BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN SB 625 - Costa Hearing Date: April 24, 2001 S As Amended: April 23, 2001 FISCAL B 6 2 5 DESCRIPTION Current law , the Agricultural Industry Energy Program (AIEP), permits loans to be made for the purchase of equipment and services for energy efficiency and development demonstration projects including, but not limited to, the production of methane or ethanol, the use of wind, photovoltaics, and other sources of power. Current law allocates $15 million to the California Energy Commission (CEC) in grants to be used for pilot projects designed to encourage the development of bio-gas digestion power production technologies. Of the $15 million, $10 million shall be used to provide grants to encourage the development of manure methane power production projects on California dairies. The remaining $5 million must be used to provide grants to reduce peak usage in southern California to produce replacement energy as a byproduct of the anaerobic digestion of bio-solids and animal waste. This bill requires the CEC to award the $10 million noted above to "maximize, in a cost-effective manner," the development of manure methane power production projects on California dairies. BACKGROUND Agricultural Industry Energy Program . The AIEP was created in 1987 and was funded with $3 million from the Petroleum Violation Escrow Account (PVEA). The goal of the program was to create a revolving loan fund to pay for equipment and services for agriculture energy conservation and development demonstration projects. The AIEP provides for a repayment period of not more than seven years at a rate that is not less than two percent below the rate earned by monies in the Pooled Money Investment Account (PMIA). Since its inception, the AIEP has issued over 110 loans in the amount of $6.2 million to fund various energy efficiency projects related to agriculture. According to the CEC, applicants often repay the loans within the seven-year deadline and the program has had no defaults. Loans under the AIEP have been issued at a rate not less than two percent below the rate earned by the Pooled Money Investment Account. Prior to this year, loan repayments under the AIEP went directly to the PVEA account, which required the CEC to go through the budget change proposal process each year to request money from the PVEA in order to have money to make new loans under the AIEP. AB 2705 (Committee on Agriculture), Chapter 1046, Statutes of 2000, codified the Energy Technologies Research, Development and Demonstration Account, allowing the AIEP loan repayments to go directly to the CEC, allowing it to loan money for new projects without having to get money from the PVEA. Methane & Digestor Gas . SB 5X (Sher), Chapter 7, Statutes of 2001, provided $15 million to the CEC in grant funds to be used to encourage the development of bio-gas digestion power production technologies. Of the $15 million, $10 million will be used to provide grants to encourage the development of manure methane power production projects on California dairies. The remaining $5 million must be used to provide grants to reduce peak usage in southern California to produce replacement energy as a byproduct of the anaerobic digestion of bio-solids and animal waste. Using methane from landfill gas to generate electricity isn't a new idea. Last month, the city of Mountain View decided to begin analyzing the potential benefits of hooking microturbines to an existing system that burns off the methane from three closed landfills. Each turbine would be capable of producing 30 to 75 kilowatts of electricity - enough to power 30 to 75 homes. The Inland Empire Utilities Agency is looking at creating three dairy digester pilot projects. According to the agency, the first would use an anaerobic digestion of dairy manure, biosolids, and green material to make methane gas to produce 0.25 MW of electricity. The project is scheduled to go on line in June 2001 at a cost of $500,000. The second project will use manure from about 4,800 cows (about 280 tons per day) to provide fuel to gas-fired turbines to generate 1.5 MW of power. It will be completed in 13 to 15 months at an estimated cost of $8.5 million. The third project uses three million gallons of dairy wash water (125 tons of manure) per day to supply a mixture of sewage biosolids, dairy manure, and green material to provide fuel to gas-fired microturbines and fuel cells, generating 1 MW of power. It will be on line in May 2003 at an estimated cost of $15 million. What Is Anaerobic Digestion? According to the CEC's web site, anaerobic digestion is a biological process that produces a gas principally composed of methane (CH4) and carbon dioxide (CO2) otherwise known as biogas. These gases are produced from organic wastes such as livestock manure, food processing waste, etc. Anaerobic processes could either occur naturally or in a controlled environment such as a biogas plant. Organic waste such as livestock manure and various types of bacteria are put in an airtight container called a digester so the process could occur. Depending on the waste feedstock and the system design, biogas is typically 55 to 75% pure methane. State-of-the-art systems report producing biogas that is more than 95% pure methane. The process of anaerobic digestion consists of three steps. The first step is the decomposition (hydrolysis) of plant or animal matter to break down the organic material to usable-sized molecules such as sugar. The second step is the conversion of decomposed matter to organic acids. And third, the acids are converted to methane gas. Many anaerobic digestion technologies are commercially available and have been demonstrated for use with agricultural wastes and for treating municipal and industrial wastewater. COMMENTS 1)Purpose of the Bill . According to information provided by the author, this bill is a work in progress that's designed to provide incentives and focus the grants provided in SB 5X in the most efficient and cost-effective manner. With that goal in mind, the author and committee may wish to consider simply amending the bill to route the $15 million set aside in SB 5X for grants for bio-gas digestion power production technologies through the CEC's existing Agricultural Industry Energy Program and amending that program to permit it to award grants (currently, the AIEP is solely a loan program). 2)Should The State Get Something In Return For The Grant? Under the existing loan program, the state, obviously, gets the money it loans out returned to it and there are a number of detailed monitoring requirements associated with the AIEP's demonstration program. However, under the grant program, other than having a particular group or agency become more energy independent, the state gets little tangible return on its investment. As such, the author and committee may wish to consider whether a grant recipient should be required to offer any electricity it creates to the state on a cost-plus basis. At a minimum, the author and committee may wish to consider requiring grant recipients to provide quarterly or annual updates relative to how the grant money is being spent, the project status, how much electricity is being produced and at what cost, how much money is being saved relative to the redirection of agricultural waste, etc. 3)Should The AIEP Be Expanded? As introduced, this bill sought to do a number of other things, including create an Agricultural Waste to Energy Financing Account in the General Fund to provide loans to, among other entities, biomass to ethanol facilities. That language was removed in the April 23 amendments to the bill. However, the author and committee may wish to consider amending the bill to expand the AIEP - which loans money for the purchase of equipment and services for agriculture energy efficiency and development demonstration projects - by giving it the ability to provide loans to agricultural waste-to-energy facilities. The Governor issued Executive Order D-5-99 on March 26, 1999, directing the CEC to phase out the use of methyl tertiary butyl ether (MTBE) in gasoline sold in California by no later than December 31, 2002. Many people believe the most likely replacement for MTBE, barring action by the federal government to remove the requirement that gasoline contain an oxygenate, is ethanol. Allowing the state to provide low interest loans to facilities interested in converting biomass to ethanol or other fuels may help such facilities come on line sooner and ease the transition away from a reliance on MTBE. 4)Technical Amendment . As drafted, the bill currently has two Section Twos. On Page 2, Line 12, "SEC. 2." should be changed to "SEC. 3." 5)Related Legislation . SB 5X (Sher), Chapter 7, Statutes of 2001, allocated several hundred million dollars in conservation program funding, including $15 million in grant money to the CEC to be used for pilot projects designed to encourage the development of bio-gas digestion power production technologies. This bill was signed into law on April 11, 2001. SB 29X (Soto) appropriates $25 million to the CEC to provide grants to public and private agencies to operate pilot projects to demonstrate the feasibility and practical application of anaerobic digestion technologies. This bill is pending before the Senate Energy, Utilities & Communications Committee. SB 1009 (Costa) creates the Dairy Environmental Working Group within the California Department of Food and Agriculture (CDFA) to develop a list of economically feasible measures to mitigate the environmental impact of dairy farming on water and air quality. The bill appropriates $500 million to the State Water Resources Control Board to provide low interest loans to local public agencies to finance projects designed to manage nutrients from animal feeding operations. This bill passed the Senate Agriculture & Water Resources Committee on April 17, 2001 and is scheduled to be heard in the Senate Environmental Quality Committee on April 25, 2001. POSITIONS Sponsor: Author Support: None on file Oppose: None on file Evan Goldberg SB 625 Analysis Hearing Date: April 24, 2001