission 
            rules related to RPS eligibility.

           Up to $75,000 from the Energy Resources Programs Account 
            (General Fund) annually to verify source and delivery of 
            biomethane.

           SUPPORT  :   (Verified  8/22/12)


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          California State Association of Electrical Workers
          California State Pipe Trades Council
          California Wind Energy Association
          Californians Against Waste 
          Clean Power Campaign
          Coalition of California Utility Employees
          Large-Scale Solar Association
          Natural Resources Defense Council
          The Utility Reform Network
          Union of Concerned Scientists
          Western States Council of Sheet Metal Workers

           OPPOSITION  :    (Verified  8/22/12)

          Coalition For Renewable Natural Gas (unless amended)
          Shell Energy North America
          Waste Management (unless amended)

           ARGUMENTS IN SUPPORT  :   Natural Resources Defense Council 
          states in support that, "This legislation would resolve 
          many of the issues surrounding the use of biomethane to 
          comply with the RPS.  By doing so, AB 2196 will ensure that 
          future investment in RPS-eligible biomethane will result in 
          new projects that provide tangible local air quality 
          benefits and greenhouse gas emission reductions. Resolution 
          of these issues will facilitate the development of an 
          environmentally and socially beneficial biomethane 
          industry. 

          "The adoption of appropriate RPS eligibility criteria 
          requires thoughtful judgement, particularly given the 
          nascent state of many renewable technologies.  NRDC 
          believes that the author has found a reasonable balance 
          between the competing interests and objectives.  We urge 
          you to support AB 2196. 

          "AB 2196 also provides guidance to ensure that biomethane 
          used for RPS compliance can be counted as a carbon neutral 
          resource.  We support this objective, but are concerned 
          that the current language would require biomethane projects 
          to credit to purchasers more reductions than are needed to 
          offset all of the greenhouse gas emissions.  We look 
          forward to working with the author to ensure that the 
          language fairly apportions emission reductions between 

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          buyers and sellers."

           ARGUMENTS IN OPPOSITION  :    Waste Management states in 
          opposition, "For months Waste Management has supported AB 
          2196, provided it could be amended to protect the essential 
          elements of the contracts it entered into more than a year 
          ago with the cities of Burbank and Pasadena.  Those 
          contracts were entered into with the full expectation by 
          both parties that the delivered gas would be counted by the 
          CA Energy Commission under the procurement content 
          requirements (the 'bucket system') in the new RPS law that 
          was enacted in early 2011.  The contracts fully comply with 
          guidelines promulgated by the CEC, which describe in detail 
          the conditions that must be met by providers of biomethane 
          from out-of-state sources.  There has been no dispute that 
          the WM contracts meet all guideline requirements. Our 
          contracts were executed last August, more than seven months 
          before the CEC imposed a moratorium on certifying new 
          projects, and our projects began delivering gas in early 
          October, almost six months before the moratorium. 

          "The language in AB 2196, which allows biomethane contracts 
          only to 'count in full' toward RPS procurement 
          requirements, consigns all biomethane contracts to an 
          accounting system that predates the current RPS law and 
          reduces the value of the gas significantly below its 
          contracted value. But for Waste Management the outcome is 
          even worse, because our contracts require the biomethane to 
          be recognized by the state as qualifying for 'bucket one' 
          under the current RPS law.  If AB 2196 is enacted in its 
          current form, the biomethane we are under contract to 
          deliver will not even receive the reduced 'count in full' 
          value."


           ASSEMBLY FLOOR  :  66-1, 5/25/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Beall, Block, 
            Blumenfield, Bonilla, Bradford, Brownley, Buchanan, 
            Butler, Charles Calderon, Campos, Carter, Cedillo, 
            Chesbro, Cook, Davis, Dickinson, Eng, Feuer, Fong, 
            Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, 
            Gordon, Gorell, Hagman, Hayashi, Hill, Huber, Hueso, 
            Huffman, Jeffries, Jones, Lara, Logue, Bonnie Lowenthal, 
            Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, 

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            Nestande, Nielsen, Norby, Olsen, Pan, V. Manuel Pérez, 
            Portantino, Skinner, Smyth, Solorio, Swanson, Torres, 
            Valadao, Wagner, Wieckowski, Williams, Yamada, John A. 
            Pérez
          NOES:  Donnelly
          NO VOTE RECORDED:  Atkins, Bill Berryhill, Conway, 
            Fletcher, Grove, Halderman, Hall, Harkey, Roger 
            Hernández, Knight, Ma, Perea, Silva


          RM:n   8/22/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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