BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 590 (Dahle) - Greenhouse Gas Reduction Fund.
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|Version: July 9, 2015 |Policy Vote: E., U., & C. 10 - |
| | 0, E.Q. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Marie Liu |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 590 would allow moneys from the Greenhouse Gas
Reduction Fund (GGRF) to be used by the California Energy
Commission (CEC) to maintain the current level of biomass power
generation and geothermal energy generation in the state and to
revitalize currently idle facilities in strategically located
regions.
Fiscal
Impact:
Annual costs of $580,000 to the GGRF (special) for every $10
million appropriated to this program for the CEC's
administrative costs.
Potential initial costs of up to $316,000 annually for two
years then up to $175,000 annually thereafter to the GGRF
(special) for ARB to collaborate with CEC on developing
quantification methodologies, report on program and project
status, and evaluate disadvantaged community benefits. These
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costs may result in a decrease in CEC administrative costs.
Ongoing cost pressures of approximately $330 million to the
GGRF (special) for operations and maintenance costs of biomass
facilities in California.
Ongoing cost pressures of approximately $410 million to the
GGRF (special) for operations and maintenance costs of
geothermal facilities in California.
Background: The California Global Warming Solutions Act of 2006 (referred
to as AB 32, HSC §38500 et seq.) requires the ARB to determine
the 1990 statewide greenhouse gas (GHG) emissions level, to
approve a statewide GHG emissions limit equivalent to that level
that will be achieved by 2020, and to adopt GHG emissions
reductions measures by regulation. ARB is authorized to include
the use of market-based mechanisms to comply with the
regulations. All monies, except for fines and penalties,
collected pursuant to a market-based mechanism are deposited in
the Greenhouse Gas Reduction Fund (GGRF) (Government Code
§16428.8).
Existing law requires that the GGRF only be used to facilitate
the achievement of reductions of GHG emissions consistent with
AB 32 (HSC §39710 et seq.). To this end, the Department of
Finance, in consultation with the ARB and any other relevant
state agencies, is required to develop, as specified, a
three-year investment plan for the moneys deposited in the GGRF.
The investment plan must allocate a minimum of 25% of the funds
to projects that benefit disadvantaged communities and to
allocate 10% of the funds to projects located within
disadvantaged communities. Additionally, the ARB, in
consultation with CalEPA, is required to develop funding
guidelines for administering agencies receiving allocations of
GGRF funds that include a component for how agencies should
maximize benefits to disadvantaged communities.
"Biomass" refers to animal and plant organic residues, primarily
including those residues from agricultural and forestry
practices. There are various ways in which biomass can be
converted into usable forms of energy including heat, steam,
electricity, natural gas, and liquid fuels. According to the
CEC, the state's generation of solid-fuel biomass electricity
peaked at 800 MW during 1990-93 with 66 facilities in operation;
thereafter, production diminished with the expiration of the
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Biomass Demonstration Program, which provided $10.5 million in
loans to 19 biomass projects. The Public Goods Charge also
supported biomass operation costs, though this program has also
expired.
According to the California Biomass Energy Alliance (CBEA), the
sponsors of the bill,, there are currently 25 biomass electric
generation plans producing 565 MW. In the last twelve months,
five facilities have closed and the CBEA believes that more
closures are likely as half of the remaining plants have
expiring contracts.
Proposed Law:
This bill would direct the CEC to make expenditures to
maintain the current level of biomass power generation and
geothermal energy generation and to revitalize idle facilities
in "strategically located regions."
To be eligible for funding, the generation facility must meet
the following:
Generate "energy" on or after January 1, 2016,
Generate "energy" using wood wastes, residues, or geothermal
resources and be sold to a load serving entity.
Have a generation capacity of over three megawatts.
Generate "energy" within the state and sold to customers
within the state.
Be certified under the California Renewable Portfolio Standard
Program.
The CEC grants must be prioritized to maximize the reduction of
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greenhouse gas (GHG) emissions achieved for each dollar granted.
The CEC would be required to work with the ARB to ensure
projects would achieve a net reduction in GHG emissions.
Staff
Comments: To implement this subsidy program, the CEC would
incur ongoing administrative costs of approximately $580,000 for
every $10 million appropriated to the program. These costs
account for a public process to determine the baseline GHG
emissions in order to calculate the net benefit of the grants,
which is anticipated to be a very contentious issue especially
for biomass projects.
The ARB would also likely incur costs in order to verify GHG
emission reductions from the projects. Under existing law, the
ARB is required to develop reporting and quantification
guidelines for all state agencies that receive GGRF funds. ARB
notes that development of quantification guidelines for biomass
projects are particularly complex and therefore estimates that
it would need two positions at an annual costs of $316,000 for
two years then $175,000 ongoing to first develop quantification
methodologies, and then to report and oversee ongoing GHG
emission reductions. These costs are based on a $50 million
grant program. Staff notes that it is unclear whether at least
some of ARB's costs are duplicative of CEC administrative cost.
As such, to the extent that ARB might be appropriated costs
associated with this bill, there may be a corresponding
reduction in CEC's costs.
This bill would create cost pressures for the support of the
existing biomass and geothermal electricity generation
facilities in the hundreds of millions of dollars annually. The
CEC estimates that the biomass industry has roughly $330,000
million in annual operation and maintenance costs and the
geothermal industry has roughly $408 million in costs based on
2013 data. As there is no limit to the subsidies that could be
offered in the program established in this bill, the cost
pressures of this bill would be the total annual operating costs
of both industries.
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Staff notes that many incentive programs are structured to help
with expanding and developing new capacity. This bill on the
other hand, would support existing operations. According to the
author's office, such support is necessary to prevent further
biomass facilities from closing. However, staff questions
whether state subsidies of existing operations could be a
disincentive to improve cost efficiency within the industry.
Staff notes that there are multiple bills being considered by
both houses of the Legislature that propose projects that would
be eligible to receive GGRF funds. It is unclear how these bills
will interact with each other. Staff notes that a discussion on
the spending of GGRF is anticipated in August as part of a
budget discussion.
Proposed Author
Amendments: The author intends to make several technical
amendments to this bill including that biomass includes wood
waste and agricultural waste and that the requirement that the
energy be sold to a load-serving entity could also be fulfilled
by selling through the Independent System.
Staff further recommends that the author amend the bill so that
the bill discusses the generation of "electricity" rather than
"energy."
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