BILL ANALYSIS                                                                                                                                                                                                    Ó



           SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 687 (Allen) - Renewable gas standard.
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: May 5, 2015            |Policy Vote: E., U., & C. 7 -   |
          |                                |          3, E.Q. 5 - 2         |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: May 18, 2015      |Consultant: Marie Liu           |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  SB 687 would require the California Air Resources  
          Board (ARB) to develop a carbon-based renewable gas standard  
          (RGS) that requires each gas seller to provide specified  
          percentages of renewable gas to retail end-use customers.


          Fiscal  
          Impact:  
           First year costs of $1.5 million and ongoing costs of $2.0  
            million from the Cost of Implementation Account (special) to  
            the Air Resources Board to develop and implement the RGS.
           Annual ongoing costs of $270,000 from the Energy Resources  
            Program Account (General Fund) to the California Energy  
            Commission (CEC) to develop and implement the RGS and to  
            assist in the development of the lifecycle biogas emissions  
            analysis.
           One-time contract of $100,000 from the Energy Resources  
            Program Account (General Fund) to the CEC to provide technical  







          SB 687 (Allen)                                         Page 1 of  
          ?
          
          
            assistance with the renewable gas study.
           Ongoing costs of $350,000 annually to the Public Utilities  
            Reimbursement Account (special) to the California Public  
            Utilities Commission (CPUC) for implementation of the RGS.
           On-time costs of $160,000 to the Public Utilities  
            Reimbursement Account (special) in FY 2015-16 to the  
            California Public Utilities Commission (CPUC) to develop the  
            information necessary for the ARB to develop the RGS.
           Unknown impacts to the General Fund and various special funds  
            to the state as a natural gas customer.


          Background:  The California Global Warming Solutions Act of 2006 (referred  
          to as AB 32, HSC §38500 et seq.) requires the California Air  
          Resources Board (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.


          Existing law requires all retail sellers of electricity -  
          investor-owned utilities (IOU), community choice aggregators  
          (CCAs), and energy service providers (ESPs) - and publicly-owned  
          utilities (POU) to increase purchases of renewable energy such  
          that at least 33 percent of retail sales are procured from  








          SB 687 (Allen)                                         Page 2 of  
          ?
          
          
          renewable energy resources by December 31, 2020. This is known  
          as the Renewable Portfolio Standard (RPS).  The California  
          Public Utilities Commission (CPUC) is explicitly authorized to  
          require retail sellers of electricity to procure renewable  
          energy resources in excess of the 33-percent RPS requirement.  
          (Public Utilities Code §399.11 et seq.). The CPUC oversees RPS  
          compliance with IOUs while the California Energy Commission  
          (CEC) oversees POUs.


          Existing law sets specific eligibility requirements for  
          biomethane contracted after March 29, 2012 in order to qualify  
          as an RPS-eligible source.




          Proposed Law:  
            This bill would require gas sellers to provide an increasing  
          percentage of renewable gas by a specified schedule.  
          Specifically, this bill would:
          1. Define "renewable gas" as gas generated from organic waste or  
             other renewable sources, including electricity generated by  
             an eligible renewable energy resource meeting RPS  
             requirements. 


          2. Require the ARB, on or before June 30, 2017, and in  
             consultation with CEC and CPUC, to adopt a carbon-based  
             renewable gas standard (RGS) that requires each gas seller to  
             provide certain percentages of renewable gas to retail  
             end-use customers.


          3. Requires ARB to require gas sellers to make reasonable  
             progress sufficient to ensure that by the end of the  
             compliance period, the following percentages of renewable gas  
             supplied to retail end-use customers are met:
             A.    1% by 2019;
             B.    3% by 2022;
             C.    5% by 2024;
             D.    10% by 2029; 










          SB 687 (Allen)                                         Page 3 of  
          ?
          
          
          4. Requires that renewable gas, to be eligible to count towards  
             the procurement requirements in the bill, must meet at least  
             one of the following conditions:
             A.    the renewable gas is used onsite by an end-use customer  
                in the state;
             B.    the renewable gas is used by an end-use customer in the  
                state and delivered through a dedicated pipeline;
             C.    the renewable gas is delivered to end-use customers in  
                the state through a common carrier pipeline and meets  
                specified requirements.


          5. Requires ARB to notify all gas sellers in California of how  
             to comply with the renewable gas standard procurement  
             requirements, and authorizes the State Board of Equalization  
             to supply ARB with specified information to assist in the  
             identification of gas sellers that are not gas corporations.


          6. Requires PUC to notify ARB of each gas corporation that  
             provides gas service to end-use customers in the state. 


          7. Requires ARB to maintain and publicize a list of eligible  
             renewable gas providers.


          8. Requires ARB, in consultation with CEC, to adopt a flexible  
             compliance mechanism, such as tradable renewable gas credits,  
             and specifies that if ARB adopts tradable credits, those  
             credits are to be based on the carbon intensity of the  
             renewable gas, give equal value to renewable gas used onsite  
             and renewable gas injected into a common carrier pipeline,  
             and allow for credit banking and borrowing.


          9. Requires ARB to consult with CPUC in development of  
             regulations, as they affect gas corporations subject to  
             regulations by CPUC, to implement the RGS, in order to  
             minimize duplicative reporting and regulatory requirements.


          10.Require ARB, in consultation with CPUC and CEC, to develop a  
             coordinated investment plan to ensure that moneys made  








          SB 687 (Allen)                                         Page 4 of  
          ?
          
          
             available through the Greenhouse Gas Reduction Fund, or from  
             the Alternative and Renewable Fuel and Vehicle Technology  
             Program, or the Air Quality Improvement Program, are used to  
             reduce the costs to implement the RGS. 


          11.Requires ARB waive the enforcement of the RGS if it finds  
             that a gas seller has demonstrated specified conditions  
             beyond the control of the gas seller and that prevent  
             compliance. 


          12.Requires ARB to issue a lifecycle GHG emissions analysis for  
             various biogas types and end uses, and that also includes an  
             assessment of other public health and environmental benefits.  
              


          13.Requires CEC to provide an assessment to ARB and the  
             Legislature, on or before January 1, 2018, on the following:


             A.    Opportunities to colocate renewable gas production with  
                existing vehicle fleets and other transportation fueling  
                opportunities;


             B.    Renewable energy production sites that can use  
                renewable gas onsite to reduce fossil fuel gas consumption  
                for electricity generation, heating or cooling, or other  
                purposes;


             C.    Recommendations to reduce the costs of pipeline  
                interconnection for renewable gas projects in the state.




          Staff  
          Comments:  This bill would require significant ARB activity  
          including identifying market and regulatory barriers to  
          implementation, evaluating technical feasibility of biomethane  
          availability, developing life-cycle analysis, and to develop and  








          SB 687 (Allen)                                         Page 5 of  
          ?
          
          
          implement regulations. In all, the ARB anticipates first year  
          costs of $1.5 million followed by on-going costs of $2.0  
          million. As these activities further the reduction of GHG  
          emissions, ARB anticipates paying for these costs from the Cost  
          of Implementation account which receives revenues from a fee on  
          industries subject to AB 32.
          The CEC anticipates needing two positions to consult with the  
          ARB in developing the RGS and to assist in the development of  
          lifecycle biogas emissions analysis. The CEC would also have  
          one-time contract costs for technical assistance.


          Staff notes that the CEC is likely to have additional costs to  
          provide the assessment required by the bill regarding colocation  
          opportunities, certain renewable energy production sites,  
          renewable energy production sites, and recommendations to reduce  
          the cost of pipeline interconnection for renewable gas. Some of  
          this information is addressed in existing CEC reports, but other  
          elements may require additional workload.


          This bill would require the CPUC to coordinate with the ARB on  
          several fronts and specifically would be required to develop  
          information necessary to assist the ARB in adopting a RGS. The  
          CPUC anticipates needing a new proceeding for this process at a  
          one-time cost of approximately $160,000 in FY 2015-16.  Once the  
          information is developed, the CPUC would anticipate ongoing  
          costs to coordinate with the ARB and CEC in implementing the  
          standard. As this bill would intersect with the CPUC's RPS  
          program, it's regulation of natural gas utility service, and  
          CPUC's oversight of AB 32 compliance by electric and natural gas  
          utilities, the CPUC anticipates ongoing costs to be $350,000  
          annually. 


          The state, as a customer of natural gas and electricity produced  
          from natural gas, may experience additional fiscal impacts  
          depending on how this bill ultimately impacts gas rates, which  
          is unknown and speculative at this time.




                                      -- END --








          SB 687 (Allen)                                         Page 6 of  
          ?