BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2313|
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THIRD READING
Bill No: AB 2313
Author: Williams (D), et al.
Amended: 8/19/16 in Senate
Vote: 21
SENATE ENERGY, U. & C. COMMITTEE: 9-0, 6/27/16
AYES: Morrell, Cannella, Gaines, Hertzberg, Hill, Lara, Leyva,
McGuire, Pavley
NO VOTE RECORDED: Hueso, Wolk
SENATE APPROPRIATIONS COMMITTEE: 6-1, 8/11/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza
NOES: Nielsen
ASSEMBLY FLOOR: 57-20, 5/23/16 - See last page for vote
SUBJECT: Renewable natural gas: monetary incentive program
for biomethane projects: pipeline infrastructure
SOURCE: Bioenergy Association of California
DIGEST: This bill (a) increases the monetary incentive amounts
available to biomethane projects and (b) directs the California
Public Utilities Commission (CPUC) to consider whether to allow
recovery in utility rates the costs of utility infrastructure
for biomethane interconnection with the natural gas pipeline
network.
Senate Floor Amendments of 8/19/16 (a) require the CPUC, when
considering options to promote the use of in-state biomethane,
ensure investments provide "direct" benefits to all class of
ratepayers; and (b) clarify that costs for gathering lines are
not interconnection costs.
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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.)
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
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million.
2)Sunsets the preceding requirements as of January 1, 2022,
unless a later enacted statute, that is enacted before January
1, 2022, deletes or extends that date.
3)Directs the CPUC, before the exhaustion of the funds and
expiration of the program described above, to consider options
to further the promotion of the in-state production and
distribution of biomethane, including recovery in utility
rates the costs of utility infrastructure for biomethane
interconnection with the natural gas pipeline network.
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
addition, biogas can be used to displace the use of fossil
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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. [2012 Bioenergy Action Plan ]
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. [See CPUC Decision
14-01-034.] 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. [See CPUC Decision 15-06-029.]
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
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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.
Consider, again, ratebasing the interconnection costs. As
described above, the CPUC balked at allocating some or all of
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the costs of complying with 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 any case, the bill directs the CPUC, prior to the
exhaustion of the funds or expiration of the program authorized
by this bill, to consider options to promote the in-state
production and distribution of biomethane, including the
recovery in utility rates the costs of utility infrastructure
for biomethane interconnection with the natural gas pipeline
network. The bill directs the CPUC, in doing so, to ensure
that investments for biomethane infrastructure provide a direct
benefit, such as safety, reliability, affordability, or
greenhouse gas reduction, to, and are in the interests of, all
classes of ratepayers.
Related/Prior 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
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.:YesLocal: Yes
According to the Senate Committee on Appropriations:
One-time costs of approximately $550,000 and ongoing costs of
approximately $60,000 (Utilities Reimbursement Account) to the
CPUC.
Unknown, potentially significant costs to the state as a
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ratepayer.
SUPPORT: (Verified8/19/16)
Bioenergy Association of California (source)
Bloom Energy
Agricultural Energy Consumers Association
All Power Labs
American Biogas Council
Atlas ReFuel
California Air Pollution Control Officers Association
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: (Verified8/19/16)
None received
ARGUMENTS IN SUPPORT: According to the author:
AB 1900 (Gatto, Chapter 602, Statutes of 2012) was passed 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
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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.
ASSEMBLY FLOOR: 57-20, 5/23/16
AYES: Alejo, Atkins, Baker, Bloom, Bonilla, Bonta, Brown,
Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper,
Dababneh, Dahle, Daly, Dodd, Frazier, Cristina Garcia, Eduardo
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Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger
Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low,
Maienschein, Mathis, McCarty, Medina, Mullin, Nazarian,
O'Donnell, Olsen, Quirk, Ridley-Thomas, Rodriguez, Salas,
Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber, Wilk,
Williams, Wood, Rendon
NOES: Achadjian, Travis Allen, Bigelow, Brough, Chang, Chávez,
Beth Gaines, Gallagher, Grove, Hadley, Harper, Jones, Kim,
Lackey, Linder, Mayes, Melendez, Obernolte, Steinorth, Wagner
NO VOTE RECORDED: Arambula, Eggman, Patterson
Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107
8/22/16 22:10:22
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