BILL ANALYSIS Ó
AB 2313
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Mike Gatto, Chair
AB 2313
(Williams) - As Amended March 16, 2016
SUBJECT: Renewable natural gas: monetary incentive program for
biomethane projects
SUMMARY: Increases monetary incentives for biomethane projects.
Specifically, this bill:
1)Requires the California Public Utilities Commission (CPUC) to
modify an existing monetary incentive program for biomethane
projects so that the total available incentive limitation for
a project, other than a dairy cluster biomethane project, as
defined, is increased from $1.5 million to $3 million.
2)Requires the CPUC to increase the total available incentive
limitation for a dairy cluster biomethane project to $5
million and would require that gathering lines for transport
of biogas to a centralized processing facility for the project
be treated as an interconnection cost.
3)Defines a "dairy cluster biomethane project" to mean a
biomethane project of three or more dairies in close proximity
to one another employing multiple facilities for the capture
of biogas that is transported by multiple gathering lines to a
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centralized processing facility where the biogas is processed
to meet the biomethane standards.
EXISTING LAW requires the CPUC to adopt policies and programs
that promote the in-state production and distribution of
biomethane and that the policies and programs shall facilitate
the development of a variety of sources of in-state biomethane.
(Public Utilities Code Section 399.24)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Author's Statement: "California is a leader in the fight
against climate change. The state has adopted dozens of
policies to increase low carbon fuels, renewable energy,
energy efficiency, recycling, carbon sequestration and more.
But, California must reduce emissions from the gas sector and
encourage in-state refining of biofuel to meet long term
climate goals. Natural gas use has been increasing in recent
years and will likely to continue to do so given the rapid
increase in gas fired power plants and the historically low
price in natural gas. Alternatively, biomethane, which can be
produced from biological material, can provide immediate and
significant greenhouse gas reductions and other benefits.
However, the cost to comply with pipeline regulatory
requirements make pipeline biomethane cost-prohibitive.
"As a remedy to this problem, the California Public Utilities
Commission [CPUC] adopted a ratepayer funded program that will
offset a portion of the costs to gas producers of connecting
to utility pipelines. The program is capped at a total of $40
million and will pay up to 50% of a project's interconnection
cost but not exceed to $1.5 million. While a program like this
is important to supporting and promoting biomethane, the
individual project cap of $1.5 million isn't reflective of the
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actual cost to interconnect. Other estimates are closer to
$1.5-$3 million per mile. AB 2313 increases the cap per
project on the incentive to $3 million for individual projects
and $5 million for the gathering lines for a dairy cluster
projects - an amount that producers say would truly change the
economics of a biomethane project, but still small enough that
more than a dozen projects could benefit from it. It's enough
to, coupled with a mix of private investment and public
grants, facilitate the development of biomethane projects
throughout California that span the waste water, solid waste,
and dairy sectors."
2)Background: In June 2015, the CPUC issued a decision
(D.1506029) which provided a five-year monetary incentive
program to encourage biomethane producers to design,
construct, and to successfully operate biomethane projects
that interconnect with the gas utilities' pipeline systems so
as to inject biomethane that can be safely used at an end
user's home or business. As described in this decision, each
biomethane project that is built over the next five years, or
sooner if the program funds are exhausted before that period,
can receive 50% of the project's interconnection costs, up to
$1.5 million, to help offset these costs upon the successful
interconnection and operation of the facility.
According to the CPUC there are three types of costs that one
is likely to encounter in developing and operating a
biomethane project in California. These costs consist of the
following:
a) The pre-injection costs incurred prior to the injection
of biomethane into the utility pipeline;
b) The interconnection costs incurred in order to
interconnect the biomethane facility with the utility
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pipeline; and
c) The post-injection ongoing costs of maintaining and
operating the biomethane facility and the pipeline access.
i) Pre-injection costs include costs related to the
development of the biomethane receipt point facility, the
cost of upgrading the biogas to biomethane, the cost of
testing the biomethane, and the cost of the monitoring,
testing, reporting, and recordkeeping systems. Such costs
include one-time pre-injection testing and start-up
costs.
ii) Interconnection costs consist of the necessary
studies, permitting and regulatory, land, design and
construction, and equipment and materials, to connect the
biomethane receipt point facility to the utility
pipeline, and to meter the gas flow. Stakeholders in the
proceeding stated these interconnection costs could range
from $1.5 million to $3 million, depending on the
landfill's location (rural or urban), and the project's
proximity to the utility's pipeline.
iii) Post-injection costs are the ongoing costs of
equipment, odorants, and labor costs needed to comply
with the routine operating costs associated with the
testing and monitoring for some or all of the biomethane
constituents, as well as operations and maintenance
expenses associated with the receipt point facility.
These post-injection costs could also include the cost of
blending. If the blending process requires the use of
propane to elevate the heating value of the biomethane,
stakeholders in the proceeding state that propane cost
will add at least an additional $262,262 annually.
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While a program like this is important to supporting and
promoting biomethane, the individual project cap of $1.5
million isn't reflective of the actual cost to
interconnect. The Bioenergy Association estimates the cost
to interconnect is $1.5-$3 million per mile. Below are
estimates from the Bioenergy Association for
interconnection and pipeline construction for bioenergy
projects:
iv) CR&R received a $5 million estimate from Southern
California Gas Company (SoCalGas) for a one-mile pipeline
in Riverside County.
v) A Colony Energy project in Tulare County received an
estimate of $1.5 million for a 100-foot interconnection
with SoCalGas.
vi) An Organic Waste Systems project received a Pacific
Gas and Electric (PG&E) estimate of $4.2 million for a
2.2 mile interconnection for 1000 million cubic feet per
day (MCF/day) with an Maximum Allowable Operating
Pressure (MAOP) of 985 psig.
vii) Sempra provided an interconnection estimate to Real
Energy of $1.2 million for a one million cubic feet per
day interconnection and $1.9 million for a 10 million
cubic feet per day interconnection. A one-mile feeder
line would add $2.2 million to the cost.
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3)Why Biomethane? According to a report<1> on decarbonizing the
gas sector, California uses more than two trillion cubic feet
of natural gas per year (and growing). The report states that
California could produce almost 300 billion cubic feet of
renewable gas per year just from organic waste --the waste
from food and food processing, livestock, agriculture, yard
waste, construction debris and other wood waste, soiled paper
and forest biomass.
300 billion cubic feet is equal to 0.3 trillion cubic feet.
According to the American Biogas Council, California has 276
operational biogas systems, but has the potential for 1,187
more.
4)Who Funds this Program? The CPUC decision authorizing the
current monetary incentive specifies that PG&E, San Diego Gas
and Electric, SoCalGas, and Southwest Gas are to establish
accounts to track the costs associated with the monetary
incentive that a biomethane producer may receive if it
successfully interconnects and operates a biomethane project
with the gas utility, and to recover the monetary incentive
amount in rates, plus interest, from its customers.
---------------------------
<1> Decarbonizing the Gas Sector: Why California Needs a
Renewable Gas Standard, Bioenergy Association of California,
November 2014.
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This bill increases the funds that would be allocated from
ratepayers for these incentives.
5)Five-Year Program: This bill would increase the monetary
incentive of an existing five-year program. According to the
CPUC decision:
This monetary incentive program shall be in effect
for a period of five years from the effective date
of this decision. If there is any unused incentive
funding at the end of this five-year period, this
program shall terminate. If there are funds
remaining at the time of program termination, then
biomethane projects that have started to inject
merchantable biomethane into the utility's pipeline
system as of the termination date of this program
are eligible for an incentive payment if they
otherwise meet the program criteria.
Thus, the incentives authorized by the CPUC expire in 2020. If
enacted, this bill will make the added incentives available
beginning no sooner than 2017, depending on when the CPUC
incorporates the provisions of this statute.
In order to provide additional time for the enhanced
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incentives to be available, the author may wish to consider
specifying that the program authorized by this statute will
sunset 5 years after the CPUC implements its' provisions.
6)Arguments in Support: Supporters state the increased
incentives will help overcome significant economic barriers to
developing projects and enhance pipeline injection projects.
They also state that this bill will generate revenue and local
energy supplies; reduce methane and black carbon and reduce
landfilling of organic waste over time by providing a
long-term market for the biomethane in California. Another
supporter states that the incentives provided by this bill
together with other grant funding from cap and trade dollars
and other state programs will make their project financially
viable for cities that use their waste management services.
7)Suggested amendments:
SECTION 1. Section 399.23 is added to the Public Utilities
Code, to read:
399.23. The commission shall modify and extend until January
1, 2022 the monetary incentive program for biomethane projects
adopted in Decision 15-06-029 (June 11, 2015), Decision
Regarding the Costs of Compliance with Decision 14-01-034 and
Adoption of Biomethane Promotion Policies and Program, as
follows:
(a) Except for a dairy cluster biomethane project, the total
available incentive limitation for a project shall be
increased from one million five hundred thousand dollars
($1,500,000) to three million dollars ($3,000,000).
(b) For a dairy cluster biomethane project, the total
available incentive limitation shall be raised to five million
dollars ($5,000,000). For purposes of this subdivision, a
dairy cluster biomethane project means a biomethane project of
three or more dairies in close proximity to one another
employing multiple facilities for the capture of biogas that
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is transported by multiple gathering lines to a centralized
processing facility where the biogas is processed to meet the
biomethane standards adopted by the commission pursuant to
subdivisions (c) and (d) of Section 25421 of the Health and
Safety Code and injected into the pipeline of the gas
corporation through a single interconnection. Costs incurred
for gathering lines for a dairy cluster biomethane project
shall be treated as an interconnection cost.
(e) This section shall remain in effect only until January 1,
2022, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2022, deletes or
extends that date.
REGISTERED SUPPORT / OPPOSITION:
Support
American Biogas Council
Agricultural Energy Consumers Association
Bioenergy Association of California
Clean Energy
Harvest Power Inc.
Los Angeles County of Sanitation Districts
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TSS Consultants
Opposition
None on file.
Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083