BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 1301 Hearing Date: 4/5/2016
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|Author: |Hertzberg |
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|Version: |2/19/2016 As Introduced |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: Natural gas: greenhouse gas allowance: allocation
DIGEST: This bill directs the California Public Utilities
Commission to require 25 percent of revenues received by a gas
corporation as a result of the direct allocation of greenhouse
gas allowances to be used for energy projects or energy
efficiency projects that reduce fossil natural gas consumption.
ANALYSIS:
Existing law:
1.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)
2.Establishes the Greenhouse Gas Reduction Fund (GGRF), and
requires all monies collected by ARB 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)
3.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
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allowances, including the requirement that such revenue be
used to reduce emissions of GHGs. (Health and Safety Code
§§39710 to 39720)
4.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)
5.Requires the California Public Utilities Commission (CPUC) to
require revenues, including any accrued interest, received by
an electrical corporation as a result of the direct allocation
of GHGs allowances to electric utilities to be credited
directly to the residential, small business, and
emissions-intensive trade-exposed retail customers of the
electrical corporation; requires CPUC to require each
electrical corporation to implement an outreach plan to obtain
the maximum feasible public awareness of the crediting of GHG
allowance revenues; and authorizes the CPUC to allocate up to
15 percent of the GHG allowance revenue for clean energy and
energy efficiency projects established pursuant to statute
that are administered by the electrical corporation and that
are not otherwise funded by another funding source. (Public
Utilities Code §748.5)
This bill:
1.Directs the CPUC, no later than June 1, 2017, to require 25
percent of revenues, including any accrued interest, received
by a gas corporation as a result of the direct allocation of
GHG emissions allowances to natural gas suppliers pursuant to
ARB's cap-and-trade regulations to be used for "clean energy"
and "energy efficiency" projects or programs approved by the
CPUC.
2.Limits funding eligibility to projects and programs that are
able to quantify and report reductions in GHGs.
3.States that a "clean energy" project or program may include
one that does one of the following:
a. Supports the development, deployment,
interconnection or use of pipeline biogas.
b. Supports the development, deployment or use of
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alternative fuels.
c. Reduces or abates GHGs related to the use of fossil
natural gas.
4.States that an "energy efficiency" project or program may
include one that reduces that reduces fossil natural gas
consumption through more efficient appliances, heating,
cooling, industrial use, or other end uses.
5.States the clean energy projects or programs and energy
efficiency projects or programs may also include those of the
type established pursuant to statute administered by a gas
corporation, the CPUC, or a qualified third-party
administrator approved by the CPUC.
6.Directs the CPUC to require each gas corporation to annually
report and post on its website all expenditures and quantified
reductions in GHGs from funded projects and programs.
Background
ARB cap-and-trade program generates auction revenue. Following
passage of the Global Warming Solutions Act of 2006 (aka AB 32),
ARB adopted regulations to reduce GHGs to 1990 levels by 2020.
One such regulation establishes the cap-and-trade program, under
which ARB distributes GHGs allowances to capped sectors. For
the most part, ARB auctions the allowances, generating billions
in regulatory fee revenue. Statute directs the revenue to the
GGRF, from which the Legislature makes appropriations for
GHG-reducing projects according to various statutory
restrictions and directions. In some cases, however, ARB
distributes emissions allowances for free, generally to reduce
the cost of compliance to the entities receiving the free
allowances.
The investor-owned utilities (IOUs) - both electrical and
natural gas - are among the entities that receive emissions
allowances from ARB for free. The ARB requires IOUs to consign
a portion of these allowances at ARB's quarterly allowance
auctions. ARB regulation requires any allowance allocated to an
IOU be used exclusively for the benefit of retail ratepayers of
the IOU, consistent with the goals of AB 32, and prohibits the
use of allowances for the benefit of entities or persons other
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than ratepayers.<1>
Legislature directed electrical IOU auction revenue spending.
In 2012, the Legislature adopted a budget trailer (SB 1018) to
further restrict the CPUC's discretion over the electrical IOUs'
use of emissions allowance auction revenue. Specifically, SB
1018 requires that revenues from the GHG allowances received by
the electrical IOUs be credited back to residential, small
business and emissions-intensive trade-exposed businesses. SB
1018 also authorizes the CPUC to allocate up to 15 percent of
the emissions allowance auction revenues, including any accrued
interest, received by an electrical IOU for clean energy and
energy efficiency projects not funded by another source.
To implement the requirements of SB 1018, the CPUC directed the
state's three largest electrical IOUs - Pacific Gas and Electric
Company (PG&E), Southern California Edison and San Diego Gas and
Electric (SDG&E) - to allocate GHG allowance revenues, including
accrued interest, in the following manner:<2>
Compensate emissions-intensive and
trade-exposed entities using methodologies
based upon those developed by ARB.
Offset the rate impacts of the
cap-and-trade program in the electricity rates
of small businesses through a volumetrically
calculated rate adjustment.
Neutralize the rate impacts of the
cap-and-trade program on residential
electricity rates through a volumetrically
calculated rate adjustment.
Distribute all revenues remaining after
accounting for the revenues allocated pursuant
to the prior three uses to residential
customers on an equal per residential account
basis delivered as a semi-annual, on-bill
credit.
The on-bill credit described in the final bullet is known as the
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<1> California Code of Regulations, Chapter 17, sections 95892
and 95893.
<2> See CPUC decision D-12-12-033.
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California Climate Credit. According to the CPUC, the 2016
California Climate Credit equates to an annual payment to each
ratepayer of ranging roughly from $35 to $287.<3>
Auction revenue of natural gas IOUs treated like auction revenue
of electrical IOUs, for the most part. There are several
natural gas IOUs in the state-PG&E, Southern California Gas
Company (SoCalGas), SDG&E, and Southwest Gas Company (SWG). The
natural gas IOUs, like electrical IOUs, receive emissions
allowances from ARB for free. The ARB requires each natural gas
IOU, like the electrical IOUs, to consign a portion of its
emissions allowances to ARB's quarterly allowance auctions. ARB
requires the natural gas IOUs to use the proceeds of the
auctions exclusively for the benefit of ratepayers, subject to
the direction of the CPUC, just as it does the auction revenues
of the electrical IOUs. And, as it has for the electrical IOUs,
the CPUC has adopted a decision - D-15-10-032 - directing
natural gas IOUs' use of auction revenues. That decision
requires the natural gas IOUS to return allowance proceeds to
ratepayers as a bill credit in an equal, non-volumetric manner.
The CPUC refers to the bill credit as the natural gas California
Climate Credit. According to the CPUC, the natural gas
California Climate Credit equates to roughly $20 annually to
each ratepayer.
Unlike its treatment of electrical IOU auction proceeds, the
Legislature has never provided direction to the CPUC in its
allocation of natural gas IOU auction proceeds. This bill seeks
to provide such direction.
Bill seeks to use natural gas IOU auction revenue to reduce use
of conventional natural gas. The author notes that the
Legislature has not provided direction to the CPUC on the uses
of natural gas IOU auction proceeds and that this silence
differs from the Legislature's treatment of electrical IOU
auction proceeds. This is true, as described above. However,
the Legislature's inaction on natural gas auction proceeds is
not, in itself, justification for this bill: current law
provides CPUC the necessary legal authority to allocate natural
gas IOU auction proceeds in a way that benefits IOU ratepayers.
The author also notes the state's many policies and programs to
displace the use of conventional natural gas. The author
contends that these programs have, thus far, had limited
success, and that the main impediment to further success is a
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<3> http://www.cpuc.ca.gov/climatecredit/
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lack of money for infrastructure development. This bill would
solve the problem described by the author by dedicating a
portion of natural gas IOU auction revenue - 25 percent - to
"clean energy" projects or programs and "energy efficiency"
projects or programs that reduce the use of conventional natural
gas. The CPUC estimates this would make available about $40
million to $60 million annually for clean energy and energy
efficiency programs and projects. The money would come from a
reduction in the natural gas California Climate Credit of about
$5 per ratepayer. This is a reasonable proposal. The natural
gas IOU auction proceeds exist because of the use of
conventional natural gas. The use of conventional natural gas
produces a variety of harms, including the release of GHGs and
criteria pollutants. This bill dedicates a portion of those
proceeds to projects and programs that have the potential to
reduce the use of conventional natural gas. This is a very
tight policy circle.
There are, however, other potential uses of the natural gas IOU
auction proceeds that both benefit ratepayers and, potentially,
reduce GHGs. One such use is returning the proceeds directly to
natural gas ratepayers, consistent with current law and
practice. This bill, by dedicating a portion of natural gas IOU
auction proceeds to prescribed uses, precludes other uses of the
money.
Currently, there are over a dozen bills before the Legislature
that propose to dedicate the use of auction revenues to a wide
variety of projects with the potential to reduce GHGs. In every
case, those bills would dedicate funds in the GGRF, a special
fund in the State Treasury that receives all moneys collected by
ARB from the auction or sale of emissions allowances. Money in
the GGRF is subject to appropriation by the Legislature. Uses
of the money must meet several statutory requirements beyond the
basic hurdle of reducing GHGs.
The natural gas IOU auction revenue differs from money in the
GGRF in several ways. A key distinction is that, unlike most
other auction revenues, ARB does not collect IOU auction
revenue. This means IOU auction revenue is never placed in the
GGRF or in state coffers at all. It is not subject to statutory
the requirements and parameters that govern uses of monies in
the GGRF, including the requirement that funded projects reduce
GHGs.
IOU emissions allowance auction revenue, however, is not
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completely distinct from revenue generated by auctioning other
emissions allowances. In both cases, the revenue is generated
by selling the right to emit GHGs. It makes sense that the
Legislature consider collectively proposals to fund GHGs
reduction efforts with revenue collected from sources of GHGs.
The budget process seems the appropriate venue for such
consideration. This is because the budget allows the
Legislature to consider funding proposals comprehensively:
eligible funding programs can be compared; tradeoffs assessed;
competing policy goals prioritized. And there is precedent, as
described above: the Legislature directed uses of a portion of
the electrical IOU auction revenue in the 2012-13 Budget.
Flexibility might be needed. This bill directs the CPUC to
require the natural gas IOUs to use 25 percent of their auction
revenues for clean energy and energy efficiency projects or
programs. This treatment differs from the Legislature's
direction on the use of electrical IOU auction proceeds in at
least two important ways. First, statute allows, but does not
obligate, the CPUC to direct electrical IOUs to allocate auction
revues for clean energy and energy efficiency projects. This
bill, in contrast, requires CPUC to direct natural gas IOUs to
allocate auction revues for such projects. Second, statute
allows CPUC to direct electrical IOUs to make up to 15 percent
of the revenue available for clean energy and energy efficiency
projects. This bill differs in that it requires CPUC to direct
the IOUs to allocate a set proportion - 25 percent - of proceeds
of auction revenues for clean energy and energy efficiency
programs and projects.
Statute provides CPUC flexibility in directing the electrical
IOUs use of emissions auction proceeds. This is because the
Legislature recognized there might not be enough qualifying
clean energy and energy efficiency programs or projects to
receive 15 percent of the electrical IOUs' emissions auction
revenues. It is hard to imagine such a dearth of clean energy
or energy efficiency programs or projects to reduce consumption
of conventional natural gas. Such a situation is not, however,
impossible to image. The author and committee may want to amend
the bill, as follows, to provide CPUC flexibility in directing
the use of natural gas IOU auction proceeds similar to the
flexibility provided in statute to the CPUC in directing the use
of electrical IOU auction proceeds:
748.6.
(a) No later than June 1, 2017, the commission shall may
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require up to 25 percent of revenues, including any accrued
interest, received by a gas corporation as a result of the
direct allocation of greenhouse gas allowances to natural
gas suppliers pursuant to subdivision (f) of Section 95890
of Title 17 of the California Code of Regulations to be
used for clean energy and energy efficiency projects or
programs approved by the commission.
Not every alternative. This bill makes available funding for
support for the development, deployment, or use of alternative
transportation fuels. The author's stated goal is to reduce
dependence on fossil fuels. However, in some contexts,
conventional natural gas is considered an "alternative" fuel.
For example, the Alternative and Renewable Fuel and Vehicle
Technology Program, administered by the California Energy
Commission (CEC), have funded vehicles fueled by the combustion
of conventional natural gas.<4> The author may wish to clarify
the types of fuels he envisions, or does not envision, receiving
funding. Regardless, it is impossible to imagine the CPUC or a
natural gas IOU interpreting "alternative transportation fuel,"
as used in this bill, to mean the combustion of conventional
natural gas or of any other fossil fuel.
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 693 (Eggman, Chapter 91, Statutes of 2015) required the CPUC
to authorize $100 million annually, or 10 percent of electrical
IOU cap-and-trade auction allowance funds, whichever is less,
for a financial assistance program for qualifying solar energy
systems on low-income multifamily housing properties, as
defined. The bill passed the Senate 26-14.
AB 1900 (Gatto, Chapter 602, Statutes of 2012) directed 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) ensured that
biogas qualifies for RPS credit, provided its production,
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<4> http://www.energy.ca.gov/drive/projects/natural_gas.html
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delivery and use meet certain conditions.
SB 1122 (Rubio, Chapter 612, Statutes of 2012) required IOUs to
collectively procure at least 250 MW of generation eligible for
the RPS from bioenergy generation project, including biogas
projects.
AB 577 (Bonilla, 2015) would have required the CEC to develop
and implement a grant program for projects related to biomethane
production. The bill was held on suspense by the Senate
Committee on Appropriations.
AB 2206 (Williams) requests that the California Council on
Science and Technology undertake and complete a study analyzing
the regional and gas corporation specific issues relating to
minimum heating value and maximum siloxane specifications for
biomethane before it can be injected into common carrier gas
pipelines. The bill is pending consideration by the Assembly
Committee on Utilities and Commerce.
AB 2313 (Williams) requires the CPUC to modify its monetary
incentive program for biomethane projects. The bill is pending
consideration by the Assembly Committee on Natural Resources.
AB 2773 (Quirk) requires the CPUC to modify its technical
standards applicable to biomethane to be injected into a common
carrier pipeline. The bill is pending consideration by the
Assembly Committee on Utilities and Commerce.
SB 687 (Allen, 2015) would have established the renewable gas
standard (RGS), requiring 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." The
bill passed this committee on a vote of 7 to 3 and was held on
suspense by Senate Committee on Appropriations.
SB 1043 (Allen) requires ARB to consider and adopt policies to
significantly increase the sustainable production and use of
"renewable gas." The bill is pending consideration by this
committee.
SB 1153 (Canella) requires the ARB to provide a comprehensive
overview of state efforts to encourage the development of
instate biomethane and renewable natural gas. The bill is
pending consideration by this committee.
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FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
Bioenergy Association of California
California Association of Sanitation Agencies
Clean Energy
Los Angeles County Waste Management Association
Sierra Energy
Solid Waste Association of Orange County
TSS Consultants
OPPOSITION:
The Utility Reform Network, unless amended
ARGUMENTS IN SUPPORT: According to the author:
The state has several policies aimed at reducing or displacing
fossil natural gas consumption, largely under the rubric of
combatting climate change:
Increase renewable energy generation to 50 percent
by 2030 (RPS, SB 350).
Reduce GHGs by 2020 and beyond (AB 32).
Reduce petroleum consumption by 50 percent (2015
Governor Brown State of the State).
Reduce carbon intensity of fuels and diversify fuel
supplies (LCFS, Executive Order S-01-07).
Divert solid waste from landfills, especially
organic waste (AB 1826).
Reduce wildfire risk and increase forest health
(Governor Brown Tree Mortality State of Emergency).
Double the amount of savings from energy efficiency
(SB 350).
Increase savings specifically from existing building
stock (AB 758).
Achieving these goals will require new investments in
infrastructure and technology that meaningfully replaces fossil
energy sources - petroleum and fossil natural gas. According to
the AB 32 Scoping Plan, funding for infrastructure is critical
to these goals, especially waste management and forestry goals.
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And a key recommendation from the Bioenergy Action Plan (part of
the AB 32 Scoping Plan) is to promote the development of
pipeline biogas and bioenergy.
The problem is that these investments all cost money. Given the
many shared benefits of biogas and energy efficiency, SB 1301
attempts to address these costs and help develop the new,
coordinated, infrastructure necessary to achieve our
environmental goals.
Moreover, the Legislature has not yet weighed in on how the gas
utility Cap and Trade auction revenues should be used. The
Legislature has specifically directed the expenditures for all
of the cap and trade accounts except those from the natural gas
utilities. The GGRF money is appropriated as part of the annual
budget process and the electrical utility auction revenue was
directed in Public Utilities Code §748.5.
ARGUMENTS IN OPPOSITION: The Utilities Reform Network (TURN)
objects to this bill because it prevents a substantial portion
of the revenue from the auction of natural gas IOU emissions
allowances from offsetting the cost the cap-and-trade program to
natural gas IOU ratepayers. TURN contends ratepayers should
remain the sole beneficiaries of natural gas auction proceeds.
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