BILL ANALYSIS �
SB 767
Page 1
Date of Hearing: August 15, 2013
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
SB 767 (Lieu) - As Amended: July 3, 2013
SENATE VOTE : 39-0
SUBJECT : California Renewables Portfolio Standard (RPS)
Program: biomethane
SUMMARY : Extends the "flow deadline" established by AB 2196
(Chesbro), Chapter 605, statutes of 2012, from April 1, 2014 to
January 31, 2015. The flow deadline is a condition of RPS
eligibility for sources of biomethane associated with
pre-existing contracts that may be grandfathered under AB 2196.
The apparent purpose of the 10-month extension proposed by this
bill is to facilitate RPS eligibility under AB 2196's
grandfathering standards for prospective landfill biomethane
sources in Ohio, Mississippi and Texas.
EXISTING LAW , AB 2196, establishes specific standards governing
RPS eligibility of existing and new sources of biomethane (e.g.,
landfill gas) injected into natural gas pipelines and procured
by utilities to offset natural gas used by a natural gas power
plant. Among other requirements, AB 2196 requires new sources
of pipeline biomethane to demonstrate any one of three
environmental benefits to California - a reduction in air
pollution, a reduction in water pollution, or alleviation of an
odor nuisance. However, AB 2196 grandfathers existing
biomethane contracts executed and reported to the California
Energy Commission (CEC) prior to March 29, 2012 (the CEC issued
an order suspending eligibility of pipeline biomethane on March
28, 2012). The pre-AB 2196 rules apply only to sources that are
identified in these contracts and are injecting biomethane into
a pipeline on or before April 1, 2014. This "flow deadline" was
intended to allow projects initiated prior to the CEC suspension
a reasonable opportunity to be completed, while protecting the
integrity of the RPS from additional biomethane projects with no
environmental benefit to California.
FISCAL EFFECT : According to the Senate Appropriations
Committee, one-time costs of approximately $75,000 from the
Energy Resources Programs Account (General Fund) to update the
RPS Guidebook in FY 2013-14.
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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. 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 initiated 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.
The practice remained fairly limited until 2009, when
publicly-owned utilities (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.
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, existing certified
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facilities/contracts were "grandfathered" under the existing
rules, but no new certifications, fuel sources, or contracts
for pipeline biomethane were permitted. AB 2196 confirmed the
grandfathering of existing contracts and established rules for
new biomethane sources that are comparable to the requirements
applicable to other renewable energy sources. In April 2013,
the CEC adopted guidelines to implement AB 2196 and lifted the
suspension. The flow deadline in AB 2196 was originally
January 1, 2014, as requested by the Administration. In the
final amendments to AB 2196, the deadline was extended to
April 1, 2014 at the request of parties representing pending
biomethane projects. The purpose of flow deadline was to
allow projects initiated prior to the CEC suspension a
reasonable opportunity to be completed, while drawing a line
to prevent speculative projects from obtaining the
considerable benefits of grandfathering.
2)Purpose of the bill. The source of this bill, Element
Markets, contends that it is developing biomethane projects to
serve grandfathered contracts, and that these projects lost
financing and were forced to halt construction as a result of
the CEC's March 28, 2012 suspension order. Element Markets
further attributes its inability to complete the projects by
the current flow deadline to delays by the CEC in implementing
AB 2196.
The landfill sources in question are among several existing
and prospective sources intended to supply biomethane to
Vernon, Imperial Irrigation District and Burbank through
contracts executed in late 2011 and early 2012. These POU's
contracts are grandfathered under current law and most of the
sources identified in the contracts are flowing (from existing
landfill biomethane projects in Georgia, Kansas, Pennsylvania
and Texas). This bill is not about whether these POU
contracts will be eligible, it's about whether additional,
prospective sources can be added under the old rules, gaining
RPS eligibility for distant landfill sources with no
environmental benefit to California.
In response to the Committee's request to identify the
projects, Element Markets has identified one of its
prospective sources - APEX landfill in Amsterdam, Ohio - while
claiming the other sources are confidential. However, to be
eligible for grandfathering, a source must have been reported
to the CEC prior to March 29, 2012. Based on information from
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the CEC, it appears other prospective sources are Little Dixie
landfill in Ridgeland, Mississippi and Pine Hill landfill in
Kilgore, Texas. Whether these sources were reported to the
CEC in time and meet other eligibility conditions is unclear.
3)Can the proponents show their projects were initiated prior to
the CEC suspension? As indicated above, Element Markets has
declined to identify projects and there is no other evidence
regarding their development status. The one exception is the
APEX landfill in Ohio. The information provided by Element
Markets shows only expenses incurred in June and July of 2013.
The other expenses identified by Element Markets were
incurred by the landfill operator in 2010 and 2011, prior to
Element Market's interest in the project, for gas collection
and flaring, rather than pipeline injection. The status of
the other "confidential" projects is, of course, unknown.
4)Can the proponents show their projects were delayed by CEC
action? Without any evidence that the projects were initiated
prior to the CEC suspension, it's impossible to determine
whether the projects in fact lost financing and were forced to
halt construction as a result of the suspension. Regarding
the claim of CEC delays in implementing AB 2196, the CEC
indicates it did not delay. A review of the CEC's proceeding
shows an unusually fast implementation - within five months
from the date AB 2196 was enacted. Since the CEC lifted the
suspension, it has approved facility certifications related to
the Element Market's projects within two to four days of
receipt of a complete application.
5)Is a blanket extension of 10 months the appropriate remedy for
the problem claimed? Notwithstanding Element Market's
expectations, by most accounts the implementation of AB 2196
has been orderly and prompt. It was understood when AB 2196
passed that not every planned biomethane source would meet the
April 1, 2014 deadline. The deadline was intended to give
existing projects a reasonable time to gain an exemption,
while subjecting new projects to the new rules.
Whether there are projects that were initiated prior to the
suspension that won't meet the current flow deadline, but for
whom grandfathering is appropriate, depends on facts that are
not before the Committee. If the Committee is persuaded that
exceptions to the April 1, 2014 flow deadline may be
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warranted, it may wish to consider whether the question should
be addressed by the CEC for particular projects based on facts
and a showing of good cause, rather than by the Legislature in
a blanket fashion.
REGISTERED SUPPORT / OPPOSITION :
Support
Burbank Water and Power
City of Vernon
Coalition for Renewable Natural Gas
Element Markets
Imperial Irrigation District
Southern California Public Power Authority
Opposition
California Wind Energy Association
Clean Power Campaign
Large-Scale Solar Association
Solar Energy Industries Association
The Utility Reform Network (TURN)
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092