BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          SB 687            Hearing Date:    4/7/2015
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          |Author:    |Allen                                                |
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          |Version:   |2/27/2015    As Introduced                           |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          SUBJECT: Renewable gas standard.

            DIGEST:    This bill establishes the renewable gas standard  
          (RGS).  The RGS requires all sellers of natural gas to provide  
          to retail end-use customers in California increasing amounts of  
          "renewable gas," so that, by January 1, 2030, at least ten  
          percent of the natural gas supplied is "renewable gas."

          ANALYSIS:
          
          Existing law:
          
             1.   Directs the California Air Resource Board (ARB) to  
               monitor and regulate sources of emissions of greenhouse  
               gases (GHG) that cause global warming in order to reduce  
               GHG emissions to 1990 levels by 2020. (Health & Safety Code  
               §38510 et seq.)  ARB instituted a low-carbon fuel standard  
               as one element of achieving the GHG emission reduction  
               goal.

             2.   Requires investor-owned utilities (IOU), community  
               choice aggregators (CCAs), and electric service providers  
               (ESPs) (collectively referred to as retail sellers) and  
               local publicly-owned utilities (POU) to increase purchases  
               of renewable energy such that at least 33 percent of total  
               retail sales are procured from renewable energy resources  
               by December 31, 2020.  This is known as the Renewables  
               Portfolio Standard (RPS).  

             3.   Defines a renewable electrical generation facility and  








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               includes in that definition a facility that uses landfill  
               gas or digester gas delivered through a common carrier  
               pipeline if the source and delivery of the fuel can be  
               verified by the California Energy Commission (CEC).  

             4.   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.) 

             5.   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.)

             6.   Requires the 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.   Requires the ARB, on or before June 30, 2016, and in  
               consultation with the CEC and the CPUC, to adopt a  
               carbon-based renewable gas standard (RGS) that requires  
               each gas seller to provide a certain percentages of  
               "renewable gas" to retail end-use customers.  The  
               requirement adopted by ARB will conform to a compliance  
               schedule so that, by December 31, 2029, and thereafter,  
               each gas seller supplies at least 10 percent "renewable  
               gas" to retail end-use customers.

             2.   Limits "renewable gas" that qualifies under the RGS to  
               gas that is:

                     Used onsite by an end-use customer in California.
                     Used by an end-use customer in California and  
                 delivered through a dedicated pipeline.
                     Delivered to end-use customers in California through  
                 a common carrier pipeline and: (1) the source of  









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                 renewable gas injects the renewable gas into a common  
                 carrier pipeline that physically flows within California  
                 or toward the end-use customers for which the renewable  
                 gas was procured under the purchase contract; and (2) the  
                 source of renewable gas did not inject the renewable gas  
                 into a common carrier pipeline prior to March 29, 2012,  
                 or the source commenced injection of sufficient  
                 incremental quantities of renewable gas after March 29,  
                 2012, to satisfy the purchase contract requirements; and  
                 (3) the seller or purchaser of the renewable gas  
                 demonstrates that the capture and injection of renewable  
                 gas into a common carrier pipeline directly results in  
                 specified environmental benefits in California.

             1.   The bill requires the ARB notify all gas sellers in  
               California how to comply with the RGS; maintain a list of  
               eligible "renewable gas" providers; and adopt "flexible  
               compliance mechanisms," such as tradable "renewable gas"  
               credits.
          
          Background

           What Is Renewable Gas  ? 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. 

          Biogas is a gas produced by converting biomass to a gaseous  
          mixture 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.   
          Biogas can be used directly to produce electricity or can be  
          converted to biomethane by removing carbon dioxide and other  
          impurities. Biomethane can replace fossil sources of natural gas  
          in homes and factories and compressed or liquefied natural gas  
          used in vehicles. Biomethane can also be used to produce  
          renewable hydrogen in fuel cells. <1>

          This bill defines "renewable gas" as biogas produced from  
          organic waste or other renewable resources organic waste or  



          ---------------------------
          <1>  2012 Bioenergy Action Plan (








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          organic materials.

           Why is Biogas Considered Low Carbon  ? Combustion of biogas  
          produces carbon dioxide (CO2), just like the combustion of  
          natural gas.  However, the combustion of biogas destroys  
          methane, a gas which is a much more potent GHG than is CO2.  In  
          addition, biogas can be used to displace the use of fossil  
          fuels, such as natural gas, thereby further decreasing its  
          carbon intensity.  

           Mind the Gap  . There are many state programs that, directly or  
          indirectly, encourage or the use of "renewable gas."  Utilities  
          can meet the RPS through the use of biogas if produced from  
          qualifying renewable resources.  Recently enacted statute (SB  
          1122, Rubio, 2012) requires IOUs to collectively procure at  
          least 250 MW of generation eligible for the RPS from bioenergy  
          generation projects, including biogas projects.  The CEC has  
          invested more than $49 million in 13 biomethane feasibility,  
          demonstration and production projects throughout the state. And  
          biogas can be used to help satisfy the requirements of the ARB's  
          Low-Carbon Fuels Mandate, which requires a reduction of at least  
          10 percent in the carbon intensity of California's  
          transportation fuels by 2020.

          In addition, efforts are underway that should ease the further  
          development and commercialization of "renewable gas."  The IOUs  
          have been wary of injecting biogas into their natural gas  
          pipelines for fear of introduction of contaminants that could  
          damage the pipelines or harm human health.  In response, the  
          Legislature in 2012 enacted AB 1900 (Gatto).  That bill directs  
          the CPUC to identify landfill gas constituents, develop testing  
          protocols for landfill gas injected into common carrier  
          pipelines, adopt standards for biomethane to ensure pipeline  
          safety and integrity, and adopt rules to ensure open access to  
          the gas pipeline system.  The CPUC is still in the process of  
          completing this work.

          The Legislature, also in 2012, enacted related legislation (AB  
          2196, Chesbro).  That bill ensures that biogas qualifies for RPS  
          credit, provided its production, delivery and use meet certain  
          conditions.

          The bill's proponents, despite these various state programs  
          supporting and encouraging biogas development and use, contend  
          there is a gap in the state's clean energy and climate policies.  









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           As evidence of that gap, the proponents point to the continued  
          low use of renewable natural gas as a proportion of the state's  
          overall natural gas use, which produces about one-quarter of the  
          state's emissions of GHG.  Proponents further contend that the  
          state needs a statewide policy commitment that provides  
          long-term certainty to the biogas market. The author intends  
          this bill to provide that certainty.

          Using the RPS as a model, this bill, in its current form, would  
          establish a RGS that would require "gas sellers" to provide  
          specific percentages of "renewable gas" to end use customers in  
          California, according to the following schedule:
                 January 1, 2016, to December 31, 2019 - not less than 1  
               percent.
                 January 1, 2020, to December 31, 2022 - not less than 3  
               percent.
                 January 1, 2023, to December 31, 2024 - not less than 5  
               percent.
                 January 1, 2025, to December 31, 2029, and thereafter -  
               not less than 10 percent.

          The bill would task the ARB, in consultation with the CEC and  
          CPUC, to adopt the RGS.  The bill also includes language similar  
          to existing statute, contained in 2012's AB 2196, to ensure the  
          environmental and economic benefits of the use of "renewable  
          gas" accrue to California.  The bill further directs ARB to  
          adopt flexible compliance mechanisms and to develop an  
          investment plan that directs any resulting monies to the state's  
          alternative fuel and energy program (the CEC-administered  
          Alternative Fuel and Vehicle Technology Program) and related  
          air-quality program (the ARB-administered Air Quality  
          Improvement Program).

          Proponents cite numerous benefits that they conclude will flow  
          from successful implementation of the RGS.  Those benefits  
          include:
                 Additional reduction of GHG emissions.
                 Reduced landfilling of organic wastes.
                 Improved air quality and public health.
                 Reduction of wildfires and burning of agricultural  
               waste.
                 Job creation.
                 Reduced dependence on fossil fuels, especially  
               out-of-state natural gas.
                 Market certainty that drives down the cost of "renewable  









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               gas."

          The author has proposed amendments that recast the RGS from a  
          relative-volume-based standard to a "carbon-intensity standard."  
           The main difference between the current version of the bill and  
          the proposed amendments is a change in the compliance  
          obligation.  Under the amendments, a gas seller would be  
          required to reduce the average carbon intensity of its natural  
          gas sales, rather than provide specific percentages of  
          "renewable gas" as part of its natural gas sales. 
           
          Too Much  ? According to the CEC, 358 megawatts (MW) is  
          potentially available from new biogas development.  Despite this  
          potential, it is not clear there will be enough "renewable gas"  
          available to meet the admittedly modest schedule required by  
          this bill.  Proponents believe the RGS will drive down the cost  
          of "renewable gas" just as the bill's model - the RPS - has  
          driven down the cost of renewable electricity.  However,  
          shortages of "renewable gas" could drive up the cost of  
          compliance significantly.  

          The RPS legislation includes numerous cost-containment "off  
          ramps".  These off ramps allow RPS-covered entities to be  
          excused from their RPS obligations if the cost of procuring  
          electricity from renewable resources exceeds statutorily defined  
          limits.  The author and the committee may wish to amend the bill  
          to include similar cost-containment "off ramps" to the RGS.
           
          Too Soon  ? The bill directs ARB to adopt the RGS by June 30,  
          2016.  Depending upon when the bill were to be signed by the  
          Governor, that schedule might provide the ARB less than one year  
          to develop and adopt the RGS.  The author and committee may wish  
          to delay the bill's implementation schedule to allow ARB and the  
          other state agencies sufficient time to comply with the  
          implementation deadlines. 
           
          A Complicated, Shifting Policy Mix  . California has robust  
          clean-energy policies.  For example, current statute requires  
          the state to receive at least 33 percent of its electricity from  
          renewable sources by 2020, and tasks the ARB with reducing the  
          emissions of GHG from most economic sectors of the state,  
          including electricity generation.  Those policies are likely to  
          morph and expand.  Governor Brown has called for generating half  
          of the state's electricity from renewable resources and cutting  
          petroleum use in cars and trucks by half, a goal many presume  









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          would be achieved by shifting a large portion of transportation  
          fuel from petroleum-based sources to electricity.  The Senate  
          pro tem has proposed to codify these goals in SB 350, a bill  
          under consideration in this committee.  And Senator Pavley has  
          introduced SB 32, which would require ARB to adopt a very  
          ambitious GHG emissions limit for 2050.  It is worth considering  
          how this bill fits in to this complex, evolving clean-energy  
          context. 

          The author and proponents accurately note that California cannot  
          meet its GHG reduction targets, especially the targets  
          envisioned in the Senate's climate package, without  
          significantly reducing GHG emissions from the natural gas  
          sector.  However, the ARB has, under existing law, broad  
          authority to require a wide variety of GHG reduction measures,  
          including, presumably a biogas standard like the RGS proposed by  
          this bill.  The committee should consider this bill in the  
          context of that existing authority, as well as any expanded  
          authority it is contemplating, as it evaluates the necessity and  
          use of this bill.

           Double Referral  . Should this bill be approved by the committee,  
          it will be re-referred to the Senate Committee on Environmental  
          Quality for its consideration. 

          Prior/Related Legislation
          
          SB 360 (Cannella) would authorize the CPUC to consider providing  
          the option to all gas corporations to engage in competitive  
          bidding and direct investment in ratepayer financed biomethane  
          collection equipment in California.  The bill has been referred  
          to this committee for consideration.
           
          AB 1900 (Gatto, Chapter 602, Statutes of 2012) directs the CPUC  
          to identify landfill gas constituents, develop testing protocols  
          for landfill gas injected into common carrier pipelines, adopt  
          standards for biomethane to ensure pipeline safety and  
          integrity, and adopt rules to ensure open access to the gas  
          pipeline system.  

          AB 2196 (Chesbro, Chapter 605, Statutes of 2012) ensures that  
          biogas qualifies for RPS credit, provided its production,  
          delivery and use meet certain conditions.

          SB 1122 (Rubio, Chapter 612, Statutes of 2012) requires IOUs to  









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          collectively procure at least 250 MW of generation eligible for  
          the RPS from bioenergy generation project, including biogas  
          projects.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          No


            SUPPORT:  

          American Biogas Council
          Bioenergy Association of California
          Biosynthetic Technologies
          Clean Energy and Clean Energy Renewable Fuels
          Eisenmann Corporation
          Harvest Power, Inc.
          Hitachi Zosen Inova U.S.A. LLC
          Las Gallinas Valley Sanitary District
          Organic Waste Systems
          Phoenix Energy
          TSS Consultants

          OPPOSITION:

          Agricultural Council of California
          Agricultural Energy Consumers Association
          California Citrus Mutual
          California Cotton Ginners and Growers Associations
          California Dairies Inc.
          California Farm Bureau Federation
          California Fresh Fruit Association
          California League of Food Processors
          California Municipal Utilities Association
          California Poultry Federation
          California Tomato Growers Association
          Milk Producers Council
          Nisei Farmers League
          Western Agricultural Processors Association
          Western Growers Association

          


          ARGUMENTS IN SUPPORT:   Proponents contend the state needs a  
          statewide "renewable gas" policy to provide certainty to the  









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          market.  Such certainty will incentivize "renewable gas"  
          development and innovation to bring down costs.  Ultimately,  
          proponents argue, expanded use of "renewable gas" will help to  
          state meet it GHG reduction goals, improve public health through  
          cleaner air, reduce the state's dependence on fossil fuels, keep  
          billions of dollars in state, and create jobs
          
          ARGUMENTS IN OPPOSITION:  Opponents primarily argue that this  
          bill will increase industrial costs - such as the cost to  
          process foods - by requiring the purchase of relatively  
          expensive "renewable gas."   Opponents note that the state  
          already has a robust clean-energy policy that encourages the use  
          of biogas.  Some opponents also contend that the RGS represents  
          "double taxation," in that they would pay a premium for  
          "renewable gas" in addition to the premium they already must pay  
          as part of the AB 32 cap-and-trade program to offset their  
          natural gas use.
          
          
                                      -- END --