BILL ANALYSIS Ó AB 590 Page 1 Date of Hearing: April 27, 2015 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Anthony Rendon, Chair AB 590 (Dahle) - As Amended April 21, 2015 SUBJECT: Greenhouse Gas Reduction Fund SUMMARY: This bill creates the Biomass State Cost Share Account within the Greenhouse Gas Reduction Fund (GGRF) and requires a specified amount to be transferred annually from the GGRF to the Account to be available for purposes, as specified. Specifically, this bill: a)Creates the Biomass State Cost Share Account within the GGRF. b)Requires the following amount of moneys to be transferred from the GGRF to the Biomass State Cost Share Account: In 2015-16 fiscal year, $74 million, In 2016-17 fiscal year, $118 million, and In 2017-18, 2018-19, 2019-20 fiscal years, $120 million in each of those fiscal years. AB 590 Page 2 a)Requires that moneys in the account, upon appropriation, be available for expenditures by the California Energy Commission (CEC) for the purposes of maintaining the current level of biomass power generation in the state and revitalizing currently idle facilities in strategically located regions. b)Specifies that to be eligible for funding from the Biomass State Cost Share Account, a facility's solid fuel biomass electrical generation must satisfy all of the following: The energy is generated on or after January 1, 2016, The energy is generated within the state and sold to customers within the state, and The energy is net-metered generation. a)Defines "net metered generation" to mean energy that is sold to the grid and is not used onsite for the facility's own electrical demand. b)Requires a facility seeking funds from the Biomass State Cost Share Account to submit an application to the CEC that demonstrates that it is a solid fuel biomass facility and is California Renewables Portfolio Standards Program Certified, and submit monthly invoices to the CEC to document eligible generation and the fuel used for that generation. c)Requires the CEC to review each submitted invoice and make monthly incentive payments to each applicant based on the eligible generation and the applicable production incentive AB 590 Page 3 rate. EXISTING LAW: 1)Requires the Air Resources Board (ARB), pursuant to the California Global Warming Solutions Act of 2006, to adopt rules and regulations that would reduce greenhouse gas (GHG) emissions in the state to 1990 levels by 2020. (Health and Safety Code Sections 38500 to 38599) 2)Establishes the 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 fund and made available for appropriation by the Legislature. (Government Code Section 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 Sections 39710 to 39720) 4)Requires the GGRF Investment Plan to allocate: 1) a minimum of 25% of the available moneys in the fund to projects that provide benefits to identified disadvantaged communities, and, 2) a minimum of 10% of those available moneys in the fund to projects located within identified disadvantaged communities. (Health and Safety Code Sections 39711 to 39723) FISCAL EFFECT: Unknown. AB 590 Page 4 COMMENTS: 1)Author's Statement: "California is in danger of losing the one asset it has to divert forest fuel reduction residues and other wood waste materials today. In the last 12 months alone California has closed five biomass facilities due to expired contracts and poor economics. That's a loss of 108 MWs of baseload renewable power and hundreds of jobs, both at the plants and in the fuel supply infrastructure. California's RPS program is failing to provide any incentive to procure biomass power for a more balanced portfolio of renewables. Despite the call for environmental and economic benefit considerations in the RPS program, the only growth that is occurring in the renewable industry is coming from solar and wind. By 2020, when the state is mandated to procure 33 percent of its electricity supply from renewables, intermittents could account for some three-quarters of total renewables while half of the biomass plants in the state will be closed. Without these biomass resources, the health, environmental and economic well-being of these regions which rely on them are damaged. Cost sharing strategies are essential to resolving this problem." 2)Background: The California Global Warming Solutions Act of 2006, enacted by AB 32 (Nunez, 2006, Chapter 488, Statutes of 2006), tasked the ARB to adopt rules and regulations that would reduce GHG emissions in the state to 1990 levels by 2020. With it, the Legislature acknowledged the adverse impacts and threat global warming poses to the economic wellbeing, public health, natural resources, and environment of California, and took an active step towards mitigating its effect. In 2012, the State Budget Act of 2012 created the GGRF as a special fund in the State Treasury and required that any money collected by the state board from the auction or sale of allowances pursuant to a market-based compliance mechanism to be deposited into the fund and available for appropriation by the Legislature. The bill required the funds to only be used AB 590 Page 5 for projects that would reduce the emissions of GHGs and further the regulatory purpose of AB 32. In addition, in 2012, the legislature passed AB 1532 (John A. Perez, 2012, Chapter 807, Statutes of 2012), which created 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. Furthermore, the legislature also passed SB 535 (De Leon, 2012, Chapter 830, Statues of 2012), which required the investment plan to allocated specific funds to projects that provide benefits and are located in identified disadvantaged communities. The 2014-15 Budget Act allocates cap and trade revenues for the 2014-15 fiscal year and establishes a long-term plan for the allocation of cap and trade revenues beginning in fiscal year 2015-16. The Budget continuously appropriates 25 percent of cap and trade funds for investments in transit, affordable housing, and sustainable communities. Forty percent will be appropriated annually for investments in programs that include low-carbon transportation, energy efficiency and renewable energy, and natural resources and waste diversion. No funds have been specifically appropriated for biomass power generation. 3)Biomass Energy in California: Biomass is a waste and byproduct consisting of organic residues from plants and animals which are obtained primarily from harvesting and processing agricultural and forestry crops, and can be utilized as fuels for producing energy. Examples of biomass include, forest slash, urban wood waste, lumber waste, agricultural wastes, etc. At its peak, California's biomass industry produced 800 megawatts (MW) of electricity from 66 direct combustion biomass facilities. By 1996, the energy production from biomass had dwindled to about 590 MW. Currently there are still about 30 direct combustion biomass facility operations with a capacity of 640 MW. The reduction in biomass energy produced was a result of the expiration of price support and AB 590 Page 6 incentives provided to the biomass industry from the state. This bill would establish the Biomass State Cost Share Account within the GGRF, and require a specified amount to be transferred annually from the GGRF to the account to be made available for the purposes of maintaining the current level of biomass power generation in the state and revitalizing currently idle faculties in strategically located regions. 4)Arguments in Support: According to the California Biomass Energy Alliance, the sponsor of the bill, "Biomass ? is an important tool in helping California meet mandated GHG reductions. Diverting wood residues/byproducts/wastes into fuel provides a net reduction of over 3.5 million tons of biogenic GHG emissions per year. An additional 1.5 - 3.5 million tons of avoided GHG emissions per year results from the biomass industry's displacement of fossil-fueled generation by the electric utilities. This doesn't even take into account the emissions reductions potential if further investments were made to avoid catastrophic wildfire such as the 2013 Rim Fire. ? GGRF funds are an appropriate use of funds because using waste and residue forms of biomass - forest products manufacturing residues, in-forest residues, agriculture residues and urban wood residues and wastes - in the production of electricity reduces GHG emissions. In the absence of this energy conversation, the bulk of these materials would otherwise be open burned, buried in landfills, or allowed to remain in the forest as overgrowth material that diminishes forest health, and poses increased risks of devastating wild fires and insect and disease outbreaks." 5)Arguments in Opposition: According to the California Chamber of Commerce (CalChamber), "CARB's decision to arbitrarily withhold and sell (auction) allowances will raise billions of dollars at the expense of California businesses and consumers. This approach runs contrary to expressed goals of AB 32, which is maximizing benefits and minimizing leakage risks and AB 590 Page 7 costs. As CalChamber has long held, CARB lacks authority to raise revenue through the auction of allowances. Given the substantial legal uncertainties surrounding CARB's authority to impose an auction, expending the proceeds is premature." 6)Proposed amendment. AB 590 includes a provision that defines net metered generation to mean energy sold to the grid and not used onside for the facility's own electricity demand. This is inconsistent with the current statutory definition of net metering in Public Utilities Code Section 2827. The author may wish to strike the definition of net metered generation. Suggested amendments: 16428.81.(a) There is hereby created the Biomass State Cost Share Account within the Greenhouse Gas Reduction Fund established pursuant to Section 16428.8. (b) The following amounts shall be transferred from the Greenhouse Gas Reduction Fund to the Biomass State Cost Share Account: (1) In the 2015-16 fiscal year, seventy-four million dollars ($74,000,000). (2) In the 2016-17 fiscal year, one hundred eighteen million dollars ($118,000,000). (3) In the 2017-18, 2018-19, and 2019-20 fiscal years, one hundred twenty million dollars ($120,000,000) in each of those fiscal years. (c) The moneys in the Biomass State Cost Share Account, upon appropriation by the Legislature, shall be available to the State Energy Resources Conservation and Development Commission for expenditure for the purposes of maintaining the current level of biomass power generation in the state and revitalizing currently idle facilities in strategically AB 590 Page 8 located regions. Protecting these existing resources will help the state meet its goals to reduce greenhouse gas emissions, protect existing jobs, and provide waste disposal benefits. (d) To be eligible for funding from the Biomass State Cost Share Account, a facility's solid fuel biomass electrical generation shall satisfy all of the following requirements: (1) The energy is generated on and after January 1, 2016. (2) The energy is generated within the state and sold to customers within the state.(3) The energy is net-metered generation. "Net-metered generation" for purposes of this section means energy that is sold to the grid and is not used onsite for the facility's own electrical demand.(e) A facility seeking funding from the Biomass State Cost Share Account shall submit an application to the commission that demonstrates that it is a solid fuel biomass facility and is California Renewables Portfolio Standard (RPS) Program certified. An applicant shall submit monthly invoices to the commission to document eligible generation and the fuel used for that generation. The commission shall review the submitted invoices and make monthly incentive payments to each applicant based on the eligible generation and the applicable production incentive rate. 7)Prior Legislation: AB 1532 (John A Perez) 2012: Creates 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 pursuant to the cap and trade program adopted by the ARB under the California Global Warming Solutions Act of 2006. Chaptered by the Secretary of State - Chapter 807, Statutes of 2012. SB 1122 (Rubio) 2012: Requires statewide procurement of up to 250 MW of renewable energy from small biomass or biogas technologies that utilize low emission technologies. Chaptered by the Secretary of State - Chapter 612, Statutes of 2012. AB 590 Page 9 SB 535 (De Leon) 2012: Requires the GGRF Investment plan to allocate specific funds to projects that provide benefits to identified disadvantaged communities, and to projects located within identified disadvantaged communities. Chaptered by the Secretary of State - Chapter 830, Statutes of 2012. AB 32 (Nunez) 2006: Enacts the Global Warming Act of 2006, which creates a statewide GHG emission limit that would reduce emissions by 25% by 2020. Chaptered by the Secretary of State - Chapter 488, Statutes of 2006. REGISTERED SUPPORT / OPPOSITION: Support California Biomass Energy Alliance (Sponsor) Agra Marketing ALW Enterprises, Inc. Associated Builders and Contractors of California Associated California Loggers Basic Logging AB 590 Page 10 Beneficial Ag Services Brahma Group, Inc. Burney Forest Products C & S Waste Solutions of Lassen County Cal Ag Recovery California Biomass Energy Alliance California Farm Bureau Federation California Forestry Association Cascade Resource Consultants County of Kern County of Lassen County of Sierra Covanta Energy AB 590 Page 11 Clean Harbors Environmental Services CR&R Incorporated CT Bioenergy Consulting LLC Del Logging, Inc. DPS Inc. Ecology Recycling and Transportation Services EWP Renewable Corporation Fondse Farms Trucking, LLC G & F Agricultural Service Inc. Gilton Solid Waste Management, Inc. Greenleaf Power Headrick Logging IHI Power Services Corp. AB 590 Page 12 Independent Energy Producers Association J.T. Thorpe & Son, Inc. Green Waste Recovery, Inc. Greenleaf Power, LLC Kochergen Farms Composting, Inc. Lake County Waste Solutions Lassen County Fire Safe Council Lassen Forest Products Nortech Waste LLC Old Durham Wood, Inc. Propel AG Services LLC Pacific Recycling Solutions Pacific Ultrapower Chinese Station AB 590 Page 13 Rural County Representatives of California Rio Bravo Fresno San Joaquin Valley Air Pollution Control District Selma Disposal & Recycling Shadd Trucking Sierra Pacific Industries Solid Waste Association of North America - California Chapter Sonoma Compost Sustainable Forest Action Coalition TriCo Welding Supplies, Inc. Ukiah Waste Solutions Vision Recycling Wadham Energy LP AB 590 Page 14 Wegis & Young Western AG Chipping, LLC Wheelabrator Shasta Wilson Ag Z-Best Numerous Individuals Opposition California Chamber of Commerce California Taxpayers Association Analysis Prepared by:Edmond Cheung / U. & C. / (916) 319-2083 AB 590 Page 15