BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 2313 Hearing Date: 6/27/2016
-----------------------------------------------------------------
|Author: |Williams |
|-----------+-----------------------------------------------------|
|Version: |6/14/2016 As Amended |
-----------------------------------------------------------------
------------------------------------------------------------------
|Urgency: |No |Fiscal: |Yes |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Jay Dickenson |
| | |
-----------------------------------------------------------------
SUBJECT: Renewable natural gas: monetary incentive program for
biomethane projects: pipeline infrastructure
DIGEST: This bill (a) increases the monetary incentive
amounts available to biomethane projects and (b) directs the
California Public Utilities Commission (CPUC) to develop rules
for gas corporations for the interconnection of biomethane
generation to the natural gas distribution system.
ANALYSIS:
Existing law:
1)Requires the 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.)
2)Requires CPUC to adopt policies and programs that promote the
in-state production and distribution of biomethane. (Public
Utilities Code §399.24 )
3)Requires the CPUC to adopt pipeline access rules that ensure
that each gas corporation provides 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.)
AB 2313 (Williams) PageB of?
4)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 the CPUC to modify, and extend until December 31,
2021, the monetary incentive program for biomethane projects
as follows:
a) Except for a dairy cluster biomethane project,
increase, the total available incentive limit from $1.5
million the $3.0 million.
b) For a dairy cluster biomethane project, increase the
total available incentive limit from $1.5 million to $5
million.
2)Requires the CPUC, by January 2, 2018, in consultation with
the California Air Resources Board (ARB) and the CEC, to
establish rules for gas corporations that do all of the
following:
a) Facilitate direct investment in the procurement and
installation of utility infrastructure necessary to
achieve interconnection between the natural gas
transmission and distribution pipeline network and
biomethane generation and collection equipment,
including, for a dairy digester cluster project, as
defined in Section 399.23, gathering lines.
b) Provide for the installation of utility
infrastructure to achieve interconnection with facilities
that generate biomethane.
c) Provide that prudent and reasonable investments for
infrastructure pursuant to paragraphs (1) and (2) are
recoverable in rates and recovered as a direct benefit
to, and in the interests of, all classes of ratepayers.
d) Financially protect ratepayers by ensuring that
AB 2313 (Williams) PageC of?
infrastructure is installed for biomethane projects that
will actually be built and operated and that will be cost
effective, considering the volume and carbon intensity of
the biomethane, the costs of interconnection,
alternatives available to the biomethane use and
distribution, and other costs and benefits.
e) Ensure that biomethane facilities that interconnect
to the natural gas transmission and distribution pipeline
network meet all applicable laws and standards, including
those laws, rules, and regulations pertaining to safety,
gas quality, and environmental protection.
3)This section shall remain in effect only until January 1,
2026, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2026, deletes or
extends that date.
Background
Biogas and biomethane: natural gas by other names. Bioenergy
is renewable energy produced from biomass wastes including
forest and other wood waste, agriculture and food processing
wastes, organic urban waste, waste and emissions from water
treatment facilities, landfill gas and other organic waste
sources. Biomass waste can be used to generate renewable
electricity, liquid fuels and biogas.
Statute defines "biogas" as a gas produced from the anaerobic
decomposition of organic material. The result is a gaseous
mixture composed primarily of carbon dioxide and methane.
Depending on where it is produced, biogas can be categorized as
landfill gas or digester gas. Landfill gas is produced by
decomposition of organic waste in a municipal solid waste
landfill. Digester gas is typically produced from livestock
manure, sewage treatment or food waste.
From an environmental perspective, biogas has several advantages
over conventional natural gas. Combustion of natural gas,
including biogas, releases carbon dioxide (CO2) into the
atmosphere. However, the combustion of natural gas destroys
methane, a gas that is a much more potent GHG than is CO2. In
addition to destroying methane, the combustion of biogas, for
CO2 accounting purposes, is considered carbon neutral. This is
because the carbon in biogas, unlike the carbon in conventional
natural gas, was so recently present in the atmosphere. In
AB 2313 (Williams) PageD of?
addition, biogas can be used to displace the use of fossil
fuels, such as conventional natural gas, thereby further
decreasing its carbon intensity.
Biogas can be used directly to produce electricity or can be
converted to biomethane by removing carbon dioxide and other
impurities. Statute defines "biomethane" as biogas that meets
the standards, adopted by the CPUC in keeping with statute, for
injection into a common carrier pipeline. Biomethane can
replace fossil sources of natural gas in homes and factories and
compressed or liquefied as natural gas used in vehicles.
Biomethane can also be used to produce renewable hydrogen in
fuel cells.<1>
CPUC biomethane standards and subsidies. Statute directs the
CPUC to adopt policies and programs that promote the in-state
production and distribution of biomethane. In response to
statutory mandate, the CPUC, in 2014, adopted health and safety
standards that limit the amounts of certain constituents
determined to be harmful to either human health or pipeline
integrity in pipeline injected biomethane.<2> The standards are
to address the reluctance of energy utilities to inject
biomethane into natural gas pipelines.
The CPUC acknowledged that its biomethane standards would
increase the costs of a biomethane producer who seeks to inject
biomethane into a utilities gas pipeline system. Industry
representatives estimate a cost of $1 million per mile to build
an interconnection to an existing utility pipeline and another
$1.5 million to connect the line and set up testing and
monitoring equipment. In 2015, the CPUC found that gas
producers should bear all costs relating to the processing and
pipeline injection of biomethane. <3> To substantiate its
conclusion, the CPUC reasoned as follows:
Since the Legislature intended in AB 1900 that there
be nondiscriminatory open access to the utilities' gas
pipeline systems, and because the Legislature intended
that the Commission adopt biomethane standards to
ensure the protection of human health, and pipeline
and pipeline facility integrity and safety, we
conclude that the cost of complying with [this
----------------------
<1> 2012 Bioenergy Action Plan
<2> See CPUC Decision 14-01-034.
<3> See CPUC Decision 15-06-029.
AB 2313 (Williams) PageE of?
decision] is to be borne by the biomethane producers.
The CPUC's decision went on to note that natural gas producers
are responsible for the cost of conditioning their gas to meet
specifications that allow injection into a utility gas pipeline
system. The CPUC concluded that the statutory principal of
nondiscrimination dictates that biomethane producers be
responsible for such costs, too.
Yet, the CPUC, in the same decision, acknowledged the statutory
requirement that that it adopt policies and programs that
promote the in-state production and distribution of biomethane.
Pursuant to this statutory requirement, the CPUC adopted a $40
million ratepayer-funded program to offset a portion of the
costs to gas producers of connecting to utility pipelines.
Program funding will pay up to 50 percent of a biomethane
project's interconnection cost, up to $1.5 million per project.
The CPUC did not explain how subsidizing the interconnection
costs of some gas producers jibed with the statutory mandate of
nondiscrimination treatment of gas producers. The CPUC did,
however, note that such subsidies would "limit the financial
exposure of utility ratepayers."
To-date, the CPUC has not received any applications for the
biomethane subsidy program. According to the CPUC, there are no
biomethane facilities currently being built in the state of
California, partly due to high costs of cleaning up raw biogas
and partly due to low conventional natural gas prices. Bill
proponents contend this absolute lack of program activity
indicates the subsidy amounts available are too small. Staff of
the CPUC seem to agree with that assessment. This bill would
modify the program by doubling the program incentive per-project
limit to $3 million, except in the case of a dairy cluster
biomethane project, for which the limit would be $5 million.
The author justifies the generosity shown to the latter category
of project by noting the higher cost associated with such
projects, which achieve greater efficiencies through economies
of scale. In any case, this bill maintains the overall program
cap of $40 million.
It is reasonable to increase program caps as proposed by this
bill. Perhaps the higher amounts will spur program activity.
Who you calling discriminatory? As described above, the CPUC
balked at allocating some or all of the costs of complying with
AB 2313 (Williams) PageF of?
its biomethane standards onto a utility and its shareholders.
To do so, the CPUC concluded, would discriminate between
different classes of gas producers, and such discrimination is
prohibited by Public Utilities Code §784.
In its most recent amendments, this bill proposes to direct the
CPUC to establish rules for gas corporations that provide that
the costs to interconnect to a biomethane project are
recoverable in rates and recovered as a direct benefit to, and
in the interests of, all classes of ratepayers. This differs
from the treatment of the interconnection costs of electricity
generation, which generally are borne by the developer. And, of
course, it directly contradicts the decision of the CPUC.
However, it seems inconsistent to judge, as the CPUC did,
ratebasing the interconnection costs of a biomethane project
discriminatory but not to judge direct subsidy of those costs as
similarly discriminatory. In any case, the CPUC based its
conclusion of discrimination on the requirements of the law.
This bill changes the requirements of the law: it expressly
directs the CPUC to treat the interconnection cost of biomethane
producers differently. Therefore, were this bill to become law,
the CPUC's determination of discrimination would be overwhelmed.
Nonetheless, it seems premature to require the CPUC to ratebase
a biomethane producer's interconnection costs. The state
already offers to generously subsidize such costs; this bill
would double that generosity. Bill proponents, such as Southern
California Gas (SoCalGas), contend the increased subsidy would
fund only a handful of projects, and that dozens of projects are
needed to meet state policy goals. That might be the case.
Then again, it might not.
Down the line, the state may need to socialize the cost of
biomethane production through ratebasing. But, for now, better
to wait to judge the effectiveness of the augmented subsidies
before making such radical change to the treatment of biomethane
interconnection costs. The author should consider deleting the
provisions of Section 2 from this bill in their entirety.
Prior/Related Legislation
AB 1900 (Gatto, Chapter 602, Statutes of 2012) required the
CPUC to adopt new health and safety standards for landfill gas,
to hold public hearings to identify impediments to in-state
AB 2313 (Williams) PageG of?
biomethane use, and develop policies and programs to increase
the in-state use of biomethane.
AB 2196 (Chesbro, Chapter 605, Statutes of 2012) clarified the
definition of an eligible renewable electrical generation
facility to include a facility that generates electricity
utilizing biomethane delivered through a common carrier pipeline
if the source and delivery of the fuel can be verified by the
CEC.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
Bioenergy Association of California (Source)
Agricultural Energy Consumers Association
All Power Labs
American Biogas Council
Atlas ReFuel
California Special Districts Association
Clean Energy
Coalition for Renewable Natural Gas
CR&R, Inc.
Eisenmann Corp.
Harvest Power
Los Angeles County Solid Waste Management Committee/Integrated
Waste
Management Task Force
Organic Waste Solutions
Pacific Gas and Electric Company
Sanitation Districts of Los Angeles County
Solid Waste Association of North America
Southern California Gas Company
TSS Consultants
Victor Valley Water Reclamation Authority
West Biofuels
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: According to the author:
AB 1900 (Gatto, Chapter 602, Statutes of 2012) was passed
AB 2313 (Williams) PageH of?
to facilitate in-state biogas production by enabling it to
be transported in common carrier pipelines. In 2014, the
CPUC adopted standards for the protection of both public
health and pipeline and end-use equipment. The CPUC also
adopted a decision that considered the costs associated
with injecting biomethane into natural gas pipelines and
assigned those to biomethane producers as is consistent
with the statutory requirement to provide nondiscriminatory
access to common carrier pipelines. However, in the same
decision, the CPUC recognized that AB 1900 specifically
required adoption of "policies and programs that promote
the in-state production and distribution of biomethane" and
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 percent of a project's
interconnection cost but not exceed to $1.5 million.
Since the new standards were adopted, not one new pipeline
biogas project has been built or applied for the financial
incentive. 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. Recently,
SoCalGas gave a producer in Riverside County an initial
estimate of $5 million for a one-mile pipeline. Another
project in Tulare County received an estimate of $1.5
million for a 100-foot interconnection.
A decarbonized gas supply is essential in order to meet the
state's goals for reducing greenhouse gas emissions,
short-lived climate pollutants, and the state's goals for
promoting the use of renewable energy resources in place of
burning fossil fuels. AB 2313 addresses what has been a
significant challenge to truly decarbonizing the gas sector
- biomethane is an under-utilized resource and the market
has been slow to develop in California because the
collection, purification, and pipeline injection of
biomethane is cost prohibitive.
-- END --
AB 2313 (Williams) PageI of?