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
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          |Author:    |Bonilla                                              |
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          |Version:   |6/17/2015    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          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  









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            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)








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          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  









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          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  









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                  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.









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          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  









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          collection of cap-and-trade regulatory fees and, therefore,  
          oppose the creation of programs to disperse revenues derived  
          from those fees.

          

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