BILL ANALYSIS                                                                                                                                                                                                                   1
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             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
                                                                       
            
                                                                       
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                                   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