BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 2390 - Chesbro Hearing Date:
July 3, 2012 A
As Amended: June 26, 2012 FISCAL B
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DESCRIPTION
Current law establishes the California Energy Commission (CEC)
which is charged with, among other duties, developing energy
policies that conserve resources, protect the environment, ensure
energy reliability, enhance the state's economy, and protect
public health and safety.
Prior law which sunset January 1, 2012, required the California
Public Utilities Commission (CPUC) to require each investor-owned
utility (IOU) to assess as a ratepayer surcharge, commonly known
as the Public Goods Charge (PGC), $228 million per year for energy
efficiency, $65.5 million for renewable energy, and $62.5 million
for public interest energy research, development and demonstration
(RD&D).
Decisions of the CPUC established the Electric Program Investment
Charge (EPIC) to continue funding for the expiring PGC. EPIC
funds, $162 million annually from 2013-2020, will be administered
80 percent by the CEC for research, development, and
demonstration, and market facilitation, and 20 percent by the IOUs
in the area of technology demonstration and deployment. All funds
will be administered under CPUC oversight, with a proceeding at
least every three years to consider more detailed investment plans
presented by the administrators.
This bill requires the CEC to dedicate $20 million of its annual
receipts from the EPIC to establish an incentive program to
compensate producers and collectors of biomass materials
associated with forest fuel reduction and fire prevention
activities that are delivered to eligible biomass facilities for
use as a fuel source.
BACKGROUND
Environmental Impacts of Woody Biomass - In Potential Positive and
Negative Environmental Impacts of Increased Woody Biomass Use for
California the CEC reported that the implementation of the
Renewable Portfolio Standard (RPS) may increase the use of woody
biomass for renewable energy generation and it would likely have
both positive and negative environmental impacts. The CEC
identified information gaps that exist in understanding those
impacts. The report reviewed existing literature on potential
impacts to ecosystem health, biological diversity, watersheds, and
climate impacts from a potential increase in forest biomass (tree
and shrub residue that can be used for renewable energy) usage for
energy generation in California.
The major environmental benefit will be the use of woody biomass
residues for energy from biomass that would have otherwise
decomposed or burned. Other potential environmental benefits
include a reduced loss of forest carbon storage to wildfires,
insect disease infestations, and severe weather events. The major
environmental concerns associated with additional biomass
harvesting addressed in the literature and in recent guidelines
are: 1) protecting long term soil productivity; 2) minimizing
harvest related erosion and water quality impairment; and 3)
maintaining important wildlife habitat and biodiversity elements
across the larger landscape.
Electric Program Investment Charge - In December 2011, funding for
the state's PGC on electricity ratepayers expired. Efforts to
continue the surcharge, which requires a two-thirds vote of the
Legislature, failed. The PGC funded energy efficiency research and
development, energy efficiency, and renewable energy programs.
The benefits of these programs were then distributed generally,
thus the surcharge was considered a tax for voting purposes.
In September 2011, the Governor sent a letter to the CPUC
requesting that it take action to ensure that programs like those
funded under the PGC would be continued, but with respect to
modifications legislators discussed during the PGC renewal
deliberations. The CPUC initiated a rulemaking to consider
continuing the programs of the PGC with a sole focus on the IOUs.
Its first decision in December of 2011 directed the IOUs to
continue to collect what had formerly been known as the PGC and
which would in 2012 become the Electric Program Investment Charge
or EPIC.
The CPUC issued a second decision in May which considered the use
of the EPIC funds and called for the CEC to administer 80% of the
funds and 20% by the IOUs. The use of funds was directed to the
following categories and purposes:
Applied Research - activities supporting pre-commercial
technologies and approaches that are designed to solve
specific problems in the electricity sector;
Technology Demonstration and Deployment - installation and
operation of pre-commercial technologies or strategies at a
scale sufficiently large and in conditions sufficiently
reflective of anticipated actual operating environments to
enable appraisal of the operational and performance
characteristics and the financial risks. 20% is specifically
set aside in the first three-year cycle for bioenergy
projects or activities; and
Market Facilitation - a range of activities including
program tracking, market research, education and outreach,
regulatory assistance and streamlining and workforce
development to support clean energy technology and strategy
deployment.
The CPUC considered another funding category - market support -
for programs that seek to enhance the competitive position of
certain preferred, commercially-proven technologies. These
programs are essentially rebate programs such as the Emerging
Renewables Program and New Solar Homes Partnership. The
commission rejected funding for market support "finding that they
are either too technology-specific and/or not sufficiently well
developed to be a program that we could easily adopt immediately."
The final allocation of EPIC dollars by the CPUC:
Annual EPIC Funding Collections and Allocation
Beginning January 1, 2013 (in $ Millions)
-----------------------------------------------------------------
| Funding Element | CEC |Utilitie| CPUC | Total |
| | | s | | |
|----------------------------+--------+--------+--------+---------|
|Applied Research | $55.0| --| --| $55.0|
|----------------------------+--------+--------+--------+---------|
|Technology Demonstration | $45.0| $30.0| --| $75.0|
|and Deployment | | | | |
|----------------------------+--------+--------+--------+---------|
|Market Facilitation | $15.0| --| --| $15.0|
|----------------------------+--------+--------+--------+---------|
|Program Administration | $12.8| $3.3| --| $16.2|
|----------------------------+--------+--------+--------+---------|
|Program Oversight | --| --| $0.8| - $0.8|
|----------------------------+--------+--------+--------+---------|
|Total | $127.8| $33.3| $0.8|$162.0 |
-----------------------------------------------------------------
Prior Biomass Fuel Programs - Several years ago funds were made
available for two programs to incent the gathering of agricultural
waste as a fuel supply for biomass plants. The primary policy
goal of the programs were to reduce open-field burning of
agriculture wastes to improve local air quality and help protect
public health. In 2000 the Davis Administration created the
Agriculture Biomass-to-Energy Incentive Grant Program, within the
Trade and Commerce Agency to provide grants to individual air
districts for three years. Program support came from the General
Fund and ended after only 18 months due to a looming budget
crisis.
In 2003 legislation was passed to allocate public goods charge
funds to the CEC for the same purpose. The program set incentive
payments in the amount of $10 for each ton of qualified
agricultural biomass received by a facility and converted into
energy. Onetime funding of $6 million was made available from the
Renewable Resources Trust Fund for FY 2003-04, to provide
incentives to qualified biomass facilities
COMMENTS
1. Author's Purpose . The author reports that this bill
directs the CEC and the CPUC to establish an incentive
program to compensate producers and collectors of biomass
material related to forest fuel reduction and fire prevention
activities delivered to eligible biomass facilities. The CEC
and CPUC would be directed to annually appropriate $20
million from the public surcharges currently being collected
from ratepayers, for this program. The funding would cease if
the surcharge is cancelled or suspended then the program
created in AB 2390 will also be cancelled or suspended.
In support of this dedication of revenues, the author reports
the following needs related to the use of the funds:
Combined fire suppression and restoration costs
(CALFIRE, USFS, BLM) have averaged (over 5 years) $1.2
Billion a year;
Downed power lines comprise one significant
ignition source of these fires causing ratepayer/utility
exposure to litigation costs, utility equipment
replacement costs and increased insurance premiums;
Vegetation management in High and Medium
Priority Landscapes can reduce fire occurrence and
impacts, as well as, ratepayer exposure to these costs;
Biomass generation can use this waste material
in RPS certified facilities. However, the costs of
handling biomass fuels can be substantial. Adding an
economic value to removing this waste can reduce the
costs of vegetation management, provide renewable energy
fuel and provide local benefits; and
Existing funding programs at the CPUC/CEC
successors to the Public Goods Charge could be used to
fund this program. This will require no rate increase to
utility customers.
1. Electric Program Investment Charge . The author proposes to
reallocate funds from the CPUC-authorized EPIC program which
presents two concerns. First, the constitutionality of the
EPIC has been called into question. The CPUC does have
ratemaking authority but the rates charged must have a direct
benefit to ratepayers. The EPIC charge does not stay in the
IOU territory for the benefit of its ratepayers and when the
funds are transferred to another state agency, in this case
the CEC, the EPIC rates become a tax. This is consistent
with the designation of the PGC bills as taxes requiring a
two-thirds vote of the Legislature.
According to the Senate Budget Committee the "LAO, and
others, have raised concerns about the nature of this
program, including the potential violation of Proposition 26,
the circumvention of the Legislature in the development of
the program, the lack of legislative oversight over the
program in general, and finally a lack of understanding of
the consequences to ratepayers for the multiple energy
efficiency related programs currently being developed and
implemented by the state."
Setting aside the legality of the EPIC, the second issue
presented by this bill is the redirection of funds already
designated for specified purposes by the CPUC. As indicated
in the table in the background section, the CEC will receive
$115 million annually for three programs. However 20% of
technology demonstration and deployment funds have been
dedicated to bioenergy which leaves $36 million for that
purpose and total funding of $106 million.
This bill overrides the CPUC's priorities and funding
allocation decided for the EPIC. The bill does not specify
how the $20 million annual reduction would be applied to the
existing program categories so it would presumably come off
the top leaving $96 million for the three programs which
would reduce the current dedication of funds proportionally
across all three programs.
It should be noted that the CPUC has already dedicated $15
million a year for bioenergy projects. This bill would add
an additional $20 million for biomass which would dedicate a
total of $35 million a year or 22% of the annual EPIC funding
to bioenergy and biomass. Additionally, the fuel subsidy in
this bill would be categorized as a market support program
which was specifically rejected for funding by the CPUC.
2. Fundamental Question . The critical issue before the
committee is not whether forest thinning and fire prevention
is necessary but whether this need is and should be borne by
ratepayers in the territories of the IOUs or it is a program
based on a broader public need? The purpose is one that many
embrace. However, there are limits to what electric
ratepayers can and should be required to pay.
The primary purpose of this bill is fire prevention. But the
nexus between fire prevention and electricity is loose. The
author opines that this bill reduces fire risk, and therefore
reduces the likelihood of IOU exposure to system losses and
fire damage which result in increased fire insurance premiums
and if those increases can be mitigated by the program in
this bill then ratepayers cost of service will be decreased.
Decreased costs of service are in the ratepayer's interest
which warrants the use of electric ratepayer funds. However,
there is no evidence presented to the committee that
increased gathering of woody waste will reduce the insurance
premiums for the IOUs. Consequently, the committee may wish
to consider striking this funding source and encouraging the
author to work with the Senate Appropriations Committee on
funding outside of the electric ratepayers.
3. Facility Size . The CPUC was asked to consider this very
program but for only small biomass facilities of 3 MW or
less. Although the small facilities are defined in this bill
there is nothing that limits the fuel supply to the
development of those facilities.
In the CPUC proceeding stakeholders sought increased funding
as part of the CPUC's feed-in-tariff program to develop small
forest biomass generation projects. The basis of the request
was that small forest biomass projects sited in medium and
high-risk fire hazard areas could provide significant value
by: 1) mitigating fire suppression costs; 2) reducing fire
settlement awards; 3) reducing health costs from forest fire
emissions; 4) protecting utility transmission and
distribution assets from fire damage; and 5) protecting the
water supply and personal property from fire-related damages.
The CPUC specifically considered a recent study by the U.S.
Forest Service and sponsored by the CEC, finding that
strategic placement of small forest biomass facilities across
Northern California could reduce the number of acres burned
by wildfire in California by 23.5% per decade, or
approximately 2.3% annually. However, this bill does not
limit fuel supply to those small facilities and would
therefore do nothing to spur their development.
Additionally, the transportation costs associated with moving
the remote fuel supply of forests to existing biomass plants
(which would likely be first at the gate for funding) would
result in higher overall costs of electricity for those
plants as well as increased emissions associated with the
transportation. Biomass plants are generally considered to
be cost-effective when their fuel supplies are within a
30-mile radius of the plant. Consequently, to reduce the
cost and environmental impacts associated with distant
transport, the committee should consider limiting this fuel
subsidy to community scale biomass facilities sized less than
3 MW as defined in this bill.
Additionally, the committee should considering amending the
bill to require that an eligible facility also RPS eligible.
4. Woody Biomass Harvesting Guidelines . This bill requires
the CEC, in consultation with the Department of Forestry and
Fire Protection to establish an incentive program but is not
clear on the standards that should apply to the program.
Although beneficial as a fuel source, woody biomass
harvesting is not without controversy and can adversely
impact wildlife and biodiversity, water quality, and soil
productivity. To ensure that the adverse impacts associated
with the harvest are mitigated, the committee should consider
amending the bill to require the CEC to adopt guidelines or
regulations to be followed as a condition of the receipt of
the fuel subsidy.
5. RPS Procurement . The committee should be aware that the
CPUC declined to provide an added payment under its
feed-in-tariff program to support forest fuels for smaller
biomass plants opining that technology-specific pricing fails
to comply with federal and state law and with policy
guidelines for implementing the feed-in-tariff program.
Note the fuel supply subsidy provided for in this bill is in
essence an additional payment to the biomass facility which
is operating under a procurement agreement with a utility to
provide RPS-eligible generation. The RPS program and
procurement generally relies on a competitive wholesale
market and the CPUC has specifically avoided favoring one
technology choice over another. This bill is contrary to
that policy which is the basis of the Division of Ratepayer
Advocate's opposition to this bill which writes "while DRA
recognizes and appreciates the laudable goals of forest fire
reduction and waste management, DRA believes that existing
biomass facilities should compete in the State's Renewable
Portfolio Standard (RPS) programs." Southern California
Edison expressed a similar position and opposes "technology
specific carve-outs" opining that the bill "creates a subsidy
for biomass material by lowering the cost of fuel for biomass
generators using other types of technology or fuel sources.
ASSEMBLY VOTES
Assembly Floor (67-3)
Assembly Appropriations Committee (12-5)
Assembly Utilities and Commerce Committee
(11-0)
Assembly Natural Resources Committee
(7-1)
POSITIONS
Sponsor:
Independent Energy Producers
Support:
California Biomass Energy Alliance
Covanta Energy
Regional Council of Rural Counties
Trinity Public Utilities District
Western Wood Preservers Institute
Oppose:
Division of Ratepayer Advocates
Southern California Edison
Kellie Smith
AB 2390 Analysis
Hearing Date: July 3, 2012