BILL ANALYSIS Ķ SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 577 Hearing Date: 6/30/2015 ----------------------------------------------------------------- |Author: |Bonilla | |-----------+-----------------------------------------------------| |Version: |6/17/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- SUBJECT: Biomethane: grant program DIGEST: This bill establishes a grant program, funded by the Greenhouse Gas Reduction Fund (GGRF), for biomethane projects. ANALYSIS: Existing law: 1)Directs the California Air Resource Board (ARB) to monitor and regulate sources of emissions of greenhouse gases (GHG) that cause global warming in order to reduce GHG emissions to 1990 levels by 2020. (Health & Safety Code §38510 et seq.) 2)Establishes the Greenhouse Gas Reduction Fund (GGRF), and requires all moneys collected by the ARB from the auction or sales of allowances, pursuant to a market-based compliance mechanism, be deposited in the GGRF and made available for appropriation by the Legislature. (Government Code §16428.8) 3)Establishes the GGRF Investment Plan and Communities Revitalization Act to set procedures for the investment of regulatory fee revenues derived from the auction of GHG allowances. (Health and Safety Code §§39710 to 39720) 4)Requires the GGRF Investment Plan to allocate: (a) a minimum of 25% of the available moneys in the fund to projects that provide benefits to identified disadvantaged communities, and, (b) a minimum of 10% of those available moneys in the fund to projects located within identified disadvantaged communities. (Health and Safety Code §§39711 to 39723) AB 577 (Bonilla) PageB of? 5)Requires the California Public Utilities Commission (CPUC) to adopt standards that specify the concentrations of constituents of concern that are found in biomethane, and to adopt monitoring, testing, reporting, and recordkeeping protocols, to ensure the protection of human health and the integrity and safety of pipelines and pipeline facilities. (Health & Safety Code §25421 et seq.) 6)Requires the CPUC to adopt pipeline access rules that ensure that each gas corporation provide nondiscriminatory open access to its gas pipeline system to any party for the purposes of physically interconnecting with the gas pipeline system and effectuating the delivery of gas. (Public Utilities Code §784.) 7)Requires each of California's three large investor-owned utilities (IOUs) to procure a share of 250 megawatts (MW) of bioenergy from facilities less than 3 MW as follows: (a) 110 MW from biogas from wastewater treatment, municipal organic waste diversion, food processing, and codigestion; 90 MW from dairy and other agricultural bioenergy; and (c) 50 MW from bioenergy using byproducts of sustainable forest management. 8)Requires the California Energy Commission (CEC) to hold public hearings to identify in its Integrated Energy Policy Report impediments that limit procurement of biomethane in California, including, but not limited to, impediments to interconnection, and to offer solutions. (Public Resources Code §25326.) This bill: 1)Directs CEC to implement a program to award monies, upon appropriation from the GGRF, to projects that (a) produce biomethane, (b) upgrade or expand existing biomethane facilities, or (c) develop collection and purification technology or infrastructure for biomethane. 2)Requires CEC, in making biomethane awards, to consider both (a) opportunities to colocate biomethane producers with vehicle fleets and (b) the location of biomethane sources and their proximity to natural gas pipeline injection sites. 3)Further requires CEC to prioritize biomethane projects to AB 577 (Bonilla) PageC of? maximize reduction in GHG emissions achieved by a project for each dollar awarded. Background What is biomethane? Biomethane is purified biogas, which is the gaseous product of anaerobic digestion and is comprised primarily of methane (50% -70%) and carbon dioxide (30% - 50%).<1> Biomethane is considered a "low-carbon" fuel because its combustion destroys methane, a potent climate-warming gas. In addition, biomethane can be used to displace the use of fossil fuels, such as natural gas, thereby further decreasing its carbon intensity. Many programs support biomethane production and use. There are many state programs that, directly or indirectly, encourage the use of biomethane. Utilities can meet the RPS through the use of biomethane if produced from qualifying renewable resources. Recently enacted statute (SB 1122, Rubio, Chapter 612, Statutes of 2012) requires IOUs to collectively procure at least 250 MW of generation eligible for the RPS from bioenergy generation projects, including projects that can produce biomethane. The CEC has invested more than $49 million in 13 biomethane feasibility, demonstration and production projects throughout the state. And biomethane can be used to help satisfy the requirements of the ARB's Low-Carbon Fuel Standard, which requires a reduction of at least 10% in the carbon intensity of California's transportation fuels by 2020. In addition, efforts are underway that should ease the further development and commercialization of biomethane. The IOUs have been wary of injecting biogas into their natural gas pipelines for fear of introduction of contaminants that could damage the pipelines or harm human health. In response, the Legislature, in 2012, enacted AB 1900 (Gatto, Chapter 602, Statutes of 2012). That bill directs the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system. The CPUC, pursuant to AB 1900, adopted concentration standard limits for constituents of concern that may be found in --------------------------- <1> Biogas Potential in the United States (National Renewable Energy Laboratory) AB 577 (Bonilla) PageD of? biomethane, and monitoring, testing, reporting, and recordkeeping requirements. The CPUC's standards should enhance the IOUs' willingness to inject biomethane into their pipelines. The CPUC is still in the process of completing additional work resulting from enactment of AB 1900. Nonetheless, in keeping with AB 1900's call to further development of the California biomethane market, the CPUC issued a proposed decision that would require IOU ratepayers to subsidize 50% of the interconnection costs, up to $1.5 million, of any biomethane project built over the next five years, with a program cap of $40 million. The CPUC is also formally contemplating allocating some of the IOUs' cap-and-trade revenue towards subsidizing biomethane projects, which, presumably, would be in addition to the 50% interconnection subsidy the CPUC has already proposed. The budget may be better. As described above, there are many programs encouraging the production and use of biomethane, and there is the prospect of the CPUC-proposed interconnection cost subsidy in the offing. Nonetheless, proponents contend that the cost to comply with the CPUC regulations for cleaning and conditioning biomethane prohibits development of the biomethane industry in California. As evidence, proponents report that no new biomethane pipeline injection project has been built since the CPUC adopted the AB 1900 biomethane standards. As a remedy, the bill directs CEC to implement a program to subsidize the cost of biomethane projects. Yet, this bill appropriates no funds for the new program and, as of yet, the 2015-16 Budget appropriates no funds from the GGRF to for biomethane projects. Such an appropriation, should one occur, will likely result from the budget process. In addition, the Legislature may attach control language to any such appropriation, which would govern uses of the money and its administration. The Legislature has deferred action on appropriations from the GGRF for this budget cycle and will likely take action on such appropriations later this summer. The committee may wish to defer action on this bill in deference to the budget process. Projects funded from the GGRF must reduce GHGs. This bill seeks to subsidize biomethane projects with monies in the GGRF. The Legislature established the GGRF to govern the investment of regulatory fee revenues derived from the auction of GHG AB 577 (Bonilla) PageE of? allowances pursuant to the cap-and-trade program adopted by ARB under the California Global Warming Solutions Act of 2006 (AB 32 Nuņez/ Pavley, Chapter 488, Statutes of 2006). In doing so, the Legislature established parameters for uses of money in the fund, paramount among them that it be used to facilitate the reduction of GHGs in California. The program established by the bill must reduce GHGs to be in compliance with the law. Appropriately, this bill requires CEC to maximize the reduction of GHG emissions achieved by a project for each dollar awarded. Presumably, CEC will implement the program to ensure its estimation of the GHG emissions achieved by each project is determined on a net basis, considering the life cycle of each project's biomethane production. The bill additionally directs CEC, in granting biomethane awards, to consider opportunities to colocate biomethane producers with vehicle fleets to generate biomethane and convert it to transportation fuel in the same location. The specificity of this consideration seems inconsistent with the bill's other, general direction to CEC - that it maximize the reduction of GHG emissions achieved by a project for each dollar awarded. The author and committee may wish to amend the bill to make this consideration more general, as follows: Public Resources Code Section 5680. (a) (1) The commission shall develop and implement a grant program to award moneys appropriated pursuant to Section 39718.5 of the Health and Safety Code for projects that do any of the following: (A) Produce biomethane. (B) Upgrade or expand existing biomethane production facilities. (C) Develop collection and purification technology or infrastructure for biomethane. (2) Biomethane produced from those projects shall meet the requirements established pursuant to Section 25421 of the Health and Safety Code. (b) In granting an award, the commission shall consider both of the following: (1)Opportunities to colocate biomethane producers with AB 577 (Bonilla) PageF of? vehicle fleets to generate biomethane and convert it to transportation fuel in the same location.The highest and best use of the local biomethane project. (2) Location of biomethane sources and their proximity to natural gas pipeline injection sites. (c) In prioritizing projects eligible for grants pursuant to this section, the commission shall maximize the reduction of greenhouse gas emissions achieved by a project for each dollar awarded. (d) Grants awarded pursuant to this section may be funded, upon appropriation by the Legislature, from the Greenhouse Gas Reduction Fund established pursuant to Section 16428.8 of the Government Code. Double Referral. Should this bill be approved by this committee, it will be re-referred to the Senate Committee on Environmental Quality for its consideration. Prior/Related Legislation AB 590 (Dahle, 2015) authorizes a program to subsidize the generation of electricity at existing in-state biomass facilities three megawatts and larger. The program would be funded from the GGRF, upon appropriation. The bill is currently under consideration by this committee. SB 360 (Cannella, 2015) authorizes the CPUC to consider providing the option to all gas corporations to engage in competitive bidding and direct investment in ratepayer financed biomethane collection equipment in California. The bill is waiting to be considered in this committee. AB 1900 (Gatto, Chapter 602, Statutes of 2012) directed the CPUC to identify landfill gas constituents, develop testing protocols for landfill gas injected into common carrier pipelines, adopt standards for biomethane to ensure pipeline safety and integrity, and adopt rules to ensure open access to the gas pipeline system. AB 2196 (Chesbro, Chapter 605, Statutes of 2012) ensured that biogas qualifies for RPS credit, provided its production, delivery and use meet certain conditions. AB 577 (Bonilla) PageG of? SB 1122 (Rubio, Chapter 612, Statutes of 2012) required IOUs to collectively procure at least 250 MW of generation eligible for the RPS from small bioenergy generation project, including biogas projects. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No ASSEMBLY VOTES: Assembly Floor (77-1) Assembly Appropriations Committee (17-0) Assembly Natural Resources Committee(9-0) SUPPORT: Bioenergy Association of California (source) CR&R Waste Services California Association of Sanitation Agencies California Chapters of the Solid Waste Association of North America California Refuse Recycling Council California Special Districts Association Clean Energy Coalition for Renewable Natural Gas ES Engineering, Inc. East Bay Municipal Utility District Harvest Power California, LLC Sanitation Districts of Los Angeles County Southern California Gas Company The Coalition for Renewable Natural Gas Western Placer Waste Management Authority OPPOSITION: California Taxpayers Association ARGUMENTS IN SUPPORT: Supporters contend the state should subsidize the biomethane projects to ensure development of the industry in state so that Californians can realize the resultant environmental and economic benefits. ARGUMENTS IN OPPOSITION: Opponents question the legality of AB 577 (Bonilla) PageH of? collection of cap-and-trade regulatory fees and, therefore, oppose the creation of programs to disperse revenues derived from those fees. -- END --