BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          Bill No:          SB 1213           Hearing Date:    3/29/2016
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          |Author:    |Wieckowski                                           |
          |-----------+-----------------------------------------------------|
          |Version:   |2/18/2016    As Introduced                           |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
          |           |                                                     |
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          SUBJECT: Renewable energy:  biosolids:  matching grants

            DIGEST:    This bill makes a continuous annual appropriation of  
          $20 million from the Greenhouse Gas Reduction Fund (GGRF) to the  
          California Energy Commission (CEC) for a competitive grant  
          program.  The program will make available grants for capital  
          projects that use biosolids to generate useful heat energy or  
          electricity, liquid or gaseous fuels, or useful byproducts.   
          This bill also makes a one-time appropriation from the GGRF to  
          fund a regional biosolids-to-energy project located in the San  
          Francisco Bay Area.

          ANALYSIS:
          
          Existing law:
          
          1)Declares the policy goal of the state that not less than 75  
            percent of solid waste generated be source reduced, recycled,  
            or composted by the year 2020, and annually thereafter but  
            prohibits the Department of Resources Recycling and Recovery  
            from establishing or enforcing a diversion rate on a city or  
            county that is greater than the 50 percent diversion rate.   
            (Public Resources Code § 41780.01)

          2)Requires the California Air Resources Board (ARB), pursuant to  
            the California Global Warming Solutions Act of 2006, to adopt  
            rules and regulations that would reduce greenhouse gas  
            emissions (GHGs) in the state to 1990 levels by 2020.  (Health  
            and Safety Code §§38500 to 38599)

          3)Establishes the GGRF, and requires all monies collected by ARB  








          SB 1213 (Wieckowski)                                  PageB of?
          
            from the auction or sales of allowances, pursuant to a  
            market-based compliance mechanism, be deposited in the fund  
            and made available for appropriation.  (Government Code  
            §16428.8)

          4)Establishes the GGRF Investment Plan and Communities  
            Revitalization Act to set procedures for the investment of  
            regulatory fee revenues derived from the auction of GHG  
            allowances, including the requirement that such revenue be  
            used to reduce emissions of GHGs.  (Health and Safety Code  
            §§39710 to 39720)

          5)Requires the GGRF Investment Plan to allocate:  (a) at least  
            25 percent of the available monies in the fund to projects  
            that provide benefits to disadvantaged communities, and (b) at  
            least 10 percent of monies in the fund to projects located  
            within disadvantaged communities.  (Health and Safety Code  
            §§39711 to 39723)

          This bill:

          1)Defines a "biosolids to clean energy capital project" as one  
            that uses biosolids to generate useful heat energy or  
            electricity, liquid or gaseous fuels, or useful byproducts  
            using nonincineration technology in a manner or location that  
            also reduces GHGs compared with other biosolids management  
            practices in use at the time of enactment of this bill.

          2)Directs the CEC to establish the "Biosolids Clean Energy Grant  
            Program" of competitive grants available to local wastewater  
            agencies to provide 50-percent matching funds for "biosolid to  
            clean energy capital projects," based (a) cost-effectiveness  
            and (b) any other factors deemed appropriate by the CEC.

          3)Continuously appropriates $20 million from the GGRF to the CEC  
            for the competitive grant program.

          4)Makes a one-time appropriation in fiscal year 2016-17 from the  
            GGRF to provide a 50-percent matching grant to the Bay Area  
            Biosolids to Energy Coalition for the design and construction  
            of a regional "biosolids to clean energy project" located in  
            the San Francisco Bay Area.

          Background










          SB 1213 (Wieckowski)                                  PageC of?
          
          Uses of AB 32 auction revenue must reduce GHGs.  ARB, in  
          implementing The Global Warming Solutions Act (aka "AB 32),  
          established by regulation a cap-and-trade program for GHGs.   
          Under the program, ARB distributes tradable allowances to emit  
          specific quantities of GHGs.  ARB has given away for free about  
          51 percent of the allowances, while it has auctioned most of the  
          remainder of the allowances each quarter since November 2012.   
          Incidental to the reduction of GHGs, the auctioning of  
          allowances has generated billions of dollars in state revenue.   
          The Legislative Analyst's Office (LAO) estimates ARB's allowance  
          auctions will generate $2.4 billion in fiscal year 2015-16 and  
          $2.3 billion in fiscal year 2016-17.

          Existing statute provides thresholds and parameters for the use  
          of auction revenues, consistent with their status as proceeds of  
          a regulatory fee.  Statute directs auction revenue to the GGRF,  
          available for appropriation by the Legislature.  Statute further  
          requires that GGRF revenues be used for GHG reductions.   
          Finally, statute mandates that at least 25 percent of money in  
          the GGRF go to projects that provide benefits to disadvantaged  
          communities, and at least 10 percent of monies in the fund go to  
          projects located within disadvantaged communities.

          Legislature allocates billions in GGRF revenues through the  
          budget.  Through several annual budgets, the Legislature has  
          allocated GGRF revenues to a variety of projects anticipated to  
          reduce GHGs, in the nearer or longer term.  60 percent of the  
          expenditures represent continuous appropriations, meaning  
          defined portions of GGRF expenditures go to specific programs  
          each year:  25 percent for high-speed rail; 20 percent for  
          affordable housing and sustainable communities grants; 10  
          percent for intercity rail capital projects; and five percent  
          for low-carbon transit operations. The GGRF budget  
          appropriations for fiscal years 2013-14 through 2015-16 are  
          shown in the following figure.<1> 


           ---------------------------------------------------- 
          |                                                    |
          |Cap-and-trade Expenditures (in millions)            |
           ---------------------------------------------------- 
          |----------------------------+-------+-------+-------|
          |Program                     |2013-14|2014-15|2015-16|




          ---------------------------



          ---------------------------
          <1> See  http://www.lao.ca.gov/Publications/Detail/3328  .








          SB 1213 (Wieckowski)                                  PageD of?
          






















































          SB 1213 (Wieckowski)                                  PageE of?
          
          |                            |       |       |  <2>  |
          |----------------------------+-------+-------+-------|
          |             High-speed rail|  --   | $250  | $600  |
          |----------------------------+-------+-------+-------|
          |     Affordable housing and |  --   |  130  |  480  |
          |     sustainable communities|       |       |       |
          |----------------------------+-------+-------+-------|
          | Transit and intercity rail |  --   |  25   |  240  |
          |                     capital|       |       |       |
          |----------------------------+-------+-------+-------|
          |          Transit operations|  --   |  25   |  120  |
          |----------------------------+-------+-------+-------|
          |   Low-carbon transportation|  $30  |  200  |  70   |
          |----------------------------+-------+-------+-------|
          |  Low-income weatherization |  --   |  75   |  70   |
          |                   and solar|       |       |       |
          |----------------------------+-------+-------+-------|
          |    Agricultural energy and |  10   |  25   |  40   |
          |      operational efficiency|       |       |       |
          |----------------------------+-------+-------+-------|
          |      Urban water efficiency|  30   |  20   |  20   |
          |----------------------------+-------+-------+-------|
          |    Sustainable forests and |   -   |  42   |   -   |
          |              urban forestry|       |       |       |
          |----------------------------+-------+-------+-------|
          |             Waste diversion|   -   |  25   |   -   |
          |----------------------------+-------+-------+-------|
          |     Wetlands and watershed |   -   |  25   |   -   |
          |                 restoration|       |       |       |
          |----------------------------+-------+-------+-------|
          |        Other administration|   2   |  10   |  31   |
          |----------------------------+-------+-------+-------|
          |                      Totals| $72   | $852  |$1,691 |
          |                            |       |       |       |
           ---------------------------------------------------- 

          If the LAO's estimates of cap-and-trade auction revenue hold  
          true, there will be a $1.6 billion balance in the GGRF at the  
          end of fiscal year 2015-16.  In addition, auction revenues in  
          2016-17 should add billions more to the GGRF.  It therefore  
          appears there is abundant room for the Legislature to express  
          its GHG reduction priorities through additional appropriations  
          from the GGRF, continuous appropriations notwithstanding.  




          ---------------------------
          <2> Based on LAO projections.








          SB 1213 (Wieckowski)                                  PageF of?
          
          Bill creates new program, continuously appropriates $20 million.  
          This continuously appropriates $20 million from the GGRF.  The  
          money will fund a competitive grant program, administered by the  
          CEC, available to local wastewater agencies that provide a  
          50-percent match for a "biosolids to clean energy capital  
          project."  This bill defines such a project as a capital project  
          that uses biosolids to generate useful heat energy or  
          electricity, liquid or gaseous fuels, or useful byproducts using  
          nonincineration technology in a manner that or location that  
          also reduces GHGs as compared to current biosolids management  
          practices.  Those current practices tend to be agricultural  
          application or use as cover at landfills.  The bill directs the  
          CEC, in awarding grants, to consider the cost-effectiveness of a  
          project, as well as any other factors deemed appropriate by the  
          CEC, one of which, consistent with existing statute, must be  
          potential to reduce GHGs.

          Proponents - a collection of Bay Area wastewater and sanitation  
          agencies - describe biosolids-to-energy projects as proven on a  
          small scale.  Yet, the cost of such projects currently exceeds  
          the cost of conventional biosolids management techniques.   
          Proponents intend the competitive matching grant program to  
          facilitate large-scale development, which will lead to cost  
          reductions while reducing GHGs and criteria pollutants and  
          producing a small amount of useful energy. 

          Bill also makes one-time appropriation of $12 million for a  
          specific project.  In addition to the ongoing $20 million  
          appropriation from the GGRF for a competitive grant program, the  
          bill appropriates $12 million one-time from the GGRF.  The  
          one-time grant is to provide, via the CEC, a 50-percent matching  
          grant for the Bay Area Biosolids to Energy Coalition for the  
          design and construction of a regional biosolids-to-clean-energy  
          project in the San Francisco Bay Area.  Not coincidentally,  
          proponents describe a planned biosolids-to-energy project in the  
          Dublin San Ramon Services District with a total estimated cost  
          of $24 million.

          GGRF allocations better made in the budget; project-specific  
          awards better not made at all.  As shown above, for the last  
          several years, the Legislature has appropriated GGRF monies  
          through the budget process.  Currently, the Legislature, again  
          through the budget process, is considering the governor's  
          proposed $3 billion GGRF spending plan for 2016-17.










          SB 1213 (Wieckowski)                                  PageG of?
          
          The budget process seems the appropriate venue for considering  
          GGRF spending proposals, such as the biosolids proposal in this  
          bill.  The budget allows the Legislature to consider GGRF  
          funding proposals comprehensively:  eligible funding programs  
          can be compared; tradeoffs assessed; competing policy goals  
          prioritized.  This bill makes unavailable for any other purpose  
          $12 million from the GGRF in the budget year and $20 million  
          from the GGRF, ongoing.  There are other GGRF funding bills  
          currently under consideration by the Legislature.  (There are  
          many - see below for a partial list.)  Legislative one-offs,  
          such as this bill, do not provide lawmakers the opportunity to  
          balance competing priorities.

          If the committee, nonetheless, decides to approve this bill, it  
          may wish to delete the one-time funding for the Bay Area  
          biosolids project.  This bill establishes a program in which the  
          CEC makes out-year grants according to discrete, discernable  
          criteria.  Curiously, this bill provides the CEC no such  
          gatekeeper role for the one-time award:  if there is a  
          qualifying biosolids project in the Bay Area (and it seems there  
          is), the CEC gives it the money.  

          In addition to?Similarly, if the committee decides to approve  
          this bill, it may wish to limit funding eligibility to entities  
          not subject to the AB 32 cap.  According to ARB, wastewater  
          treatment plants are included in the cap-and-trade program.   
          However, only two wastewater treatment plants had emissions  
          above the cap-and-trade program's 25,000 metric ton threshold in  
          2012:  the Los Angeles County Sanitation District Joint Water  
          Pollution Control Plant and the San Jose and Santa Clara  
          Regional Wastewater Facility.  

          Recently, the LAO noted that spending auction revenue on GHG  
          reductions is likely not necessary to meet the state's GHG  
          reduction goals and likely increases the overall costs of  
          emission reduction activities.<3> According to the LAO, "this is  
          because, in certain cases, spending on GHG reductions interacts  
          with the regulation in a way that changes the types of emission  
          reduction activities, but not the overall level of emission  
          reductions."  More specifically, entities covered by the AB 32  
          cap -such as some larger wastewater treatment plants - must  
          limit their GHGs to meet the cap.  This is true regardless of  
          any GGRF funding received by the covered entity.  The likely  
          effect of receipt of GGRF monies by a covered entity, therefore,  



          ---------------------------
          <3> http://www.lao.ca.gov/Publications/Report/3328








          SB 1213 (Wieckowski)                                  PageH of?
          
          is reduced compliance costs for the covered entity, but not  
          increased GHG reduction, either by that covered entity or  
          overall.  However, funding GHG-reducing projects undertaken by  
          entities not covered by the AB 32 cap may lead to additional GHG  
          reductions that would not have otherwise occurred.
          Double-referred.  Should this bill be approved by this  
          committee, it has been referred to the Senate Committee on  
          Environmental Quality.

          Prior/Related Legislation
          
          AB 1555 (Gomez, 2016) states the intent of the Legislature to  
          enact future legislation that would appropriate $1.7 billion  
          from the GGRF for a variety of programs to be allocated in  
          amounts to be determined in that future legislation.  The bill  
          has been referred to the Assembly Committee on Natural  
          Resources.

          AB 1657 (O'Donnell, 2016) creates two new programs - the Port  
          Building and Lighting Efficiency Greenhouse Gas Reduction Fund  
          Program the Zero- and Near-Zero-Emission Intermodal Terminals  
          Program - each of which the bill declares eligible to receive  
          money from the GGRF, upon appropriation.  The bill has been  
          referred to the Assembly Committee on Natural Resources and the  
          Assembly Committee on Transportation.

          AB 1982 (Bloom, 2016) specifies the characteristics of the  
          traffic signal synchronization that is eligible for GGRF funding  
          under current law.  The bill has been referred to the Assembly  
          Committee on Natural Resources and the Assembly Committee on  
          Transportation. 

          AB 2146 (Patterson, 2016) makes available to CAL FIRE, upon  
          appropriation, $200 million from the GGRF for activities that  
          reduce GHG in the state caused by uncontrolled forest fires.   
          The bill has been referred to the Assembly Committee on Natural  
          Resources. 

          AB 2223 (Gray, 2016) continuously appropriates $100 million from  
          the GGRF to the ARB to make manure digester market development  
          payments of an unspecified dollar amount per kW of electricity  
          produced from California-generated manure by California-based  
          manure digesters.  The bill has been referred to the Assembly  
          Committee on Natural Resources and the Assembly Committee on  
          Agriculture.









          SB 1213 (Wieckowski)                                  PageI of?
          

          AB 2343 (Garcia, C., 2016) recasts the requirement that 10  
          percent of GGRF funds be spent on projects located in  
          disadvantaged communities.  The bill has been referred to the  
          Assembly Committee on Natural Resources.

          AB 2576 (Gray, 2016) continuously appropriates $20 million from  
          the GGRF to the Department of Resources Recycling and Recovery  
          for market development payments to glass container manufacturers  
          of state-generated cullet utilized for manufacturing in the  
          state.  The bill has been referred to the Assembly Committee on  
          Natural Resources.

          AB 2715 (Garcia, E., 2016) establishes the Agricultural Working  
          Poor Energy Efficient Housing Program and states the intent of  
          the Legislature that not less than $25 million be appropriated  
          annually from the GGRF for the program.  The bill has been  
          referred to the Assembly Committee on Natural Resources.

          AB 2722 (Burke, 2016) appropriates $250 million from the GGRF to  
          the Strategic Growth Council to administer the Transformative  
          Climate Communities Program.  The bill has been referred to the  
          Assembly Committee on Natural Resources. 

          SB 398 (Leyva, 2015) established the Green Assistance Program to  
          provide technical assistance to small businesses and small  
          nonprofits and disadvantaged communities in equitably applying  
          for an allocation of the monies deposited in the GGRF.  The bill  
          passed the Senate 31-9 and was held in Assembly Committee on  
          Appropriations.

          SB 471 (Pavley, 2015) directed the State Water Resources Control  
          Board, upon appropriation from the GGRF, to establish a grant  
          and loan program for water projects that result in the net  
          reduction of water-related GHGs.  The bill passed the Senate  
          37-2 but was held in Assembly Committee on Appropriations.

          SB 523 (McGuire, 2015) would have continuously appropriated $5  
          million from the GGRF to fund the purchase of new school buses  
          to replace existing school buses.  The bill died in the Senate  
          Committee on Environmental Quality.


          SB 590 (Dahle, 2015) allowed monies from the GGRF to be used by  
          the CEC to maintain the current level of biomass power  









          SB 1213 (Wieckowski)                                  PageJ of?
          
          generation and geothermal energy generation in the state and to  
          revitalize currently idle facilities in strategically located  
          regions.  The bill was held in Senate Committee on  
          Appropriations.

          SB 698 (Canella) would have continuously appropriated an  
          unspecified percent of the annual proceeds of the GGRF for  
          school zone safety projects within the Active Transportation  
          Program.  The bill died in the Senate Committee on Environmental  
          Quality.

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


            SUPPORT:  

          Bay Area Biosolids to Energy (Source)
          Central Marin Sanitation Agency
          City of Richmond
          Delta Diablo
          Dublin San Ramon Services District
          Ironhouse Sanitary District
          North San Mateo County Sanitation District
          San Francisco Public Utilities Commission
          
          OPPOSITION:

          CalTax

          ARGUMENTS IN SUPPORT:  According to the author, proponents seek  
          to develop projects that convert biosolids into clean energy in  
          a manner that will result in GHG emissions reductions.  The  
          technology for doing so is up to three times as expensive as the  
          current practice for biosolids disposal.  This increased cost  
          would fall entirely on ratepayers without this bill. SB 1213  
          would have the state pay 50 percent of the cost of investing in  
          new cutting-edge green technology to help the ratepayers pay for  
          the highest and best use of biosolids.  Over time the costs will  
          decline as the technology becomes more widespread and  
          technological advancements ensue.  Current law does not devote  
          any money from the GGRF for biosolids conversion.  SB 1213 would  
          change the law so that a very small percentage of GGRF funds are  
          invested in biosolids conversion.










          SB 1213 (Wieckowski)                                  PageK of?
          
          ARGUMENTS IN OPPOSITION:  CalTax contends the use of  
          cap-and-trade revenue proposed by this bill is inconsistent with  
          the statutorily legitimate uses of a regulatory fee.

          

                                      -- END --